Buying co-op is a rigorous process loaded with paperwork

Douglas Elliman real estate agent, Louise Kelly, right,

Douglas Elliman real estate agent, Louise Kelly, right, shows informational mortgage paperwork to Beth and John Vernaleo during an open house on Turtle Cove Lane in Huntington. (Jan. 13, 2013) (Credit: Newsday/Thomas A. Ferrara)

If you want to buy a home that's part of an association, prepare to jump through a few hoops to make your dream a reality.

In your search for the perfect home, you may encounter a cooperative, often called a co-op, in which residents are shareholders of a corporation-owned property. Co-ops are notorious for their rigorous approval process, and they're concentrated in urban areas such as New York and Chicago and sprinkled throughout most states. Condominium and homeowners associations, which are more common, provide fewer hurdles.

Each type of association could grill buyers and renters alike to ensure that tenants are financially pristine and won't be a threat to their potential neighbors.


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"You'll know Joe Schmo down the hall isn't a deadbeat who got approved without much of a background check," says Brian McFadden, licensed real estate salesman at Citi Habitats in New York City. "They don't want to just let anybody in the building."

To prepare, start by assembling a dossier of your financial past, present and future -- typically 75 to 100 pages. A co-op may require a buyer to put 50 percent down and have two years' worth of mortgage payments in savings. A bank may require the same person to put down 20 percent and have 90 days' worth of liquid assets available.

The board typically also requests W-2 forms, bank statements, retirement account balances, investment statements, character references -- yes, the board will call them -- a letter from a boss and more.

"This is above and beyond what you would need for the bank," McFadden says. "You can't do this process if you're iffy about sharing a bunch of personal financial information."

Ryan Bomba, who ultimately closed on his New York City co-op in December, was nearly done with his application and interview in October. "Everything was pretty much locked and loaded," he says. Then came Superstorm Sandy.

The power was knocked out in his new building, and the bank wanted to reinspect it. The co-op seller was also delayed because her new building had to be reinspected. Bomba had to repeat a few procedures with the bank, but to his relief, he didn't repeat the interview with the co-op board.

"You don't want to go through it again," says Bomba. "There are a couple of months that are nerve-wracking and stressful, and there are so many things leading up to the interview. You're not sure what they expect."

During the interview, the board members may ask why you want to live in that co-op, where you work, what your hobbies are and more. Many boards request to meet pets. You'll bring along Fido and his paperwork to prove his personality, weight and breed all meet qualifications.

Renters usually aren't spared from this process. But these strict financial and character standards serve a co-op owner well: Fewer co-ops go into foreclosure, and fewer owners seek short sales, McFadden says.

Many homeowners and condo associations require buyers and renters to fill out applications, but the process is usually shorter and less intense. The standard questions on work history, income, renting and homeowning history, and contact information for personal references commonly appear on these applications.

Be careful before handing over your sensitive information, agreeing to an interview and abiding the association's law. Some of these HOA and condo boards have what Donna Berger calls "phantom rules."

"Sometimes you've got boards that are subjecting people to approval procedures that aren't actually required under their (governing documents)," says Berger, a partner at Katzman Garfinkel & Berger, a law firm in Margate, Fla. "I think one of the starting points should probably be, if you have to undergo a rigorous approval process, make sure the board actually has the ability to subject you to that."

She speaks from experience. When she and her husband bought their first condo after law school, they met with the president of a condo association.

"He looked us right in the eye, and he said, 'If I like you, you'll get in; if I don't, you won't,'" says Berger. "It was unbelievable. At the time, I didn't do this kind of work, I didn't know my rights, and we were just fortunate the guy liked us, and we got in."

Most boards legally can't reject a buyer over character flaws, like a co-op can. Many people are rejected because they don't have the credit score or income to prove they can handle a mortgage plus monthly association fees, Berger says. Find a copy of the association's bylaws -- they're public record -- and determine what the association can and can't ask for.


Mortgage rates eased somewhat the week of July 25 as the Federal Reserve sought to assuage concerns that it would abruptly cut down on its purchases of mortgage-backed securities.

The 30-year fixed-rate mortgage fell 2 basis points to 4.54 percent. A basis point is one-hundredth of 1 percentage point.

The 15-year fixed-rate mortgage fell 4 basis points to 3.61 percent. The average rate for 30-year jumbo mortgages, or generally for those of more than $417,000, fell 2 basis points to 4.69 percent.

The 5/1 adjustable-rate mortgage fell 2 basis points to 3.54 percent. With a 5/1 ARM, the rate is fixed for five years and adjusted annually thereafter.


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