The Package

Steven Vernon, board president of the 111-unit Nagle Apartments in upper Manhattan, says it’s hard, sometimes, to make a decision about a potential buyer when you can’t ask certain questions. “We’ve had difficulties with the personal questionnaire in telling how good a neighbor a person will be,” he says. “It’s [helpful] to ask if someone plays a musical instrument, for example. One applicant was a professional piano player and practiced eight hours a day.”

But what can you do? You can’t ask if someone is a professional musician, since lawful occupation is – like age, gender, and race – one of the “protected classes” under the New York City Human Rights Law. But, as Vernon notes, you can ask if anyone planning to live in the apartment plays an instrument.

It’s a tricky game that could be called “Let’s Play Semantics Or We Might Be Sued.” Attorney Michael T. Manzi, a partner at Balber Pickard Maldonado & Van Der Tuin, explains: “Due to the various protected classes in New York, and then those of the state and the fed, it’s just one landmine after another.”

“You don’t want to ask any questions directly or indirectly related to a protected class,” agrees attorney Seth Sahr, a partner at Novitt, Sahr & Snow. “Don’t ask whether they’re married. Don’t ask what country they’re a citizen of. Don’t ask if they have any kind of disability. You wouldn’t even ask if they’re male or female.”

Co-op boards, of course, have not only a fiduciary duty to vet prospective shareholders’ financial viability, but a leadership duty to try to ensure that new neighbors are neighborly. “The purpose of the application package,” says Sahr, “is to give the board a snapshot of an applicant, in order to help [a board] to discern whether that applicant is someone acceptable to the community, but primarily whether that applicant is able to afford to live in the community.”

Without getting sued for discrimination, of course.

According to attorneys Manzi and Sahr, the managing agent usually sends to potential buyers an admissions package (in self-managed properties, it would be sent through the broker by someone on the admissions committee). A number of management firms now make the forms available for download from the management company and/or building website.

This packet of papers has five essential components (another component that boards have included for years, reference letters, may or may not be absolutely necessary). They are:

• The personal questionnaire

• The financial questionnaire

• A credit check and a criminal-background check

• The transfer documents

• A litigation search

And finally, most boards want to see reference letters.

“What we’re seeing now is some of our boards are trying to streamline the packages a little bit,” says Mary Frances Shaughnessy, a principal of Tudor Realty Services. “They haven’t yet completely decided how but in general they really feel that the packages are too extensive and there’s too much and they can’t get through it all.”

So what do all these sections involve?

Getting Personal

The first section of an admission package (and related forms) is a potential breeding ground for lawsuits. Indeed, this is, by far, the biggest danger area, says Sahr, noting: “This is where a lot of these hot-topic pitfalls are, and boards have to be so careful.” The reason is that financial data, credit reports, and transfer (i.e., sale and purchase) documents are all cut-and-dried numbers, and criminal background checks involve public records. But on personal questionnaires, it’s easy to ask the wrong thing and open your board up to a discrimination suit.

The Council of New York Cooperatives and Condominiums offers a Co-op Board Admissions Guide that lists the 16 categories “protected” under city, state, and federal discrimination laws, including prohibitions against discrimination based on race, creed, color, age, disability, sexual orientation, or marital status, among others.

What you should avoid asking about under this list sometimes seems odd. Board president Vernon has been told by attorneys not to ask for a photo, since that may reveal an applicant is part of a protected class. “We don’t even like seeing copies of a driver’s license or passport,” he says. “The transfer agents at the management company need [such documentation] to be able to verify identity, but you as a board don’t want to see that. We don’t need to see a picture of someone at all.”

So what is pertinent to ask? “Who you are, job history, who’s going to be living there in addition to prospective owners, including pets – basically neutral personal information,” says attorney Manzi, “but more than that and you’re possibly stepping on a landmine. “

To limit liability in case of identity theft, Manzi suggests you do not ask for Social Security numbers. While the co-op will ask for that and birth dates, it will do so only in the financial questionnaire, which the applicant returns with the packet directly to the managing agent. When the board eventually does see the financial questionnaire and accompanying financial statements, birth dates and Social Security numbers should have been redacted. (Over the years, some managers have neglected to remove the vital information, leading to identity thefts and lawsuits.)

Finally, the personal questionnaire includes acknowledgment forms that speak to house rules – including those regarding pets, alterations, homeowners insurance, and move-in/out policy – and the city-mandated lead-paint and window-guard notifications. “Those are important pieces of information for any building to have as a standard understanding between the shareholder and the cooperative,” says Arlene Marin, a transfer agent for Blue Woods Management Group.

Getting Financial

The financial questionnaire asks how much cash on hand the buyer will have after making the down payment, and whether he or she is subject to salary garnishment and support or alimony. Here the managing agent asks for date of birth and a Social Security number, “which you have to ask for since it’s the only way to get credit reports,” says Shaughnessy, the manager. “But on tax returns, we black out all but the last four digits of the Social Security number. We don’t disseminate [the full number] to board members, and board members don’t want to know it, either.”

This portion of the application package also asks for two to three years’ worth of tax returns, and a statement of assets, liabilities, and income, to be accompanied by such proof as copies of bank, brokerage, and education-loan statements; pay stubs; and canceled checks or other evidence of mortgage/rental payments.

Self-employed individuals generally need to supply an accountant’s statement of earnings for the past three years. To avoid liability in case of credit-data theft, co-ops generally do not get copies of credit-card statements (besides, that information will be covered in the credit check).

Getting Vetted

The applicant must sign a form allowing the managing agent to pull a consumer credit report. The agent must also run a criminal background check. Unlike credit checks, which involve virtually identical data from any of the three largest credit-reporting services, a criminal-background check can be as basic as having the managing agent view the New York State sex-offender registry or as time-consuming and expensive as having the board attorney’s office do a public-records search in multiple states.

“If [the applicant] lives in New York currently, you do a local background check, and if they lived in California, then you would want to check the records there,” says attorney Manzi, “but more than that and you’re running into increased fees. And you don’t want to become known as a building that’s so difficult that purchasers say, ‘You know what, I don’t need this.’” Manzi does recommend an investigation of public records in a litigation search, however. “You can find out if you have an applicant who likes to sue co-op boards or is litigious,” says the attorney. This is usually conducted by a paralegal, he says, so the fee is less than if an attorney does it.

Getting Referenced

Reference letters from friends, work colleagues, or employers are such an ingrained part of the admission process that we generally don’t question their usefulness. “I’ve never heard of anyone getting a reference letter and it saying anything bad: ‘Yes, I’ve known him for years and he’s horrible,’” jokes Manzi.

“I think some of these things hang on from prior times,” says Shaughnessy. “You know people are going to say nice things, or otherwise the buyer wouldn’t have asked them for a personal reference.” Agrees Sahr: “How much attention are you going to pay to something that’s coming in where the applicant has control over the person who’s writing it? It’s hard to give it a lot of weight.”

If your board does want reference letters, it’s good to narrow the focus. “We have one board that asks for a letter from a current neighbor,” says transfer agent Marin, “someone who lives in the same building or neighborhood.” Adds Shaughnessy: “The most important reference letter is from the prior landlord or prior board. That indicates whether or not these people have been good tenants. But personal references don’t seem to me to be so important.”

At Vernon’s co-op, the board looks at the reference letter less for its content than as another form of background check. “We’ve been known to call the reference-letter writers,” he says. “We’ll ask, ‘Did you write the letter?’ And sometimes we’ll ask open-ended questions – ‘What else can you tell us? Any fond memories of this person?’ – so we can glean some additional information. People need to understand when you buy into a building you’re buying into an existing community.”

Getting Transfers

The last part of the package includes the contract of sale, with all riders; the loan application; the loan commitment letter; and three copies of a recognition agreement. That last is a contract among the lender, the borrower and the co-op. The standard form is often called an Aztech Recognition Agreement, referring to the popular form produced by the now-defunct, 1971-1997 company Aztech Document Systems. Its provisions include one that the co-op notify the lender if the shareholder falls into arrears and that there are no liens against the co-op corporation and other such mutual assurances.

And that’s the crux of it, really – if it weren’t, then all you would need is the raw financial data. You don’t want to go overboard with your application package, and you don’t want to discriminate, either intentionally or unintentionally – the law doesn’t recognize lack of intent where that’s concerned. If you’re sincere about wanting to have a good neighbor, you need to be a good neighbor. That means knowing what you don’t need to know.