This week real estate Attorney Keith Schuman talks about the core team that you'll need to accomplish your purchase of a Manhattan condo, co-op or townhouse. He lists them in pretty much the order in which they will be involved in the process. My customers often ask me for referrals to mortgage and legal professionals, and I usually provide two or three candidates for them to interview (Keith is often on the list). Asking friends and family is a good way to go too. With respect to legal counsel, make sure that real estate in New York City specifically, is the main focus of their practice, not an occasional sideline. The transactions are extremely complex and different than those in New Jersey or even just north of Manhattan, especially when a cooperative unit is involved. A missing piece of paperwork could cause a closing to be adjourned, creating ripples of problems that would be best avoided. I might add that you will likely rely on the advice of your accountant and other financial professionals, as you evaluate the tax benefits of your purchase of a home.

Successfully placed in contract is 9 West 19th Street
an $8.4 Million loft building in Chelsea/Flatiron

Getting started— key personnel

To begin, you should assemble a team of real estate professionals that includes a real estate broker, a mortgage broker, and a real estate attorney. As with most teams, the stronger the individual players, the more successful you will be in achieving your goal. So choose the individuals who will make up your winning team carefully and thoughtfully.

Real Estate Broker

To find an effective real estate broker who can steer you through the complex maze of home buying, get referrals from neighbors, friends, and colleagues (including your lawyer or financial advisor). You should look for someone with whom you feel comfortable, not anxious and pressured. The broker should specialize in neighborhoods where you want to live, return calls promptly, answer questions readily, and inform you about new listings. Not only will your real estate broker be your conduit to available properties and your aide in negotiation, he or she also will coordinate the activities of the other team members, such as the home inspector and the real estate attorney. By doing your homework to find an experienced broker, you will have someone in your corner that can assist you at almost every step of the transaction— particularly with the selection and comparison of properties and the negotiation of the purchase price or with the preparation of your board package when purchasing a coop or condo apartment. Best of all, there is no cost to you since the brokerage commission is paid by the seller.

Mortgage Broker

To obtain a home loan, most purchasers enlist the help of a mortgage broker rather than going to a bank. There are many advantages to using a mortgage broker rather than applying directly to a bank for a loan. In addition to processing your loan application, the mortgage broker will evaluate your financial situation, pre-qualify you for the loan amount that you can afford, and calculate your monthly loan payments. Mortgage brokers are not lenders (although in some instances, they can act as the lender), rather they arrange and negotiate the conditions and terms of loans from lenders on your behalf. Your satisfaction in the process of buying a home may greatly depend on your relationship with, and the competency of your mortgage broker. If the application, processing and underwriting go smoothly, it can be a simple process. If you encounter problems with your loan, it can turn into a stressful nightmare. A mortgage broker will provide you with a choice of loan programs offered by different banks on a competitive basis. In fact, a mortgage broker can simultaneously submit a loan application to several lenders with only one application fee. This greatly improves the likelihood that you will find the best rate and terms available in the marketplace. Many purchasers have found that going directly to their bank, even if they have a long-standing banking relationship, affords them no better terms and conditions than those offered by a mortgage broker. In addition, a mortgage broker will assist you in preparing and submitting a loan application to a lender (generally more quickly than if you were to apply directly to a bank) and will explain all aspects of the loan process. The mortgage broker’s service is free to the purchaser since the mortgage broker’s fee is paid by the bank lending the funds.

Real Estate Attorney

You should always retain the services of a real estate attorney who is licensed to practice in the State of New York and is experienced in representing home buyers. You need a lawyer because there are inherent conflicts of interest between purchasers and sellers. Once a contract is signed, the rights and obligations of the parties are fixed. The time to consult with an attorney is before you sign any papers.

Prior to signing a contract to purchase a home, your lawyer will perform a due diligence review of the underlying documents relating to the home. For a house purchase, your lawyer will examine the deed, the seller’s title insurance policy and survey (if available), the certificate of occupancy, and any documents that may be recorded against the property, such as easements and restrictive covenants. For a condo purchase, your lawyer will examine the offering plan and amendments, the bylaws, the rules and regulations of the building (sometimes called the house rules) regarding pets, guests, alterations, repairs, noise, nuisance, sublet policies and home occupations, the board’s meeting minutes, and the financial statements of the condominium for at least the last two years. For coops, your lawyer will review the proprietary lease as well as the same documents previously mentioned. Only a thorough investigation and analysis of a house’s underlying documents or a coop’s or condominium’s physical and financial status and history (e.g., number of owner-residents, number of investment apartments, assessments history, construction and repair and major capital improvements, underlying mortgage, lawsuits) will identify any serious problems with the building.

The real estate sales process

Once a seller has accepted your offer to purchase, the seller’s attorney will prepare a contract and send it to your attorney. Your attorney will review the contract with you, explain the conditions and terms contained in the agreement, and give you an estimate of the closing costs. Most attorneys will negotiate with the seller’s attorney to include an additional rider to the contract containing terms that further protect your interests in connection with the purchase. Once all of the terms of the contract are agreed to, you and the seller will sign the contract. Your attorney should send a copy of the signed contract to your mortgage broker who needs the document to process your loan application. After you receive a commitment from a lender to make a loan to you (the loan commitment letter), your attorney will review its terms and will explain any conditions contained in the commitment letter. Your attorney also will order a title report (for a condo or house purchase) or a lien search (for a coop purchase) after the contract is signed in order to examine the title to the property and to ensure that any liens or encumbrances against the property are removed at, or prior to, closing. If you are purchasing a house, your attorney will schedule the closing as soon as all title conditions have been cleared and you have obtained clearance from your lender to close the loan. If you are purchasing a coop or a condo unit, you also will have to wait until you have obtained approval of your purchase application from the coop corporation or condominium board. As soon as all the necessary approvals have been obtained, your attorney can schedule the closing with the seller’s attorney, the lender’s attorney, and the building’s managing agent. Your attorney will prepare a preliminary closing statement containing a breakdown of checks required for the closing and will attend the closing with you to explain all loan and closing documents that you will be required to sign. After the closing, your attorney will provide you with a final closing statement and copies of all documents that you signed at the closing.

---

About the author: Keith A. Schuman, Esq. is the founder of Schuman & Associates, LLC, a full service real estate firm that provides legal services to its clients, through all aspects of their transactions. Keith is a frequent contributor to comitini.com. Contact him at keith@schumanlawfirm.com or phone 212.490.0100.

---

related posts:
tips on shopping for a home
What are the actual differences between townhouses, coops, condos and cond-ops?
What are the income tax benefits of owning a home
When should I buy a home?

Here's an unscientific poll about how people might feel about the short term prospects of Manhattan real estate. I've fielded a lot of calls this week from clients and readers, fueled by the news environment. They are concerned about their property values, and most are evaluating the possibilities of both selling and buying. Yes, I said buying. There is significant interest in Manhattan homes, but some are sitting on the sidelines waiting to see what happens next. Who can blame them? A few may have been directly affected by the turmoil on Wall Street, but I'd characterize the mood as being one of intelligent fact finding as people consider their next move. Some will inevitably choose to wait and see, others will move because they need to, or recognize that this may be the best buying opportunity in years, with sellers entertaining offers, and real negotiating taking place.

We have had an exceptionally strong real estate market here for the several years, but we are not immune to market forces. As I write this, a bailout of Wall Street seems imminent, its success will be an open issue for some time to come. The conventional wisdom says that Wall Street earnings drive the Manhattan real estate market. So as that sector comes under pressure from earnings and a loss of jobs, so may our pricing. Real estate is not a short term or liquid investment. How do you think that Wall Street and Manhattan will be doing in 2 to 5 years? I'm basically an optimist about our city and believe that the crisis is one of momentary confidence, not of fundamentals. What do you think?

This poll was posted simultaneously here, at TrueGotham and UrbanDigs. Thanks to fellow NYC bloggers and co-brokers Doug Heddings and Noah Rosenblatt for your support!

updated 10.07.08

The Manhattan real estate market has forms of property ownership which includes fee simple, traditional townhouses; but the vast majority of housing stock are apartments with forms of ownership which called 'co-ops', 'condos' and 'cond-ops' which are sometimes misunderstood. For example, it is possible to have a coop or condo unit within a townhouse style property. Each form of ownership has different opportunities, rewards and risks, so discuss them with your broker at the beginning of your search. Real Estate Attorney Keith Schuman takes us back to the basics here, by defining the major types of residential property, as part of his series about purchasing a home in New York City.

What Is a House?

A house generally refers to a one to four-family residence. It is the most common form of home ownership. The purchaser receives a deed to the home and the land that gives “fee-simple” ownership of real property. The purchaser is solely responsible for payment of all real estate taxes, insurance, utility, and maintenance costs for house.

The view from unit 17C at the Cielo condominium

What Is a Condominium Apartment?

Condos are found in almost all cities. The ownership of a condominium apartment is similar to the ownership of a house since you purchase real property and receive a deed to the unit. Since condos are generally found in apartment buildings, you own the interior space of your apartment outright. You also own an undivided portion of the building (known as the common areas or common elements), and you have the right to use these common areas of the building – such as the community facilities, laundry room, parking spaces, and hallways. There are generally few restrictions on your right to alter the interior of your condominium apartment provided that it does not affect the building’s structure or interfere with neighboring apartments.

A condominium is governed by an elected board of managers whose powers are derived from a declaration of condominium and bylaws. The condominium’s board of managers makes financial decisions about the amount of common charges that are needed to pay the building’s operating expenses and to maintain the building’s common areas. A condominium unit owner may mortgage the unit without limitation as to the amount of the loan and pays the real estate taxes on the unit as such taxes are determined by the governmental taxing authorities. A condominium’s board of managers usually does not have decision making powers regarding the sale or the sublet of the condo unit. Purchasers and subtenants of owners must submit an application to the condo’s board of managers. The board reviews the application and must either approve the applicant or exercise the condo’s “right of first refusal” to match the purchase price or rent amount. Although uncommon, the option to purchase or to rent the condominium apartment from the current owner rather than have it transferred or rented to the applicant is available to the board. Most condominium’s policies toward subletting are more lenient than are coops’ policies - which is why purchasing a condo is often a better choice for investors.

What Is a Cooperative Apartment?

Coops are common in New York City but relatively uncommon elsewhere. A cooperative corporation owns the building, including the individual apartments and the common areas. The corporation issues shares of its stock (the stock certificate), which are allocated to each apartment based upon its size and location within the building. As a shareholder in a cooperative corporation, you are entitled to a lease from the corporation (the proprietary lease), which gives you the right to live in the apartment. Most cooperative corporations have a mortgage on the entire building (the underlying mortgage), and each shareholder may obtain a loan for the purchase of their own apartment. Most cooperative corporations limit the amount of money a purchaser may borrower for the purchase of their apartment to an amount equal to between 50% and 80% of the purchase price. The stock certificate and proprietary lease allocated to the apartment are pledged to the lender as security for the loan, and a Uniform Commercial Code Financing Statement (UCC-1) is filed in the county where the apartment is located so that the lender has a lien on the stock certificate and the proprietary lease.

Each coop corporation is governed by an elected board of directors whose powers are derived from the certificate of incorporation, the bylaws, the house rules and regulations, and the proprietary lease. The coop’s board of directors makes all decisions regarding the maintenance paid by each shareholder, repairs and capital improvements to the building, the amount of the underlying mortgage, the right to sublet, whether or not a purchaser’s application to purchase in the building will be approved or disapproved, repairs and alterations of individual apartments, and payment of all building expenses. As a coop owner, you pay a monthly maintenance fee to the coop corporation. This fee covers your proportionate share of the costs of operating the building. Typically, operating costs for the building are comprised of property taxes, monthly payments on the underlying mortgage, insurance, utilities, and labor costs. You are entitled to deduct a portion of your maintenance payment from your taxable income.

What Is a Cond-op?

A cond-op is a residential cooperative building where the ground floor (typically consisting of commercial units such as offices or retail stores) is converted into a separate condominium unit owned by either an outside investor or by the original sponsor of the building. Because the coop corporation does not own the condominium portion of the building, the coop corporation generally does not receive the benefit of the income (i.e., rent) from the condominium tenants.

editors note: While Keith's definition of a condop is quite accurate, in the vernacular language of real estate sales, agents will often use the term to describe an apartment offered for sale which, although legally organized as a co-op, has condo-like house rules. For example they may have a streamlined application process, not require a Co-op Board interview, permit investors, or have liberal sublet policies.

---

About the author: Keith A. Schuman, Esq. is the founder of Schuman & Associates, LLC, a full service real estate firm that provides legal services to its clients, through all aspects of their transactions. Keith is a frequent contributor to comitini.com. Contact him at keith@schumanlawfirm.com or phone 212.490.0100.

---

related posts:
tips on shopping for a home
Who are the key advisors in buying a Manhattan home?
What are the income tax benefits of owning a home
When should I buy a home?

This has been just a flabbergasting week of news, with the global financial markets showing unprecedented volatility and fragility. Clearly the Bush administration's simplistic dogma of deregulation and tax cuts as the answer to wealth creation, has lead us to a cataclysmic failure; and a government intervention which so far benefits those most responsible for the failure. The fate of the ordinary homeowner who may be facing foreclosure remains largely unresolved and has been virtually unspoken about this week. The President has been disturbingly disengaged from the crisis. His direct engagement could be instructive to the American people, yet he chose to lay low, come out for brief statements, then retreat. He's let Treasury Secretary Paulson do the heavy lifting alone; who thankfully seems to be strong enough to handle it.

In panic mode, the questions of moral hazard, and who stands to gain, have taken a back burner to more tactical maneuverings. They are probably necessary, yet are not a strategic or systemic solution to better governance of our financial system. Let's hope that a solid national debate ensues about how to rewrite the rules of the game, with better stewardship of the taxpayer's money. We want to hear intelligent solutions on the economic issues, not just sound bites about who's to blame from both Presidential candidates. It will be one of them that will struggle to set policy that gets us back on the path to growth next year. Most of us should recognize that whatever the final intervention looks like, it is a sour deal, that will pass bad debt onto all of our books. It should not free up those who caused it to carry on business as usual.

Q. In effect, is the U.S.A. declaring that profits are privatized and losses are socialized. And if so, where is the incentive to stave off those investments that might cripple our financial markets again in the future?

A. The answer to these two questions is really the same. If the government is going to be on hook to rescue a company when it fails, then the government has to be able to regulate that company — to try to minimize the chance of failure."

There has been a lot of information absorb this week. David Leonhardt at the Times, wrote an excellent question and answer on the economic turmoil this week in the New York Times which was an insightful explanation of very complex problems. Frankly, I've had a hard time understanding the implications of this week's news. I'm glad its not just me that's confused, and that smart guys like economist Steven Levitt at Freakonomics can say "To be honest, however, I haven’t got the foggiest idea what this all means". He posted another excellent Q&A about the financial crisis this week. You'll find more news bookmarked in the 'newsreal' column at right.

But perhaps the most insightful commentary that I found today comes from British comedians John Bird and John Fortune in this clip from earlier this year, about the failure of British bank Northern Rock which lampoons the greed and sense of entitlement which led us to a bigger global crisis point this week. It is interesting to watch it in the context of this week's news environment, and even better to end this business week with a laugh. Enjoy!

Real estate Attorney Keith Schuman posts the next part of his guide to buying a co-op, condo or townhouse in Manhattan. He discusses the tax deductibility of interest, maintenance, second home mortgages and other considerations. Most people will engage several professionals to help in the acquisition process. These will likely start with a a real estate broker, and include a NY Real Estate Attorney, mortgage broker or bank. Since tax consequences are an important part of the decision, I personally think that it's always a good idea to discuss your plans to purchase with your accountant or financial adviser, right at the beginning of the process too. It will fine tune your understanding of the after tax cost of your real estate purchase. You'll find that all Corcoran Group and Comitini.com listings have a 'purchase cost analysis' tool online, that can be helpful as a first opinion on the after tax costs— like the one in the red column on this listing. You can plug in new variables to help envision different scenarios based on size of down payment, interest rates, deductibility of maintenance and your personal tax bracket.

A guide to buying a Manhattan home (part 2)

One of the greatest benefits to home ownership is that you can deduct from your taxable income certain expenses of owning a home. Practically speaking, when figured on an after-tax basis, the costs of home ownership are lower than the actual out-of-pocket costs. The higher your tax bracket, the greater the benefit these deductions are to a homeowner. The tax benefits are derived from two basic expenses: mortgage interest and real estate taxes.

Mortgage Interest

When you make a mortgage payment, a portion of the payment goes toward repaying the principal amount of the loan and the rest toward paying the interest on that loan. During the first few years, almost all of the loan payments consist of interest, which can be deducted from your taxable income. At the end of each year, your lender will send you a statement denoting how much you paid in interest for the year. This figure then can be reported on your annual income tax return. There is, however, a limit of $1 million on loans used to acquire or to improve a home and a limit of $100,000 on additional debt (i.e., second loans and home equity loans). If your loan exceeds these amounts, interest on the excess amount is not tax deductible. Interest on a home equity loan also is tax deductible, even if you use the money to pay off other debts or for other non-housing purposes.

Real Estate Taxes

All real estate tax payments, whether paid out of an escrow account maintained by your lender or paid by you directly to the taxing authorities, are tax deductible. If the lender pays the tax bill out of the escrow account, the lending institution will provide you with a statement at the end of the year indicating the amount that was paid

Taxpayer Relief Act

As a result of the Taxpayer Relief Act of 1997, individual taxpayers can now realize up to $250,000 in tax-free gains on the sale of a principal residence. For married taxpayers who file jointly, the exclusion is $500,000. These exclusions cover any property that has been used as a principal residence for at least two of the five years preceding a sale. The deductions may be taken each time a taxpayer sells a principal residence, although the exemption may not be claimed more frequently than once every two years. This exclusion is available regardless of the taxpayer's age and is not affected by whether a homeowner had previously claimed the one-time $125,000 exclusion under the prior tax law.

Taxation of Second and Vacation Homes

The tax benefits of ownership also apply to second home or vacation home buyers. However, if you rent out your home for more than 14 days per year, the rules are more complicated. If you rent the property to someone for two weeks or less, you can treat the property as your residence (and you do not have to report the rental income). Generally, you can deduct interest on a loan (subject to the $1 million limitation) to acquire two homes and the real estate taxes on the two properties.

Maintenance Charges (Coops Only)

Because coop monthly maintenance charges include a portion of the debt service on the building’s underlying mortgage and the real estate taxes, a portion of the maintenance (usually around 50 percent) qualifies for an income tax deduction for the coop owner.

---

About the author: Keith A. Schuman, Esq. is the founder of Schuman & Associates, LLC, a full service real estate firm that provides legal services to its clients, through all aspects of their transactions. Keith is a frequent contributor to comitini.com. Contact him at keith@schumanlawfirm.com or phone 212.490.0100.

---

related posts:
tips on shopping for a home
Who are the key advisors in buying a Manhattan home?
What are the actual differences between townhouses, coops, condos and cond-ops?
When should I buy a home?

updated 10.03.2008

There is a rich inventory of available homes, relatively low mortgage rates, and a return to a more balanced market between buyers and sellers. A little bit of horse trading is possible again— this may be the best time in years to think about buying. Is it a resale or a new development? The type of home and it's location are highly personal choices which an astute broker can help you navigate and negotiate. Once you've found that Manhattan home you love, and have an accepted offer, you will need a Real Estate Attorney to handle one of the most complex transactions possible. This is the first in a series of posts which will be of particular interest to home buyers. It’s a guide to purchasing a home in New York written by Real Estate Attorney Keith Schuman, to provide an overview of what you will need to know to finance and purchase a coop, condo, loft or townhouse.

continued »

s some of you know, I've been a Tribeca local since 1995. Another long-time resident and friend, who's kids go to PS 234 with mine, sold his loft last year, and has been leasing a place in the neighborhood instead. He's one of several people I know who sold and moved into a rental, in part because they believed the sales market had "peaked". These are folks who had built substantial equity over time in their properties. He sent me an email asking about the market. Here's my response, and a more detailed analysis on the downtown landscape for buyers.

continued »

I recently sent a first time buyer that I'm working with, a purchase application for a co-op apartment that we have an accepted offer on. The buyer asked for clarification about the difference between the purchase agreement and the co-op's purchase application. It served as a reminder to me that every individual's real estate transaction is a very unique, important, and sometimes confusing experience. As a broker it is important to relay the basics for those who may have never been through it before. I took the time to explain in probably greater than necessary detail, and thought an excerpt of my response might be useful for those contemplating their first co-op purchase.

continued »

The Mortgage Forgiveness Debt Relief Act of 2007 contains a provision which specifically affects co-operative housing by changing the criteria to qualify for co-op status known as the "80/20 rule". The rule used to mean that co-operative buildings were required to get 80% of their income from tenant-shareholders, and could not show revenue of more than 20% from other sources, like collecting commercial rents on retail or office space in the same building. Under the new law almost all NYC co-ops look like they will qualify under one of these new criteria.

continued »

Happy New Year! Please welcome once again Barbara Corcoran answering questions about avoiding capital gains on the sale of a primary residence and more, in an excerpt from 'Ask Barbara' in the New York Daily News

continued »

We again welcome Barbara Corcoran with a Q&A on how to best utilize the equity in a home from her column 'Ask Barbara' in the New York Daily News.

continued »

Vertical Living's Contributing editor Kim Fredrick interviewed me about buying into a new development. That interview follows here in its entirety and has some good advice in it; as does the very nicely crafted piece she wrote for the first issue called 'Small Promises' in which I'm quoted. I'm pleased indeed to have been asked to comment on a subject that I've written about before. In fact, I learned a couple of weeks ago that my post about closing costs in new developments, is being excerpted and included in the next edition of New York Real Estate for Salespersons, one of the textbooks for the NY State Real Estate licensing exam; it was also a Carnival of Real Estate. These are a few nice and unexpected validations, of the connection with the audience and the growth of my blog, which has been public for just under a year now.

continued »

Today we welcome a Q&A from special guest and real estate diva extraordinaire Barbara Corcoran from her column 'Ask Barbara" in the New York Daily News

continued »

In Manhattan about 80% of the owned residential housing market is co-op. Condominiums are probably less than 20 %, with townhomes as a small group of select, boutique properties. Purchasing any of them involves some sort of application process. It can be as simple as a request for information between principals in a townhouse transaction, to full finacial disclosure co-op board packages with a rigorous process requiring an interview with a Board of Directors.

continued »

An "energy smart building" is an accolade that can be used in promoting properties to prospective buyers, and something which some developers are seeing as a way of adding a layer of distinction to their projects. Is a real consumer preference toward energy efficiency beginning to take shape? I thought that I'd put a poll out to ask readers how they felt about this emerging aspect of real estate purchases.

continued »

You need to have realistic expectations about what sort of buying power you have. When ready to get serious about buying a home, you'll need to take the next step and have a candid dialog with a mortgage professional about how much borrowing power you have, based on more finely tuned details.

continued »

Can you help with an opinion poll about greening your home? With the first LEED certified residential condo developments being built and marketed right now, it is a moment in which the market is answering if this is an important issue for consumers with the very biggest purchases of their lives.

continued »

We've seen a new condominium development which has a real estate tax abatement. What does that mean?

continued »

Many of my friends have taken ‘interest only’ loans. I am starting to wonder if I should consider one as well?

continued »

I am putting 10% down on my new place, I've heard that will that cost me more. Why?

continued »

I%m expecting a nice bonus, can I use it to lower my mortgage payment?

continued »

I’m excited about buying in a new development, but it’s not closing for another year. Can I lock in an interest rate now?

continued »

Co-ops sets up their own rules and regulations regarding subletting, maximum financing of the purchase price, guarantors, and most often have the right to approve the purchaser.

continued »