Which Comes First? Repair Contracts or the Loan to Pay for Them?

The typical co-op can support enough new debt to cover almost any major repair. In many cases, a mortgage refinance will cause the building’s maintenance to go up, which could pose a hardship for certain shareholders. However, the required increase is rarely enough to cause hardships for the co-op as a whole.

Fortunately, loans for co-ops’ underlying mortgages were relatively unscathed by the recent mortgage meltdown and recession. So anxiety about an inability to borrow is probably unfounded for most co-ops. And insistence on having signed repair contracts before entering the mortgage market is overkill.

A range of bids from several legitimate contractors should be sufficient to help you estimate the likely cost of your roof and elevator jobs. You should add a contingency to each project’s estimate to handle unforeseen costs (usually 5 to 20 percent, depending on the complexity of the job). The resulting estimate should satisfy most lenders. Having that number in hand doesn’t mean you’re ready to go mortgage shopping.

Refinancing the underlying mortgage is arguably the most important decision a board will ever make. It will affect not only the monthly maintenance, but the value of every shareholder’s apartment. Therefore, this is the time to get your entire team of professionals involved – property manager, accountant and lawyer.

Your managing agent can help you develop specifications for each project, recommend reputable contractors, check that all bids are complete, assist in negotiating final prices, and make sure that all required approvals and permits have been secured.

Your accountant can assemble all of the financial and tax records any lender will require, help you prepare a budget reflecting the planned new loan, and assist in evaluating loan options.

Your attorney will help negotiate contracts for each project, check your insurance coverages, check public records for building violations and outstanding liens, evaluate loan offers, and represent you at the closing.

The time to get your professionals involved is at the very beginning of your hunt for a new underlying mortgage. The benefit of their input at the beginning, middle and end of the process outweighs any extra costs for their services. It’s not money down the drain. It’s money well spent.