REFINANCING YOUR MORTGAGE, P.2

An environmental assessment, if required, determines whether the co-op's property contains any hazardous substances (asbestos, lead paint, oil spills, etc.), whether any substances that were found pose a risk to co-op residents or adjoining properties, and, if so, what steps may be required to eliminate or reduce any risk(s).

The Loan Range r

Once a loan officer has evaluated this information, he or she usually summarizes the findings in a report to the institution's loan committee. The committee's members typically evaluate each application in light of the others under consideration. If the co-op's application presents an attractive lending opportunity with relatively low risk, it will be approved. If the co-op's application is deemed to be higher risk, it may be approved with special conditions, rescheduled for further discussion, or rejected. If the application is approved, the loan officer will send out a commitment.

Since the commitment letter is the document that everyone has been waiting for, its arrival does justify a small celebration. However, much important work remains to be done. If the board has not discussed its planned refinancing with the co-op's attorney before this point, it must do so now. Under no circumstances should a co-op return a loan commitment to a lender before reviewing it with its attorney. Every refinancing has myriad business and legal issues that must be handled carefully to avoid future problems for the co-op. The right time to address these issues is in the commitment (or even in the application, as some attorneys suggest), and the right person to address them is the co-op's legal advisor.

While every commitment is a contract between lender and borrower that contains all of the terms of the proposed transaction, most commitments contain one or more conditions that must be satisfied within a reasonable time period before this contract is binding. If even one of these conditions is not met, your deal can fall through. Conditions in a commitment usually relate to documents or other information that must be supplied by the co-op's attorney.

For example, every loan requires a new title insurance policy to protect the lender's security interest. Most lenders want a report from the secretary of state certifying that the co-op is a corporation in "good standing." They also request an opinion letter from the co-op's attorney testifying that your co-op was properly formed and continues to operate as a bona fide cooperative. Most lenders require assurances that your property does not have any serious building code violations, mechanic's liens, easements, or other encumbrances. As soon as all of this information has been reviewed by the lender's attorney, a closing will be scheduled.

The closing is the final step in most refinancings. This is a meeting, attended by at least one co-op officer, the co-op's attorney, the lender's attorney, a title company representative and others, at which the old loan, if any, is paid off and all documents describing the new loan are signed. It also is when all the expenses of the refinancing are paid and the new loan's proceeds disbursed to the co-op.

A properly organized closing should take about two hours. However, if there are unresolved issues, a closing can last all day — or longer! Thorough preparation makes a big difference.

Patrick B. Niland, a mortgage broker, is the principal of First Funding of New York.

Adapted from Habitat September 2008. For the complete article and more, join our Archive >>