A reverse mortgage should be an income source of last resort. There are a lot of pitfalls with taking out a reverse mortgage in its current form, not the least of which are the high fees to the banks and mortgage brokers. Here are links to two articles describing some of the cautions and drawbacks of a reverse mortgage, and what will hopefully be done in the future to remedy the abuses:
http://www.wggb.com/2012/09/04/stronger-oversight-of-reverse-mortgages-needed-to-protect-seniors/
http://www.smartmoney.com/spend/real-estate/the-pitfalls-of-reverse-mortgages/

FACTS:

Established by Congress over twenty years ago, reverse mortgages are still a fairly new family of financial products. Though most seniors and retirees are familiar with reverse mortgages, a great many myths still exist that cloud the important and relevant facts. The list below will help you dispel the common misconceptions about reverse mortgages.

Common Reverse Mortgage Misconceptions:

1.) When you obtain a Reverse Mortgage; the bank owns your home.
False: You will maintain the title as long as you live in your home, keep it maintained according to FHA requirements, and pay your property taxes and homeowners insurance.

2.) Reverse Mortgages are very risky.
False: Reverse Mortgages are widely regarded as a safe financial product. The federal government has placed strict regulations and safeguards on Reverse Mortgages to protect seniors. Additionally, the National Reverse Mortgage Lenders Association (NRMLA) was created to develop and promote best practices in the Reverse Mortgage industry. Genworth Financial Home Equity Access Inc., is a member of NRMLA and strictly adheres to its Code of Ethics and Professional Responsibility.

3.) Your home must be paid off to qualify for a Reverse Mortgage.

False: As long as there is sufficient equity in your home, you may be eligible for a Reverse Mortgage, even if you still owe money on your existing mortgage. However, the existing mortgage balance must be paid off at closing. You may be able to use the funds from your Reverse Mortgage, or another source to pay off that balance.

4. )You could end up owing more than your home is worth when it is sold.
False: You or your heirs will not be required to repay more than the value of your home at the time of sale to repay the loan the loan even if your loan balance exceeds the sales proceeds.

5.) Reverse Mortgage proceeds are taxable and will affect your Social Security and Medicare.
False: Reverse Mortgage loan proceeds are not taxable because the IRS does not consider them as income. In addition, a Reverse Mortgage will generally not affect regular Social Security payments or Medicare benefits. However, certain need-based government aid programs, such as Supplemental Security Income (SSI) and Medicaid, may be affected. We recommend you consult with a qualitified professional to determine the specific rules.

6.) The bank takes your home upon your death leaving nothing for your heirs.
False: A Reverse Mortgage functions like any other mortgage with a lien placed on the property. When the loan becomes due it must be paid. Generally, you can pay off the loan balance two ways: You or your heirs can sell the home and use the proceeds or use other sources to repay the loan.

7.) There are restrictions on how you can use the money.
False: You can use the net proceeds of your Reverse Mortgage funds however you see fit—there are no limitations. However, if your home is in need of FHA-required repairs or you have an existing lien, judgment, or taxes that are due, those must be satisfied, either through the Reverse Mortgage loan proceeds or prior to obtaining a Reverse Mortgage. Whatever your circumstance, we recommend that you speak to a financial advisor.


Richard Russell
212-681-9888
mortgage@richlandequity.com

You say working with FHA to approve reverse mortgages? And how are you doing that? I didn't know that a brokerage firm was also a lobbyist. Curious to know how you plan to circumvent a law that doesn't exist.

Some brokers are trying to push reverse mortgages as the quick-fix for senior's financial concerns. Its the same pitch used to get people to re-finance fixed-rate wtih variable-rate mortgages so they could treat their homes like piggy banks and just keep taking cash out. Let me repeat myself, REVERSE MORTGAGES SHOULD BE AN ABSOUTE LAST RESORT FOR PEOPLE WHO ARE IN NEED OF CASH.

Did I say that loud enough? If you think your circumstances may be best resolved by a reverse mortgage, speak to a trusted broker, not some know-it-all who tries to push it on you without the slightest idea or notion of what would work best for you.

I quiet agree Steve, and I can see that Richard Russell's entire explaination was plagerism.

I wonder how many points Richard Russell makes off a reverse mortgage? Could be his motivating factor?

Quite*

Further, the 'points ' earned was also of concern here. After bringing this very fact up to FHA they replied that it is a fee subsidized by the government and not only does it NOT adversely effect the rate, terms or the 'product' in ANYWAY it in fact it is a 'wholesale channel, ergo: all is LESS expensive.

FHA prefers these firms to handle these programs to properly promote this to seniors as consumers attempting this directly with lenders, which is fine, are not made aware of all the aspects of the program AND alternative ones as Reverse may NOT be good for all that inquire, etc.

'Retail 'lenders are only interested in bottom line (profit; IRR, etc.) and NOT the consumer.

Good Night Arthur

Mom was approached by 2 different companies offereing Reverse Mortgages. They BOTH said that SHE COUL NOT GET A REVERSE MORTGAGE UNLESS THIS BUILDING WAS FHA APPROVED! The first wanted my mom & the business manager to split the cost of getting FHA APPROVAL. The sencond broker was willing to split the cost with the Building manager. We were led to belive for months that get FHA APPROVAL was a PIECE OF CAKE it was only at the last minute that we were told FHA APPROVAL is ot given for condo that were formally hotels.

Any dedicated profesional person\entity is all that is required to achieve the goal for Coop Reverse Mortgages.The 'widge't that creates commerse for those firms who are trying to reopen this channel is irrelevant. With the proper connections on the Board of Fannie Mae and other professional entities that are tangential to this effort will, in aggregate, assist in reopening this channel for Coops.

FHA approved Reverse Mortgages for Coops in 2008-10. The present governmental agencies who are responsible for this simply do NOT understand these asssts but they are the VERY assets that kept this local market 'stable' after Lehman due to the most Coop Board guidlines in approving purchasers. For example, 20-30% down NO,100% financing and all that 'sub prime financing' which occurred was not allowed for Coop Board approvals

Cooperatives are the most discriminated asset by all financial institutuions due to Dodd\Frank, et.,al

The comment about 'brokerage firm's' by 'Arthur' is a bit naive,self serving and uncalled for. What is required is a dedicated group of authentic professionals, no lobbyists or 'freeloaders' here to succeed in this effort.

We do not need any further assistance but will continue to try as it simply is a misunderstood asset by these overregulated governmental agencies..

FACT: The people,shockingly and sadly, with the most objection to this Reverse Program, in general, are the children or other entities who will inherit the asset now with more debt against it, which this results in, but served ONLY to assist to better the standard of living of the current owner occupants over the age of 62 who earned it !~.

A truly repugnant FACT

Lets focus on a solution here rather than these irrelevant comments

It isn't "naive" to ask a question about process -- I doubt a board member on FM would ever lobby on behalf of mortgage brokers as the two entities together is what created this debacle in 2008. So don't deflect answering the question by name-calling and superficial comments.

There is a reason that a reverse mortgage isn't approved for co-ops, the danger they present requires scenario management because regulations are, in fact needed -- just as regulations are needed in a company -- before deciding to lend into that market. You seem to be hung up on non-business people authoring the laws? How many business people wrote the laws that allow you to function as a broker? Probably not many, so let us give credit when credit is due and stop blaming DF for all the financial market "woes."

Rushing the process and framing the debate as a regulation issue, gets away from the real question of reverse mortgage effectiveness -- which I think Steve and I have shown them to be a very last resort.

The solution is clear -- don't allow brokers to lobby for a law when they are arguing that reverse mortgages are a great tool when they clearly can't see the danger in them. But, hey, these are irrelevant comments, right? advice: My Understand the product before you bolster some tangential relationship that you believe will "impact" a federally reviewed law process.

not sure why the comments -- i try and help people.
If you have a legamant question\concern that is non biased and\or self serving please respectifully ask it
who are you by the way ARTHUR (??)-- that would be of interest i am quite sure

I just returned from the New York State Realtor meetings and reverse mortgages for co ops were discussed. They are a long way from being approved. NYS Association of Realtors will be looking into the matter. They are definitely not available as we speak.

There are loopholes to this reverese mortgage thing. I live with my 82 year old mother in a condo she owns. She was approached about getting a reverse mortgage which she really felt would help us - we are both struggling financially.

FIRST: In order to get the reverse mortgage the build MUST be FHA APPROVED. For the next almost 8 months the person wtih the reverse mortgage & the condo building manager worked to get FHA approval (they split the cost).

THEN mom was told it was only a matter of a few more signatures & it was a DONE DEAL!

As mom & I waited for things to be finalized we were hit with another brick wall - mom was REJECTED - why?

Condos that were at one time HOTELS then converted CANNOT GET FHA APPROVAL. We live in what is considered a well-known building with a long history as a hotel, a shelter for soliders returning from World War II the history of this building has NEVER been kept secret.

Why after what is now 9 months do we find out that condos that were formally hotels CANNOT GET FHA APPROVAL?

People need to be aware that though they may meet ALL THE CRITERIA to ge a reverese mortgage if their building (for whatever reason) cannot get FHA approval they WILL NOT get the reverse mortgage.

Reverse mortgages can be a great idea for many seniors but you have to be cautious of some of the reverse mortgage pitfalls. Many seniors are going to find this ---
http://www.reversemortgagelendersdirect.com/reverse-mortgage-disadvantages/

It is not a bad idea to find webpages detailing the many pitfalls of reverse mortgages that are *not* provided by companies trying to sell reverse mortgages. Here are two from sources not connected with selling reverse mortgages:
http://www.wggb.com/2012/09/04/stronger-oversight-of-reverse-mortgages-needed-to-protect-seniors/
http://www.smartmoney.com/spend/real-estate/the-pitfalls-of-reverse-mortgages/

If the same webpage that describes the pitfalls of a reverse mortgage also offers a "Calculate Your Eligibility" section, ponder how unbiased the information really is.

In my co-op, the shareholders each own a percent of the common space - so I see dificulties in creating exclusive use. So much so that when our shareholders want to hold an event in our courtyard, we tell them that thy cannot have exclusive use of the space.

That being said, respect needs to be given for privacy matters near the gound floor units.

Good luck!

yes, they are common area being used exclusively by a shareholder, who would then be responsible for the expense as maintanence.

I agree - purchase would imply a higher maintenance load. Check your Lease too see how addl shares can be allocated (if a co-op).

This is a good idea. It leads to transparency and when residents go to sell their apts they can have an electronic copy on hand.

The real problem is the definition of financial statements. We get an annual financial statement which is really bare bones but meets accounting standards. We have no idea as to the actual line items that created the debit or credit. In other words, we have cumulative expenses but not specific ones and have been told repeatedly that this is all we are entitled to receive. In reading BCL, I believe that is true. If anyone can get me something specific that would require the board/management company to give more in depth financial information to shareholders, I would be extremely grateful. Amazingly, even the members of the financial committee do not get specifics. Keep in mind that our annual budget is over 44 MILLION dollars.

With a budget of over $44M, the monthly report for your Co-op is probably huge. It is also a very imprecise and often incomplete instant snapshot of your Co-op financial situation and does not clearly articulate the overall fiscal health of the corporation.

Very large expenses may appear to be way out of line for what you would expect, but may, in fact, represent payments made on a quarterly, semi-annually, or annual basis. This extended time interval would most likely not be noted for the line item. Sometime information may not be received by the managing agent in time for inclusion in a monthly report, so two or more apparently duplicate entries and payments are seen on the next month's report. Sometimes after a review is made by the Co-op's treasurer, changes are made to way an item is accounted for or classified in the GL. This would render the original report inaccurate. Item descriptions may contain abbreviations or terms of art that are not readily apparent or subject to misinterpretation by someone not familiar with Co-op financial details.

The annual audited financial statement is really the governing document for evaluating how fiscally healthy your co-op is. It is reviewed and legally certified by an independent outside auditor to be a true and accurate representation of the corporation's finances. Misrepresentations made in the certified financial statement may raise to the level of fraud. All information must be included before the statement can be certified, and any omissions must be noted. This is why banks, mortgage lenders, purchasers, etc always request a copy of the financial statement and not copies of the monthly reports. It is like the difference between eating a fully prepared meal vs ingesting the ingredients individually.

What you say is all well and good. However, just looking at the year end statement does not answer specific questions. Example, our country club runs a great many parties which are subsudised, yet, the room will only hold 5% of the members, we cannot learn the yearly amount of subsidy and understand our mandatory dues will go up. Landscaping is done and then redone and then done again, not just in keeping with seasons, but in general, yet, no known dollar amount. Extensive expensive improvements to golf course, no dollar amount, fewer than 10% shareholder members and illegal outside membership. I could go on and on, but you get the point. Is there anywhere that I might not be familiar with which would give us more insight into the financial running of our co op. I am well versed in co op ownership and its' legalities, I am looking for something obscure that might have been used by others.

i’ve learned from both accountants and lawyers involved in co-op issues that the audited financial statement is given to the accounting firm which, without an independent examination, signs off on the information the managing agent gives them. so much for ‘auditing’.
shareholders need to chip in to pay a forensic accountant in order to get a true picture.

Hi,

Financial statements are not just for shareholders. Buyers, appraisers, vendors and banks all require the information on a regular basis. My building includes the last three years of financial statements on our website for all to see here:

http://www.naborsapts.org/purchasers/key-documents/

(We also have prior years on the site if you know how to change the year in the address line.)

In my opinion, if your Board is ashamed of the annual financial statements, you have a much bigger problem.

Steve

i beleive that legislation should be passed that enables any shareholder to access the monthly finacial statements online,The spreadsheets. It could be pw protected,and any also editing would onky be enanled for the managment company. Many of these sytems show when and who logged on ,if a unique pw is provided to shareholders.
This way any fraud or embezzelemt, finacial imprierties could be caught early on, if a shareholder was keeping an eye on things.
In this co-op the board didnt even know the name of the new bank, never performs the system of checks and balances that are routinely posted on the coop magazines. The board president dosnt convey to other board members when there has been a problem until months latter, maybe never. I know this from 2 previous board members that have resigned or moved.All my attempts to see the financials as stated in out proprietary lease are ignored, as are the shareholder 624b requests. AG doesnt care, , And unless i am missing something, my attorney fees to bring a court case to get what is in the proprietary lease would come out of my pocket. This co-op ownership, when dealing with a criminal family could be the biggest housing fraud pulled on the NYS people

EscapeFromYonkers - You should not have to go the course by yourself. Enlist the aid of all the other shareholders who feel as you do. Not only will you have more eyes and hands working on the problem, but you will be able to spread the cost of legal services and other activities among a broader base.

Good luck!

i had a letter published in the nytimes concerning the fact that approx 62% of the apartments are ower/occupied and the board and management, are telling the buyers,shareholders and banks that the coop is 90% owner occupied. I posted copied of the letter/article around the bldg before the annual meeting. The response from the times was that this was criminal, mortgage fraud and contact the DA. I did , but i got to fill out another one of their damn forms. Of course they are not in a open format, bit in adobe, so impossible to fill out via computer unless one has the $1000 abode program . Tired of these stupid forms that cant be filled out via pc and printed and mailed.
The president with all board members and managing agent present at annual meeting passed out a sheet rebuking the article which i informed him, was my letter, the first 2 or 3 apartments that he had labeled as owner occupied were never owner occupied or, one has nor been occupied by anyone since 1985.
he was calling apartment that were not so-called unsold shares from conversion in 1983 as owner occupied. I informed him that owner occupied means the share-owner occupies it as a primary residence. not once or twice a year, or not their son occupies it. I also informed the board again that the treasured who they list as living in the building have never lived in the building. the board members refuse to provide contact info. None of the other share-owners present opened their mouths. i have been callng attention to this for the last 4 years.
I cant see how the managing agent who is is real estate agent can sit there as an agent of the management company and participate in this fraud.
the management agent refuses to accept my faxes, which have corrections to minutes, usually involving the self dealing and fraud. In the [ast he refused to forward my faxes to the board members,only the pres who will do whatever he feels like to alter the message. The finance's are not watched at all, I wouls prefer to ger an attorney before i file with the DA concerning the mortgage fraud, but haven't found any in Westchester. Lot more fraud and inside dealing too
The original shareholders when we went coop were great, but this president has been selling only to people who will never occupy and turned the building into a rental again, plus no sublease fees are collected. since they say that it is legal to let adult children occupy an apartment the parent purchased and never moved in.
Seem he has no fiduciary responsibility for the building, he also has not lived here in over 8 years, but states he does. Self deals by giving his sons his primo parling spaces, while his son rents an apartment, and therefore is last and subleasing is not allowed for parking.
Every angle of board operation is self dealing or turning the building into a rental.
AG is totally worthless as this is their ballgame. They want me to spend my money to do their job. I am ready to play media highlight on how coop ownership is a total scam if you get a management company and board in bed
i couldn't believe when the few shareholders sat there and believed an apartment not occupied for 38 years was owner occupied.
We have not received the annual audit statement which is suppose to be provided in march. Of course the share-owners don't seem to care .
I also have the president on tape at an annual meeting 3 years ago saying he will dealing 4 times, when i told him he was self dealing.
Media time,Call the AG office out, and make them print on large print on every coop contract that the AG officef the BCL are violated.
believe me i write the AG office and let them know how dysfunctional they are,

i also write the NY senators to let them know that the AG office will not do anything with coop fraud,self dealing. And there seems to be zero protection for shareholders if you have a crooked board and same management company.
lawyers are not beating my door down, and being disabled, i cant move to the same type of location i need on my income .

the wonderful ny senator, liz kreuger, has a bill before the ny legislature that would create an office to advocate for co-op shareholders. if we pressure the other senators in albany to pass the bill, we will gain strength as shareholders dealing with incompetent or corrupt board members and managing agents. it’s worth calling ms.kreuger's office to ask what we can do to get her bill passed.

thanks , i will follow up with her and my state senator Andrea Stewart Cousins. I believe she is already a supporter of the bill, i can write up a cliff notes of the violations the board+ management company is working together to keep the shareholders in the dark, and make the shareholders a cash cow for the management company,provide almost zero service, or put off maintenance so that they get a big contract which has the normal goodies for the agents, and now board members.
Many people including board members believe that insurance protects the shareholder from fraud, embezzlement. I am sure the managing agent told them so.
The board sat in total silence as the president went on his BS spin that apartments that had not been occupied since 1985, apartments that were vacant ,apartments that were never occupied by the share-owners,only their child, apartments where the owner had moved to Florida and comes back 2 a year, his apartment that is vacant, since they no longer live in this area, are all owner occupied, and that they are not committing mortgage fraud. The managing agent who is also a real estate agent sat there silently.
Plus the fact that we had never heard about this unsold share memos and cases. I see a real lack of fiduciary duty to the coop. I am sure the other 20 buildings they mange the boards do not allow this ratio of non owner occupied, it goes completely against the whole concept of co-op ownership.

the managing agents are often more corrupt than board members. this is without doubt the situation in my co-op. some board members are too busy with their careers so they leave building business to the managing agent or, in some cases, board members are just naive.
there is a lot of passivity in my building too. most shareholders have busy lives and don’t want to get involved in what they pass off as ‘politics’.

The monthly report will show which shareholders are paying sublease fee's and garage parking fees. It may be possible to find discrepancy, such as people who should be paying the sublease fee's but are not, the same with parking. You may notice that a board member is paying for one space but has three. This will not show up on the yearly annual report.

I have a situation where they are in cahoots, and most likely the quid pro quo is a daily function of their lives, Since the AG refuses to take action to uphold the laws of the state, they are running wild, unless one has a lot of money they want to front for a lawyer and more importantly , will if found in violation of all the self dealing ,fraud, corruotion BCL's will the shareholder be reimbursed for all the legal expenses, or in my case be bought out so i can have peace of mind and not worry about embezzelement since the board does not perform any check and ballances, that have been published in the co-op mags. Meanwhile even though my prop lease states i can view the fincials during normal businees hours at the mangment company, they refuse me , zero transparancy is the name of the game and we know what that means.
I did write the AG office and my state senator concerning the information published on the AG co-op site that was incorrect , the memo from 1987 concerning holder of unsold shares, and the discreapacys between the info that the AG says need to be provided for the shareholder names in BCL 624b,think B.
and the other stufff such as affaidavits that many cooperation lawyers state must be provided, by the shareholder, somehow i thing if you went into court with the AG's requirement page, you could make your affadavit right there and then. Sounds like a pure delaying and hoping you go away BS manuevar and the coop lawyer should be levied a fine.,

the managing agents are often more corrupt than board members. this is without doubt the situation in my co-op. some board members are too busy with their careers so they leave building business to the managing agent or, in some cases, board members are just naive.
there is a lot of passivity in my building too. most shareholders have busy lives and don’t want to get involved in what they pass off as ‘politics’.

As a board treasurer, I am interested in what information or insight Co-op shareholders feel they would derive from receiving copies of the *monthly* management reports. Remember that the monthly report is different than the annual financial statement.

I fully understand and absolutely support the right of every shareholder to automatically receive the audited annual financial statement after it has been approved by the board and signed off by the accounting firm. The monthly management reports are very different animals, and I would like to understand what the perception is of what they contain and what value they could provide.

Thanks!

The monthly reports shows the shareholders what the board is spending on a monthly basis. It shows that bill are being paid and it also shows that the books are in balance. Your monthly report ending balance should match your ending bank statement balance and the shareholders need to see this info so know that the books are in order.

Do you recommend fixed rate self-amortizing mortgages or fixed term interest-only mortgages to your clients? Why? What are the pros and cons of each.

What are your thoughts about defeasance and how do you help Co-ops that want to refinance early but are subject to defeasance?

Thanks,
--- Steve

Steve-

We work with NCB and the other CMBS Servicer's that Co-Ops have existing loans with. For a complimentary defeasance analysis please call 800-624-4779 or email sburnett@defeasewithease.com.

Thanks
Scott-

Commercial Defeasance, LLC
www.defeasewithease.com
800-624-4779

Steve,

Generally, on the rate issue, I recommend 10/1 I/O loans amortized over 40 years which keeps the payments down and additional principal payments can be made which are recognized immediately.
Self-amortizing mortgages are fine but do not allow for any unexpected assessments.
On the issue of defeasance, we as a real estate finance firm assist with cross-collateral properties on the advisory basis which is included in the fee we charge and not in excess thereof.
As a licensed real estate broker as well I assist clients with these issues as we have many sources, both institutional and private.

Richard Russell
Pres/ CEO
Richland Equity Resources Corp.
www.richlandequity.com
mortgage@richlandequit.com
212-681-9888

The type and terms of a new mortgage depend on your current financing, your finances and your goals.
We were able to reduce our mortgage rate from the low 7's to mid 4's for the same monthly payout and from a balloon to a fully amortized mortgage, plus get cash to add to reserves. You might get a better deal with a lender who will be holding the mortgage rather than selling it in the secondary markets. NCB for example apparently bundles their mortgages and adjusts your rate to their target rate for the bundle. So, even if the current rates are lower, they may add 'points' to bring your rate up...

The AG's position on Unsold Shares was unanimously overturned in 2005 by the Court of Appeals (NY's highest court) in Kralik v. 239 E 79. For a few years, it appeared that pretty much any investor who bought the shares associated with an apartment but did not live there was a Holder of Unsold Shares.

But in 2008, the decision in Sassi-Lehner v. Charlton Tenants Corp. took a different tack, asserting that the full Offering Plan (and related documents) had to be taken into account in defining Unsold Shares, not just the Proprietary Lease. In that dispute, the ruling was that the investor was NOT a Holder of Unsold Shares. Note that this never made it to the Court of Appeals; just the Appellate Division of the First Department.

The 2010 Appellate Division ruling in Rotblut v. 150 E 77 applied similar reasoning. Quote: "Plaintiffs failed to demonstrate that they are holders of unsold shares in the corporation under the controlling documents, i.e., the offering plan, amendments to the plan, and proprietary lease."

The language defining Unsold Shares in most co-ops' documents is lamentably murky, and this has led to years of litigation. You're probably safest to assume that any investor may ultimately be considered a Holder of Unsold Shares, though Sassi-Lehner and Rotblut provide evidence that this isn't always the case.

(Disclaimer: I am not a lawyer, though I've followed the Unsold Shares debate for years with considerable interest.)

Thus article on the AG site it was very hard for me to transfer to txt to paste on this site, , so there may be some OCR mistakes.,. i will give the exact web link in another post. This is different then has been described ny our management /sponsor in 1983. Also different from the poster above, CDT ,carl,
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DEFINITION OF HOLDER OP UNSOLD SHARES "Unsold shares are any shares not subscribed to and fully paid for prior to closing. At or prior to closing, unsold shares must be acquired by the sponsor or financially responsible individuals produced by the sponsor. A holder of unsold shares is the sponsor or any individual designated to hold unsold shares by the sponsor. Such shares shall cease to be unsold shares when purchased by a purchaser for occupancy." (13 NYCRR Section 18.3(w)(l)) (emphasis added) . The key word in this definition is "designated" . When a. sponsor holds on to unsold shares after the closing he may, thereafter, transfer those shares to others, not necessarily to "holders of unsold shares" . If he designates the grantee of these shares as a "holder of unsold shares" then that individual or entity* becomes a holder of unsold shares. This "designation" is usually evidenced by an amendment to the plan required by IB NYCRR Section 18.3(w)(ii} disclosing his or its identity, business address, background and experience/ prior convictions, injunctions, and judgments against it, prior real estate securities offerings within the past five years and its relationship to the sponsor, the selling agent, managing agent or provider of services to the coop. Additionally such a holder of unsold shares must comply with the escrow and trust fund provisions of General Business Law (GBL) Sections 352~h and 352-e(2-b) and must register as a broker-dealer pursuant to GEL Section 359-e unless already registered and must also supply to the Department of Law a signed registrant information form ("RI-1") concerning prior convictions, judgments, administrative actions, bankruptcy, employment and business affiliations and an affidavit of prior public offerings of cooperative interests in realty with addresses and dates of first closings (13 NYCRR Section 18.3(w)(9), (10)}. Such a holder of unsold shares has the obligation to amend the plan to provide current and accurate information about the offering and must provide prospective purchasers with a copy of the offering plan and all filed, amendments (13 WYCRR Section" 18.3 (w) (11)). Holders of unsold shares must also abide by more stringent rules for cancelling their proprietary leases' (13 NYCRR 18.3(w) (12)) . * The Tax Reform Act of 1986 changed the definition of tenant: stockholder from "individual" to "person" and therefore, for tax years beginning after 1986, corporations, trusts, estates, partnerships, or other entitites may qualify as tenant stockholders of cooperative housing corporations if they satisfy the requirements heretofore applicable to individual tenant stockholders.
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These obligations are normally associated with possible benefits for this special category of purchaser . The sponsor may provide in the plan and in the corporate documents and proprietary lease that these holders of unsold shares so designated as such by him do not need the consent of the board or managing agent to use, lease, sublet, sell, pledge or transfer unsold shares and/or do not have to pay transfer fees (flip taxes), that they may use. the apartments as models or selling offices and may make alterations to the units without the consent of the apartment corporation (13 NYCRR 18.3(w)(8)). Normally, bearing the burdens associated with being a holder of unsold shares is the quid pro quo for the benefits obtained from such status. Sssentially a holder of unsold shares stands in the shoes of a principal of the sponsor. It is not, however, up to the purchaser to say if he or it is a "holder of unsold shares",- Rather it is the sponsor who nust designate such a holder since the sponsor must represent in the plan that he will designate only individuals (or/ now, Bntities) who are financially responsible (13 NYCRR Section L8.3(w)(5)), The sponsor needs to choose these individuals {or entities) wisely since the sponsor must guarantee payment of all naintenance charges and assessments due from a holder of unsold shares (13 NYCRR Section 18.3(w){3}). If the holder doesn't pay, :he sponsor must . It is clear, then, that all unsold shares held yy sponsor and later sold by him do not necessarily result in the jrantee become a "holder of unsold shares" entitled to whatever Benefits are associated with such status. This is true lotwithstanding the fact that the grantee buys for investment and loes not take occupancy. In fact, the regulations make provision :or just such purchasers who are not designated by the sponsor as lolders of unsold shares but who buy for investment or buy a unit occupied by a non-purchasing tenant (13 NYCRR Section 13.3 £;•:) if 5 or more apartments are purchased, 13 NYCRR Section 18.3(n) regardless of the number of units if occupied by a non-purchasing :enant) . The sentence in the regulation which states that 1 [s]uch shares cease to be unsold shares when purchased by a jurchaser for occupancy" (13 NYCRR Section 18.3(w){l)} does not jnply that all sponsor's shares that are sold for investment mtomatically become units held by holders of unsold shares. The sentence does not present an all-inclusive limitation. Although LO purchasers for occupancy are "holders of unsold shares", 'either are all purchasers for investment, ""holders of -unsold ;hares". The sentence is meant to imply that when a holder of insold shares or a member of his immediate family takes occupancy if a unit associated with shares for which he is a designated .older, such status as an unsold shareholder is lost (together dth all the benefits and burdens associated with such status). . 'his sentence in the regulation was meant to stop the sponsor :rom designating a .never-ending line of holders who take iccupancy but who would be able to avoid consent requirements by ,he apartment corporation which will eventually be controlled by .on-sponsor affiliated tenant shareholders. „ 2 —
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It would be possible to have later purchasers zrom holders of unsold shares deemed to be holders of unsold shares but only if the sponsor so designated the new purchasers as such even though the sponsor did not directly sell to the new- purchaser . It would appear in the case at bar that the purchaser would have to produce some evidence of the sponsor's designation o£ him as a holder of unsold shares as well as compliance with the obligations of such a holder i.n order to avail himself of the privileges associated with such status. Such obligation would include his updating of the offering plan and providing the offering plan and all amendments thereto to his purchaser before accepting a contract. I hope this expanded definition of what is a holder of unsold shares is helpful to the Court in making its determination MARY SABA.TINI DISTEPHAN Assistant Attorney General Section Chief, Review Real Estate Financing Bureau _/

http://www.ag.ny.gov/real-estate-finance-bureau/memos/sponsor-and-holder-unsold-shares-refb-policy-memoranda

To clarify, i am not arguing with carl (CDT) if his info overrides this info, but why is this on the official site of the AG , my understanding of this is still weak,so they may be different fine points,

YOUR HOME; Unsold Shares in A Co-op
NY TIMES
By JAY ROMANO
Published: August 20, 1995
FOR many co-op dwellers, the main consolation for submitting to the subtle indignities of co-op ownership -- things like flip taxes, sublet fees and the requirement for board approval of sales and sublets -- is the knowledge that fellow shareholders share the same burden.

Some shareholders, however, are exempt from such details.

Original sponsors, for example, need no board approval for their rental tenants, pay no flip taxes or fees for subletting and can sell their units to whomever they want.

Now, an increasing number of nonresident investors who bought apartments from original sponsors are demanding the same rights and privileges as their predecessor shareholders.

The demands, however, are not sitting well with resident owners, co-op boards and the lawyers who represent them.

"Is this a big deal? You bet it's a big deal," said Marc J. Luxemburg, a Manhattan lawyer who is also president of the Council of New York Cooperatives.

The big deal, Mr. Luxemburg said, is the controversy raging in the co-op community over the question of who may be considered a holder of unsold shares.










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"There are thousands, maybe tens of thousands of apartments in New York that are still unsold," Mr. Luxemburg said. "And the question is to what extent an investor can run a rental operation in a co-op by buying unsold units and then renting them out from now until kingdom come."

Morton Rosen, a Manhattan lawyer who specializes in co-op law, said that under New York law, a sponsor of a co-op conversion is entitled to certain privileges designed to enable him to market apartments and complete a conversion.

Among those privileges are the right to be exempt from various rules and regulations in the proprietary lease, exemptions that give them the right to sell or sublet an apartment without board approval, and the right to be exempt from flip taxes and sublet fees.

In, short, Mr. Rosen said, "If you're a holder of unsold shares, you can put Jack the Ripper in your apartment without board approval and without even being subject to any fees."

For original sponsors, it seems, such exemptions are reasonable and even necessary, considering the fact that the ultimate goal is to facilitate the sponsor's attempts to fully convert the building without going broke. Increasingly, however, original sponsors have been selling their unsold shares to people with no intention of occupying the apartments they are buying. And therein lies the rub.

"You have people who are trying to subvert what a co-op is all about by running a rental operation," said Mr. Luxemburg. "They are using the status of the co-op to enhance the value of their rental apartments."

At first blush, it might seem simple to determine whether a person is a holder of unsold shares just by checking to see if the shares have ever been sold.

But that doesn't always work, because, by law, unsold shares can be sold by a sponsor to someone else who still retains the right to be treated as if they are holding unsold shares. The question, then, is how does one become a holder of unsold shares?

As it turns out, most proprietary leases contain a provision that defines unsold shares as shares that have been sold by a sponsor to a transferee who does not personally occupy the apartment. As a result, many people who have bought unsold shares from sponsors, and then never occupied their apartment but rented it instead, have come to the seemingly logical conclusion that they are holders of unsold shares.

The New York State Attorney General, however, doesn't necessarily agree with that reasoning.

In 1987, the Attorney General's office issued a letter "clarifying" the regulations on co-op conversions and making it clear that for anyone other than the original sponsor to qualify as a holder of unsold shares, that purchaser must be "designated" as such by the sponsor.

"What most people don't understand is that the proprietary leases define only what unsold shares are," said Mary Sabatini-DiStephan, an assistant attorney general. "And just because someone owns unsold shares doesn't mean that they are considered a holder of unsold shares unless they have been designated by the sponsor. It may seem like semantics to them, but it makes a real difference to us."

The reason it makes a difference, Ms. Sabatini-DiStephan said, is that when a sponsor "designates" a transferee as a holder of unsold shares, the sponsor is guaranteeing the financial obligations of the transferee to the co-op. If the transferee stops paying maintenance fees, the original sponsor is still on the hook. Moreover, a designated transferee is required to comply with the same requirements the original sponsor had to comply with, including filing annual amendments to the offering plan.

"Essentially," Ms. Sabatini-DiStephan said, "a holder of unsold shares steps into the shoes of the original sponsor."

In many cases, however, the original sponsor never explicitly "designates" an investor-purchaser as a holder of unsold shares. Often, the issue is never even raised.

But when the investor-purchaser reads the proprietary lease, and discovers that according to the lease he or she is the owner of unsold shares, it is easy to conclude that he or she is also a holder of unsold shares and entitled to the significant rights and privileges that that status provides.

And such is the stuff that lawsuits are made of.

"Nobody knows what the law really is," said Peter Stern, a Manhattan lawyer who is representing a client who bought unsold shares from a sponsor. Mr. Stern's client, who did not have a lawyer at the time, never asked for or received the required "designation" from the sponsor, never occupied the apartment herself, but soon noticed a definition of unsold shares in the proprietary lease that fits her situation perfectly.

"The true issue is," Mr. Stern said, "if you buy an apartment and you get a proprietary lease that calls you a holder of unsold shares if you don't live in the apartment, and then you don't live in the apartment, why shouldn't you be treated as a holder of unsold shares?"

In Mr. Stern's case, the State Supreme Court ruled in February that his client was not a holder of unsold shares because she was not designated as such by the sponsor. A couple of months later, however, the court reversed its earlier decision and scheduled the case for trial later this year.

Whatever the outcome, lawyers on both sides agree the stakes are high.

Under current rent regulations, once an apartment in a co-op is vacated by a rent-regulated tenant, the owner of the apartment can rent it for whatever the market will bear. That, coupled with the possibility that co-op boards will have no control over thousands of apartments owned by undesignated holders of unsold shares, could cause problems for co-ops with significant numbers of unsold apartments.

"It completely emasculates the whole right of the board to choose who can buy and who can rent in a building," said Mr. Rosen. "People purchase their apartments on the assumption that there will be some control over who can come into the building. This is not an elitist fantasy, either. We're talking about buildings all over the city."

i just saw a board member bought an apartment that was initial investor shares" I am sure he plans of renting it out as unsold shares.
I like that the courts understand the concept of co-op ownership, and the reasons why individuals bought co-ops, for security and a place where everybody had an invested piece, ala skin in the game.
However the managements company, who was the sponsor, now has tis cash cow, where they do as little work as possible, collect a good sum in maint fees and do not oversee the managing agents, and we have frozen shut fire doors due to rust, which incurred big fines and cost of replacement of the door and frame.
The pres of the board in cahoots with the management company has converted the building into a rental, , many illegal sublets, where a parent went to th interview stated they were moving n/downsizing and the iterviewee never took possession, their son or daughter moved in. None of these shareholders ever came to an annual meeting nor considered it their home,so we have gone full cycle to a rental, but no laws to protect the shareholders, president states in an annual meeting that he will inside deal, 4 times. refuses to provide any financial transparency, the audit we should get rely s only on the receipts invoices that are given to them, if BS is fed to them, BS is the result. The renters made out in this building,since they have no worries, I can almost guarantee that our maint monies and co-op reserve monies are not being handles properly. Most likely moved to the co-op account , but has been in another account, with no board members, including the treasurer,who fraudulent states he has lived here for over 10 years, yet has never lived here, his sons and daughters have the apartments
some shareholders are given the managing agents email address for easier contact. I received a letter stating to never contact him, since i ask or demand my shareholder rights, board refuse to provide contact info.
Nightmare ,
oh and the managing agent told some shareholders that they don't count the unsold share apartments as sublets or rentals. frauding the owner occupied ratio

i just saw a board member bought an apartment that was initial investor shares" I am sure he plans of renting it out as unsold shares.
I like that the courts understand the concept of co-op ownership, and the reasons why individuals bought co-ops, for security and a place where everybody had an invested piece, ala skin in the game.
However the managements company, who was the sponsor, now has tis cash cow, where they do as little work as possible, collect a good sum in maint fees and do not oversee the managing agents, and we have frozen shut fire doors due to rust, which incurred big fines and cost of replacement of the door and frame.
The pres of the board in cahoots with the management company has converted the building into a rental, , many illegal sublets, where a parent went to th interview stated they were moving n/downsizing and the iterviewee never took possession, their son or daughter moved in. None of these shareholders ever came to an annual meeting nor considered it their home,so we have gone full cycle to a rental, but no laws to protect the shareholders, president states in an annual meeting that he will inside deal, 4 times. refuses to provide any financial transparency, the audit we should get rely s only on the receipts invoices that are given to them, if BS is fed to them, BS is the result. The renters made out in this building,since they have no worries, I can almost guarantee that our maint monies and co-op reserve monies are not being handles properly. Most likely moved to the co-op account , but has been in another account, with no board members, including the treasurer,who fraudulent states he has lived here for over 10 years, yet has never lived here, his sons and daughters have the apartments
some shareholders are given the managing agents email address for easier contact. I received a letter stating to never contact him, since i ask or demand my shareholder rights, board refuse to provide contact info.
Nightmare ,
oh and the managing agent told some shareholders that they don't count the unsold share apartments as sublets or rentals. frauding the owner occupied ratio

Dianne, that 1995 article by Jay Romano was a good summary of the situation at the time, but a lot has changed since then. Here's another Romano article on Unsold Shares from 2007 that discusses both the Kralik and Sassi-Lehner decisions: http://www.nytimes.com/2007/08/26/realestate/26Home.html ("Dead Co-op Issue Gets a Second Life").

This statement from the AG no longer carries any weight. This is the opinion that was overturned by Kralik v. 239 E 79 in 2005. Note that the URL for this memo is http://www.ag.ny.gov/sites/default/files/pdfs/bureaus/real_estate_finance/Repealed-Memos/R-15.%20Holder%20of%20unsold%20shares.PDF -- with "Repealed-Memos" in the middle. I don't know why they bother to leave it on the website; it's pretty confusing to have it there.

As noted earlier, the current tendency in evaluating Unsold Shares -- to judge by the Sassi-Lehner and Rotblut cases -- is to take the complete set of corporate documents into account, including the full Offering Plan and amendments. An argument based solely on language in the Proprietary Lease seems unlikely to carry the day. But the situation remains messy and I'm not a lawyer, so please consult your own attorney if you're wondering about a specific situation in your own building.

Unless the board member uses the implied power of their position as a board member to sell the alternate supplier (direct or indirect threats or accommodations), as far as I know (and I am not a lawyer) there is nothing illegal about this. What it will do is taint your governance and make your entire board smell really bad.

The rest of the board needs to corral the ESCO employee very quickly to find out exactly how he/she is approaching shareholders. The rest of the board also needs to meet privately with shareholders who have been approached to see if there has been any coercion or promise of favors or other accommodations. The board should very quickly post notices, slip fliers under doors, send emails, whatever means of communications you use, to let shareholder know that this is *not* an activity endorsed or sanctioned by the board, and the BM is acting solely as a private individual. Finally, the board needs to pass some sort of rule or regulation that board members or their families may not undertake any sort of solicitation without the approval of the entire board.

Thank You Steve
You confirmed my fears.

The board (or at least the board treasurer) should get all 4 items listed. If not, ask at your next meeting. Since the board should be involved in preparing the budget, you should at least have that already. If you're not involved, you should be. The treasurer in my building also gets copies of all paid bills and must approve, before payment, those bills outside of normal recurring, utility, mortgage, payroll.

JG- I will speak to our Treasurer and see if she gets these. We don't have a management company. We hired our own building manager and I think we didn't or don't have a good idea of what we are supposed to be getting in general. Thank you for your time in responding.

Dianne,
I know the treasurer reconciles invoices, but these items are not so certain. My request was brought up, but there was not a clear answer so I sent a further email stating that we should have these monthly by the 6th for review and that I needed them to perform my duties as director. I will stay on it. I'm not comfortable not having these documents. Like JG below, we hired our manager and I feel the board was not aware of what they needed to ask of the manager so if he says he was never asked for these, it may be true and I plan on changing this way of handling things.

Good for you for "taking the bull by the horns". I know the experience of being a director can be daunting and most learn by experience, but there are some seminars offered and you should check with your local board of Realtors and other organizations, a co op/condo one, if it exists, to help you get some answers. Hope it all goes well from here on.

Dianne,
Thank you for yet another idea, consulting our local board of Realtors and other organizations in the area. I'm reaching out to a coop down the street to compare organization notes as well.

Since a board director is charged with making most of the decisions for the shareholders, they certainly should be entitled to receive all 4 items and then some. If elected board members are not entitled to all financial and legal information, who is? It sounds as though some people have annointed themselves the "chosen few" and want to have all the financial and legal power to themselves. In your case, the management company, since they seem to be deciding what you can and cannot have. Not a good way to run a board in my opinion. You were elected by your fellow shareholders, the management company was hired to work for the board, not the other way around. Good luck

Dear Dianne,
We don't have a management company. Our manager was hired by us and answers directly to us. I will speak to the Treasurer and see if they get this info. Maybe they do and not the rest of the Board. I'm pretty sure I know the answer to this. I think our Board is just not aware of what they should be getting and the manager, because he wasn't asked, isn't providing the info. I have my work cut-out for me. I appreciate your comments.

Since you hired the manager did you give him a job description to be certain that everything necessary is being accomplished? Perhaps a conversation with a lawyer outlining what should be in a management contract would be a good idea. Good luck.

Thank you, Dianne. I need to see where the job description would be kept. Someone else suggested I find this with regard to the hours that he is supposed to work.

The Co Op should foot the bill the first time. The second time should be the share holders cost. If they followed the protical they should not have a repeat performance.

Thank you, peoples choice. That's how I feel also. To add to it, when they removed the bug-laden mattresses, they took them elsewhere and left them at the curb for the Sanitation Dept. to pick up. A neighbor saw it happen after dark. At least they were properly wrapped. NYSD requires all mattresses for disposal, bugs or not, to be wrapped in plastic.