Does New York City need an Admissions Clock?

Are lawmakers looking for solutions to problems that don’t exist? Or are co-op boards treating would-be-buyers badly?

It depends on whom you ask. But those are the two chief issues that come up almost every year as new bills are offered up at the New York State Legislature and the New York City Council. The bills now being considered would require boards to act on purchase applications within a set time frame. Some would also require boards to disclose a reason for rejecting an applicant. While proponents say the laws are necessary to protect buyers and sellers from a prolonged or discriminatory process, those intimately familiar with the co-op application and review process counter that the laws are impractical and potentially damaging to co-ops.

“I’m a big believer in the old maxim, ‘If it ain’t broke, don’t fix it,’” says Bruce Cholst, a partner at Anderson Kill, a law firm representing about 225 buildings, and a long-time board member at his own 370-unit co-op. “Most boards do act within a matter of weeks, and if they don’t, there are usually legitimate reasons. I don’t see any reason for fixing something that isn’t broken on a widespread scale.”

Co-op advocacy groups vehemently oppose such laws as an infringement on their court-upheld right as private corporations to pick and choose shareholders on their own terms, provided they’re not discriminatory. While the occasional board may “behave badly,” says Mary Ann Rothman, the executive director of the Council of New York Cooperatives & Condominiums (CNYC), “there are thousands of cooperatives functioning very nicely. It seems grossly unfair for the legislature or real estate brokers selling apartments to interfere.”

Dying to Get Approved

Proponents of the legislation say that under the current system, it is buyers who are being treated unfairly. What particularly grates on some real estate professionals is that co-op boards, as managers of private corporations, may accept or reject buyers as they please and at their own pace. Brokers say they sometimes spend months working with clients only to see them unexpectedly turned away by a board for reasons unknown. (The New York State Association of Realtors is a primary backer of the legislation.)

Barry Kramer, a Westchester County broker who is president-elect of the Hudson Gateway Association of Realtors and also the long-time board president at the Northgate co-op in Scarsdale, says he’s seen boards keep buyers waiting for months before even inviting them for an interview. And, he adds, he’s seen sellers get hurt by the process as well. “I had a senior citizen who owned a co-op she was trying to sell in New Rochelle,” Kramer recalls. “She had several buyers rejected. She had no clue why they were being rejected. Finally, she simply [died]. It took so long.”

Realtors want to put a limit on how long boards can take to decide on an application. Two bills pending before the state legislature, one in the senate and one in the assembly (see box on p. 25 for details on all pending legislation), would require co-ops to provide every applicant with the requirements for purchasing, as well as guidance on how to access information on fair housing laws.

Within 10 days of receiving an application, the co-op would have to provide the buyer with notice of receipt or, if the application is incomplete, notice of what is missing. The board would then have 45 days to make a decision. Failure to act within the 45-day window would constitute approval. Another bill pending in the senate would require boards rejecting a purchaser to disclose a reason, something that is rarely done now.

New York City Councilmember Brad Lander, a Democrat representing Brooklyn’s 39th District, is sponsoring similar legislation before the council. He views mandatory disclosure as a way of combatting discrimination. “I have only heard a handful of stories about discrimination, but [that’s] enough to [make me] believe that it’s out there,” Lander says. “We have done things to better prevent discrimination in rental housing, but we ought to do more to prevent it in the co-op market.”

Hidden Agenda

But Arthur Weinstein, an attorney who represents many co-ops and sits on the board of the CNYC, calls the anti-discrimination rationale “a sham” created by the real estate industry to drum up support for legislation that is really aimed at bolstering their commissions.

“The laws already on the books have 16 grounds for prohibited discrimination with three agencies able to enforce them,” Weinstein says. (Federal, state, and city laws prohibit housing discrimination based on race, color, national origin, religion, sex, family status, disability, age, military status, and other characteristics.) Requiring co-op boards to provide reasons for rejecting an applicant would open them up to litigation and could strike at the very heart of what makes communal living work, he argues.

Michael T. Manzi, a partner in the law firm of Smith, Gambrell & Russell, agrees that boards need to be able to make decisions freely and without fear of embarrassment. “They don’t want to be in the position of having to say to someone, ‘We rejected you because we didn’t like you,’ ” he says.

Further, he argues, requiring boards to explain rejections is unlikely to have any impact on true discriminatory behavior. No board is going to come out and say they’re discriminating, he points out, “unless they’re complete idiots. They’re going to find some other reason.” And anyway, a strong deterrent is already in place, he notes: the knowledge that individual board members could be held personally liable for any discriminatory actions, a precedent set by the notorious decision in the case involving Nick Biondi and his board, who had to pay out thousands of dollars in a discrimination suit involving a sublet application.

Impractical Time Frame

Holding boards to a strict time frame is simply impractical, primarily because the hefty package of information required of applicants is so often submitted with pieces missing, says Steven Mirsky, vice president and legal counsel at Alexander Wolf & Company, a property management firm. It is up to managing agents to notify the buyer that the application is incomplete, but if the buyer is slow in providing the omitted information, the ensuing hold-up is beyond the board’s control, Mirsky says. “I don’t find that it’s the boards that are dilly-dallying around with these things,” he says.

Legislation before the city council wouldn’t start the 45-day clock until an application is deemed complete. But Richard Klein, a partner who heads up the co-op/condo department at Romer Debbas, says he believes any statutory time frame is onerous, given that board members are volunteering their time. “Even a board with the best of intentions might take a while because of something that wasn’t expected,” he says.

He notes, however, that his firm is urging clients to update their bylaws to allow meetings to take place via Skype or call-in, thereby making it easier for them to carry on with board business – including the timely review of applications – when members are away from home.

A Test Case

As lawmakers weigh the legislative proposals, they may want to look to Long Island’s Suffolk County for guidance. In 2009, the legislature approved a new law to “promote transparency” and ensure a process that is “fair and protects against illegal discrimination.” Since then, the county has had a 45-day time limit for co-op decisions and a requirement that they provide a reason for rejection.

Despite the many concerns about the impact of such laws, at least one property management firm has only good things to report. Far from causing problems, the new rules “have been an improvement in the process,” says Alvin Wasserman, the director of asset management at Fairfield Properties, in Melville, which manages about 20 co-ops in Queens and Nassau and Suffolk Counties. “It’s been a lot smoother because prospective purchasers know that they’ll have an answer within a certain amount of time.”

The timing restrictions have caused some boards to appoint separate review committees to go over applications and interview buyers, Wasserman notes. The committees then report their recommendations to the board, helping to streamline the process. “If anything, the law has taken some uncertainty out of the process,” he says. “I don’t see the downside.”

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Reality Check

Legislating a time frame for admissions would affect not only co-op boards but management companies as well. Purchase application packages land on the desks of management companies’ closing agents, who review them and make sure they’re complete before submitting them to a board. Depending on the number of co-ops managed, the size of the closing department at a management company varies. Larger firms have several closing agents, each representing a set number of buildings. Smaller firms may have one closing agent handling all activity.  Here are the factors that determine how long the process takes:

How many packages need to be reviewed?

Depending on the time of year and the vibrancy of the market, a closing agent might come into the office and find from one to fifteen packages awaiting review. It typically takes one to two hours to review a package. Every building has slightly different requirements, so the review takes this into account. Additionally, packages are usually reviewed on a first-come, first-served basis. It’s important to understand that admission package review is only one of many tasks that closing agents perform. They also handle closings, and leasing agreement review and processing.

How complete is the package?

If the package is complete, the closing agent will run a credit check and a criminal background check. If not, the closing agent will begin the back and forth with the broker and buyer to get the missing pieces of information. Typically, closing agents say to expect the review to take two weeks, which gives them leeway to juggle their other duties. A package’s completeness is often based on who has submitted it. If an experienced broker is involved, it is usually complete, while an inexperienced broker is more likely to submit an incomplete package. If there is no broker involved, the package will probably be missing key pieces of information.

How soon can the manager set up an interview with the potential buyers and the board?

After a package is deemed complete and the Social Security numbers are redacted from all documents, it goes to the board. Some boards want to receive packages electronically, some on CDs, and some on paper. Once the board reviews the package, a date is set for an admissions meeting with the purchaser. Often the closing agent is the one trying to coordinate this date between the two parties.

Finding a convenient time to meet can be challenging, depending on the time of year and how often the board assembles. Once a board meets with the purchaser and approves the admission, there is additional back and forth to get the stock, proprietary lease, and recognition agreement signed before a closing can occur. Closing agents report that from package submission to close, buyers can expect to wait eight weeks if everything runs fairly smoothly. It is always the outliers – packages that are incomplete, and efforts to get information that are not met promptly or forthrightly – that make the process take longer. – Carol J. Ott

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Bills Galore: Pending legislation
New York State Senate Bill 2540
http://bit.ly/Bill2540

Sponsored by Senator Kemp Hannon (R – 6th District)
Requires co-ops to act on applications to purchase within 45 days.
NY State Senate Bill 4551
http://bit.ly/Bill4551

Sponsored by Senator James Sanders Jr. (D – 10th District)
Requires co-ops to provide a written reason when rejecting a purchase application.
NY State Assembly Bill 03813
http://bit.ly/Bill03813

Sponsored by Assemblyman N. Nick Perry (D – 38th District)
Requires co-ops to act on applications to purchase within 45 days.
NY City Council Int. 1467
http://bit.ly/Int1467

Sponsored by Councilmembers Jumaane D. Williams (D – Dist. 45) and Brad S. Lander (D – Dist. 39)
Requires co-ops to act on applications to purchase within 45 days.
NY City Council Int. 1458
http://bit.ly/Int1458

Sponsored by Councilmembers Brad S. Lander (D- Dist. 39) and Jumaane D. Williams (D – Dist. 45)
Requires co-ops to provide a written reason when rejecting a purchase application.