When a Co-op Board Misuses an Application Package

Applying to buy a co-op apartment can be a harrowing experience, culminating with the dreaded interview before the co-op board. But a recent applicant got an unpleasant surprise after going through his harrowing experience. Shortly after his interview with the co-op board, a salesman contacted the applicant’s attorney and financial planner, identifying himself as a personal friend while trying to induce them to invest in a real estate deal. This salesman, it turns out, is a member of the co-op board. Which raises several interesting questions. Can a co-op board member use access to a prospective buyer’s delicate information for personal gain? And it smells unethical, but is it illegal?

“That conduct is absolutely unethical,” attorney Adam Leitman Bailey tells the Ask Real Estate column in the New York Times. That said, the sales call was probably not illegal since it did not result in any financial loss to the prospective apartment buyer. Therefore, Bailey says, it’s unlikely there are grounds for a lawsuit.

But the episode is a reminder that co-op boards wield immense power – and therefore shoulder immense responsibilities. In addition to their responsibilities to fellow board members, the building, and its residents, boards must properly handle the delicate personal and financial information they demand of prospective buyers. This includes safely disposing of application packages – and not turning them into tools to promote business opportunities.

After a breach like the one described above, the board must investigate, either by forming a subcommittee to interview the parties involved, or by hiring outside counsel to do so. Once it has a full picture of what transpired, the board should ban such conduct and then take steps to enforce that ban. The board could ultimately ask the member to resign or remove him from his position, which could require a special meeting and vote of all the shareholders. Depending on what the investigation uncovers, the board may also need to disclose its findings to all the shareholders.