Hi,
It is critical that you pay it down. If you building is of any age, then the mortgage serves as a capital well for capital repairs and improvements. As we have seen, building values do not always rise. And the building components will wear out - even recently replaced ones. If you don’t pay down the mortgage, then you risk not having enough surplus value from which to borrow should you need to in a downturn in the economy. And don’t forget inflation and new regulations – capital repairs will nearly always cost more in the future then now.

Even more challenging is the need to raise reserves while paying down the mortgage. New regulations by Freddie and Fannie mean that they may not guarantee unit mortgages to prospective buyers if you fail to place 10% of your maintenance into reserves.

I would go for the low rate loan. Use some of the savings on the interest rate to increase reserves. You might even save up enough to pay off a portion of the remaining balance after the 10 year period is up.

Good luck!
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I've got a similarly small mortgage for our coop corp to refi in few years. My question is who did you get two proposals from and what conditions/terms do the proposals have regarding your ability to prepay them before maturity (and costs associated). if the prepay terms differ alot that could be a big factor in my decision.

Who did your proposals come from? I've got a similar situation in a few years. Also do the proposals have the same call protection?

thanks

You don't say what you're currently paying monthly on your existing mortgage. For 580,000 @ 4.5%, you would have a $6000 monthly payment to pay it off in 10 years. Mortgage rates are low, I would lock in the low rates for either 10 or 15 year full amortization. Mortgage payments, property taxes, fuel and salaries are the big budget items. Can't do much about the other 3 in a significant way. This becomes a selling point to buyers as well, a reduction in monthly carrying charges, even if it is 10 years away.
Re: the Fannie Mae 10% maintenance reserves, I think that only applies to condo's.

We have heard this from a number of buildings. We would like to do a story on this issue. Can you give me a call at 212-505-2030?

Depending on your building, you may have the option of installing a back-flow preventer or a double check valve. The distinction is whether or not your building has any hazardous usage, such as a dry cleaner or dentist in occupancy. The double check valve might offer better water pressure. It should be simple enough to check your existing pressure with an inexpensive pressure gauge you could attach to a hose fitting in the basement. Your incoming water main has an effect on pressure too, and the water meter can also reduce pressure. We have a 2" main, the city installed a new electronic water meter with piping under 1.8", reducing pressure. Had to be swapped out for a full 2" version.
Either the backflow preventer or the double check valve also require annual inspections which need to be filed with the city.

usually the board leaves that to the managing company, but if the new super is not working out you need to act to remove him/her before their probationary period is up, documentation is extremely important, but so is knowing the contract, other wise it may look like tour trying to micromanage. regardless of what the management company says. If they bring in a bum, that says a lot about the managing company. It happened to us, luckily i had union experience and my complaint/charge was the only one that stuck, the rest were denied at arbitration. This was when it was much harder to document, before digital cameras, early 90's. The new super that replaced him, has become like family to the building. .

Appreciate the advice

Typically, the Board will ask us to place the ad out or reach out to our connections for a few candidates that are first vetted by our management firm. Once we have a few candidates that we feel have all the required specifications and skills needed and will work nicely with the building and the Board, the Board likes to do final interviews.

At the end of the day, the Superintendent becomes a part of the community and most of the time the Management company does not live in the building. It is a great idea for those who are elected and who live in the community to do the final interview and make that final decision.

Mark is pretty much on the money with his response. Typicall the management company screen the candidates and the board decides. That is typically the norm.
I also am aware of situations where the management companies have steered the board towards candidates (whom they may know are looking to move, and may have managed another property very well for the mgt company) and in other cases board members may know personally of supers that are looking.

Hope this helps, MRM

Does anyone have a comment or advise on the matter?
It would be appreciated.

Hi Jacqueline,

The first thing your board should do is speak to your board attorney and ask these questions of her/him. The answers may be in your offering plan or other Co-op documents, but these are pretty hefty tomes and you would benefit from professional interpretation.

By "board attorney" I mean an attorney who is retained and paid by the *board*, and not by the Sponsor. If you go to the Sponsor's attorney, you will receive answers favorable to the Sponsor.

If your board has not yet formed a relation with an attorney (independent of any Sponsor or MA involvement), that should be your first order of business. Contact the Council of NYC Cooperatives or go on their website for a list of attorneys who specialize in Co-op and Condo law. Do not use Uncle Fred or the lawyer who handled your negligence case. You need someone who if very well versed in Co-op law.

Thank you, Steven this was very helpful.

The coop is responsible for a very limited amount of repairs within an apartment. Generally, the windows, entrance door/bottom lock and plumbing within the walls are a coop's responsibility. Everything else is the responsibility of the unit owner, which would include the sponsor unsold shares. Check your proprietary lease for specifics.

Hi Gloria,

While I am not a lawyer (I'll defer to them), I believe that anyone can begin to sue anyone. The question is will the courts let the lawsuit continue.

As a Board Member and in conjunction with my homeowner's policy, I carry $1 million personal liability coverage for a nominal annual cost (State Farm). This is just in case some crackpot decided to file a misguided lawsuit.

I would definitely contact your personal insurance agent to see if you have coverage and whether you should file a notice of claim. If you don't have coverage, you may wish to find out how much that coverage might cost in case this happens in the future.

Please also contact the co-op or condo corporation's insurance agent to see if you claim might be covered under that policy too (typically D&O coverage).

Don't wait until the court appearance to contact the insurance agent(s) - communicate as soon as you receive court papers. Sometimes the insurance companies' lawyers can assist in the defense against the claim (this lowers their claim risk).

Good luck!

Thank you for your advice. I appreciate your response.I do have a million dollar coverage, but I understand a person can sue you privately without the Board coverage. I called a RE lawyer yesterday and waiting formhis response.

Hi Gloria,

There happens to be a very good article in this month's Habitat Magazine that is right on point concerning your question.

http://www.habitatmag.com/Publication-Content/2012/2012-October/Featured-Articles/Board-Members-Liable-in-a-Lawsuit#.UGw-3FFP8W8

While the attorney you contacted will be your most authoritative resource, this article will give you a good understanding of the basics of board member liability.

Good luck with your case!

Yes, this 10% reserve fund requirement is now required and has been since Dodd\Frank was implimented in July 2011

It is called a 'reserve fund' and represents 10% of the annual common charges or maintanence collected for all condominiums and cooperatives and must be noted on the Annual Budget as, 'Reserve Fund', independent of any assessment or special assessment that may be imposed for work needed . There are ways to get a loan without it but the Condo or Cooperative you are buying should have this by now. Not having it should be of concern for any potential purchaser.

Can you provide a source of the reserve fund requirement?

It's disconcerting to keep hearing--especially from bankers, agents, accountants, & others who know better--that the reserve fund requirement is new.

The link below leads to Fannie Mae's "Selling Guide" from 2009 [the earliest version available online]; it's 1,200 pages of rules governing their loans. Jump to the middle of p. 563, & you'll find the "10% reserves" rule.

https://www.efanniemae.com/sf/guides/ssg/sg/pdf/sg1009.pdf

Consult the current Fannie Mae Selling Guide & you'll find the wording UNCHANGED. This is NOT a new rule.

Lenders that just decided to enforce this rule last year may find it easy & convenient to blame Fannie Mae now...but that's not accurate.

However, there's little debate as to whether the rule is dumb. It states that the association a] must have a budget line item for reserve funds contribution, & b] that it be at least 10% of total budgeted expenses. Yet:

1--There is NO requirement that these funds actually be deposited in reserves.

2--Fannie Mae does NOT care how much money is actually in reserve accounts, now or historically. Your reserves could have $10 or $10,000,000; it's not a factor.

Absurd? Yes...but that's the rule, & exceptions are rare.

The good news is that any banker can tell you up front--before you submit an app or pay a fee--if your building qualifies.

The only time borrowers need not be concerned with this rule is when lenders--typically local &/or small--plan to hold the mortgage in their own portfolio. If they're not reselling, they don't care about Fannie/Freddie rules.

The page 563 reference above indicates that the 10% minimum reserves is for Condominium property. It does not state that this requirement is for coop's, at least not on page 563.

You're correct.

Re co-ops, on p. 585-6 you'll find: "The project’s operating budget must...provide for adequate replacement and operating reserves."

And on p. 591: "The co-op corporation must maintain replacement and operating reserves."

Language in the most current Fannie Mae guide is the same; no 10% or other specific requirement is mentioned.

I’ve not heard of any co-op building being blacklisted by lenders due to non-compliance with Fannie Mae reserve rules…just condos.

If anyone is aware of a co-op mortgage denial where this rule has been invoked, please post details here.

While some people view this policy as heavy handed and the 10% threshold as arbitrary, it makes good fiscal sense. And it is usually cheaper to the shareholders in paying for capital repairs and improvements in the long run when compared to paying off loan interest.

Personally, I think the 10% amount is too low for full funding of capital repairs and replacements. I would suggest treating this requirement as a portion of what is needed with loans, assessments, selling more corporation stock (in the case of co-ops), tax credits, grants & special programs or other financing.

You may also wish to use a low risk investment fund or Certificate of Deposits to hold the funds until needed.

The last thing any condo or co-op needs in this economy is to have willing buyers who are unable to get mortgages as a result of the finances of the condo or co-op corporation.

I would have management with a board member go to the apartment and talk to them about these problems. Then I would state if this keeps happening the board will have no choice but to start to charge for each day they don't comply with the rules. Make sure that's also in writing with lawyer approval. Sounds like that person has issues that only his family can help with. Good Luck

His wife is just as bad.
I appreciate your suggestions.
Thank you

I would have management with a board member go to the apartment and talk to them about these problems. Then I would state if this keeps happening the board will have no choice but to start to charge for each day they don't comply with the rules. Make sure that's also in writing with lawyer approval. Sounds like that person has issues that only his family can help with. Good Luck

unfortunately, you can't charge a penalty for breach of Bylaws or House Rules unless there is a provision for being able to institute such charges already included in your Bylaws. If not, that then requires a proposed Bylaws change, writing it up with infractions/charges delineated and specified in some manner, and it being passed by a 2/3 majority at a special meeting called for that purpose and announced and specified in advance according to the requirements for such as stipulated in your Bylaws. You should start a paper trail of letters and demands, make sure it is in your house rules or put it there (keeping doors closed), and at some point decide how you want to enforce it. Do not threaten unless you plan to actually act or you will create problems for yourselves.