Fiscal Fitness Isn’t the Only Thing Co-op Buyers Must Prove

The documentation most co-op boards demand from potential apartment buyers is a fairly standard test of their fiscal fitness. Most try to verify a buyer’s employment through a letter from the employer, which will confirm position, salary, and dates of employment. A board also needs to see tax returns, bank and brokerage statements to verify assets, and a credit report from one of the major reporting agencies. All pretty standard, but some applications require flexibility on the board’s part. Here are some examples: 

Freelancers – With self-employed individuals, boards should substitute an accountant’s letter for the employer’s letter. It should state the line of work, the years of self-employment, and income history. “Let’s say you made $250,000 but your expenses were $75,000,” says Stanley Greenberg, president of his 1,024-unit Queens co-op. “So then, to me, your income would be $175,000 for the debt-to-income ratio.” 

Bonuses – This is a gray area. “A banker makes $300,000 but can get a million-dollar bonus,” says Bruce Robertson, a broker with the Corcoran Group. “Is it guaranteed? No. No bank or company is ever going to say ‘guaranteed bonus’ or ‘indications are good he’ll get about the same as last year.’ If it really matters in order to push the person to a better-qualified status, that’s where we’ll supply a bonus history, which boards take into consideration.” 

Criminal History – Some boards also check for criminal history. But beware: not all background agencies are completely responsible in expunging records when a conviction is reversed. “Some convictions might be 40 years old and meaningless, like a joyride in a car in the ’70s,” says attorney Geoffrey Mazel, a partner at Hankin & Mazel. But if something seems relevant and serious and could negatively affect the co-op’s quality of life, he advises rejecting the application. 

Gifts – How do you factor in when a buyer’s parents make a gift of the down payment? “Whenever there’s a source of funds that aren’t the candidate’s own, that’s something you have to look at very carefully,” says Mark Ulrich, an accountant who is treasurer of his 800-unit Queens co-op. “It may not be a gift but a loan that’s to be repaid. We don’t mind a gift as long as it’s documented with a gift letter.” Such letters contain signatures of the giver, the recipient, and a bank officer, plus a copy of the canceled check and a copy of the bank statement of the gift-giver to make sure the check cleared. 

Discrimination Defenses – Don’t ask for a photo of the applicant or a marriage license, since that opens boards to claims that a rejection may have been based on race, gender, marital status, or some other protected class under federal, state, or city anti-discrimination law. An application form should be carefully drafted to make sure there are no questions that expose the board to liability, advises Mazel. 

Proper Disposal – After reaching a decision, boards should make sure the documents in the application package are destroyed. Boards can be liable if an applicant’s Social Security number or other sensitive data are misused. 

Character – Financial fitness alone doesn’t mean an applicant will automatically win board approval. But a solid financial background is the single biggest factor, and the financial picture can reveal surprising things. “One applicant said in his initial documentation that he was single,” Ulrich recalls. “But on his tax return, he was married and filing jointly.” After the board inquired about the discrepancy, the applicant said he was not married but was living with the mother of his children and was “practically married,” so they filed jointly. The board rejected the application. “It’s about ethics,” Ulrich says, referring to lying to the IRS. “Will that person make apartment alterations using someone off the books? The financial documents give you not only a financial picture, but speak a lot to character.” 

Sometimes, after digesting all the data, a co-op board has to go with its gut.