FAQ - Buying Luxury Lofts or Apartments
What is a "Mortgage Contingency Clause"?
This is a clause in a sales contract that say basically if you can't attain a Mortgage, your earnest money deposit (10% down payment upon signing the contract) will be returned to you. If you waive this clause in the contract, as is frequently done in a seller's market, you will lose your 10% earnest money deposit if you fail to attain a mortgage. Always get pre-approved for a mortgage to diminish your risk. (Generally the clause in the contract is for 30 – 45 days for the buyer to obtain a commitment for a mortgage.)
Why would someone waive a Mortgage Contingency Clause?
This is done in a seller's market, especially when there are multiple bids, to increase your chances of getting the space. You become more attractive to the seller because no matter what happens the seller will come out with something. If you get the mortgage then the sale will continue and the seller is happy and if you don't get the mortgage, the seller gets your 10% earnest money deposit and is very happy. With multiple offers, someone will inevitably waive this clause to try to get a competitive advantage. The risk in this type of move is limited providing you’re pre-approved and know you can get a mortgage. A good idea is to develop a relationship with a solid mortgage contact.
What do they mean by 80/20 Rule?
The 80/20 rule says that not more than 20% of a co-op's revenues come from commercial spaces. If more than 20% the maintenance is not tax deductable. (Note: On December 20, 2007 the Mortgage Forgiveness Debt Relief Act of 2007 offered some adjustments to this rule.)
What is the deductable portion of the maintenance represent (co-op)?
They typically represent mortgage interest and real estate taxes.
What is a cond-op?
By definition, a Cond-op is a residential Cooperative where the ground floor (typically commercial units) is converted into a separate "condominium" which is either owned by an outside investor or the original sponsor of the building. The residential units are a coop, the commercial units are owned as a condominium by an entity other than the coop (more info: Luxury Lofts & Apartments (Co-op, Condo) & Townhouses).
What is a co-op?
It is a form of ownership where you own shares in a corporation when you purchase an apartment and you pay a monthly maintenance fee with a tax deductible portion. The majority of Manhattan’s apartment inventory is co-ops and to purchase you need to submit an extensive package & pass a board interview (for more info: Luxury Lofts & Apartments (Co-op, Condo) & Townhouses).
What is a condo?
It is a form of ownership where you receive fee simple ownership to the property and have more flexible rules of usage. Common charges and taxes are separately billed unlike a co-op (more info: Luxury Lofts & Apartments (Co-op, Condo) & Townhouses).
What is an Aztec Recognition Agreement?
This a document the bank draws up to give their lien first priority ove the co-op's lien in case of the shareholder's (you) default.
What is a UCC-1 and UCC-3?
The UCC-1 is filed by the bank when a loan is initiated while the UCC-3 is filed after the satisfactory payment of the loan.
What is a Land Lease?
This is when a building leases the land that it utilizes. Generally the maintenance (co-ops) or common charges & real estate taxes are very high and obtaining a loan on this type of property can be difficult. Investigation of the terms and length of the land lease is important to your purchase decision.
What is a Sponsor Unit?
When an owner converts a building to co-op or condo from a rental or builds a new building to sell, they become the sponsor of the building. When buying a sponsor unit in a co-op, there is “No Board Approval” in order to purchase the unit. When buying from a sponsor you will usually be responsible for paying the NYC and New York transfer taxes, 1.825%, and covering the sponsor’s legal fees (there can be other charges).
When does an offer become “firm”?
Only when both the buyer and seller sign the contract does a deal become firm. If only one party has signed the contract and a better offer comes in or someone changes their mind, there is no recourse if the deal is dropped.
How do Real Estate attorneys charge?
They either charge on an hourly basis or a flat fee.
Is appraised value the same as market value?
These two values can differ significantly. Appraised value is derived by the bank in terms of lending while market value is what consumers are willing to pay for a property.
Pre-Qualified vs. Pre-Approved for a mortgage?
Pre-approved is the most important because it shows that a mortgage professional has went in depth into a buyer’s finances to determine their ability to receive a mortgage.
What is a buyer's broker?
A Buyer's broker is someone who contractually works for the buyer and owes the buyer his fiduciary duties.