Should an Attorney Board-Member Do Your Building's Refinancing Closing?

As a mortgage broker, I receive questions like these several times each year, as well as similar ones about accountants and managing agents. It always surprises me that board members, who have a fiduciary responsibility to protect the interests of their fellow shareholders, would undertake the most important transaction of their tenure without the involvement of all of their cooperative's professional advisers. Refinancing an underlying mortgage affects not only the monthly maintenance but also the market value of every shareholder's apartment.

The ramifications of making a mistake when refinancing are long-lasting and can be very expensive. But is it improper or a conflict of interest?

Should a board member perform 

any professional service

for his or her cooperative

 beyond his or her board duties?

Before answering this, first understand the distinction between credentials and experience. Not all attorneys are well-versed in refinancing. Some have never closed a loan of any type, some have never closed an underlying mortgage loan and others have not closed an underlying loan in years. A lack of recent and specific experience does not automatically mean your attorney cannot close your loan. However, there is a strong possibility that an attorney who has closed many underlying loans will give you better advice, will close your new loan faster and will encounter fewer hiccups. That experience might come at a higher cost than your regular attorney would charge but, I assure you, it will be money well spent.

If you are contemplating a refinancing of your cooperative's underlying mortgage, by all means, contact your regular attorney. He or she will tell you whether the terms of your existing loan allow you to refinance and, if so, what the prepayment terms (if any) might be. He or she can also give you a list of issues to consider as you formulate the type of new loan you want. You also should have a frank discussion with your regular attorney regarding his or her experience in closing underlying loans.

Ask the Attorney

If you decide to use a different attorney to handle your refinancing, your regular attorney can be very helpful in identifying and evaluating candidates. The overarching goal is for your cooperative to have the best legal representation for this very important transaction.

Some cooperatives do not have a regular attorney, and either hire someone different as each individual transaction presents itself or handles such issues on their own. When confronted with an underlying loan commitment, though, many co-op boards come to the correct conclusion that they need professional help. Searching the Yellow Pages or online listings might turn up a few names to call, but a much better way to find a skilled attorney would be to ask friends, neighbors, and work colleagues for recommendations.

Should a board member perform any professional service for his or her cooperative beyond his or her board duties? It depends.

Board members come from all walks of life and every profession. That diversity of knowledge and experience can be of great benefit. Unfortunately, it sometimes hinders effective administration and timely action. In those cases, it might be best to retain the expertise of an independent third party.

However, there is no legal or ethical reason that a board member who is trained and licensed as an attorney could not close your cooperative's new underlying loan. Likewise, there would be no conflict of interest, unless that attorney board member did something to his or her benefit at the expense of the cooperative or its other shareholders.

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

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