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October 19, 2009
Co-Purchaser vs. Guarantor
I am trying to sell my co-op apt right now and have lined up a buyer. The buyer does not make enough income on his own qualify for the apartment, but his father, a rich dude, is willing be a co-purchaser. However, I have just been told by my coop board that they frown upon co-purchaser and will be more inclined if it is a guarantor situation. I am thoroughly confused now, maybe someone can provide some much needed clarification?
Why is guarantor more desirable than a co-purchaser? From a finance perspective, I would thought the co-op would prefer to have the rich dude's name on the property.
Since the buyer does not make enough money on his own to qualify for a loan, I am not sure that a guarantee from the father would do any good from a lender's perspective.
Can someone educate me? Thanks.
Comments
Our co-op has a similar policy. Spoiled children can be bad neighbors, especially if daddy bought their apartment for them. Better to have someone who worked hard to build up a nest egg and who really cares about their investment.
Also, daddy's name on the apartment also most likely means any of his other spoiled children could move in as well.
Posted by: andrewmc at October 19, 2009 9:05 AM
What andrew says in para 2.
You have 2 issues, the bank and the board. The bank only cares about their collateral so co-purchaser or guarantor makes no dif to them.
The board has to worry about who lives there, so like A said.
Posted by: denton at October 19, 2009 9:29 AM
This is a common rule for coops. It has nothing to do with making unfair and silly assumptions about the personalities of people who inherit money vs earn it. It has to do with how many units in the coop are owner-occupied. Affects taxes somehow. Somebody with expertise or on a board can explain the details.
Posted by: traditionalmod at October 19, 2009 9:38 AM
i agree with andrews. you do not want to spoiled trust fund brats in your building. they make the worst neighbors.
*rob*
Posted by: Butterfly at October 19, 2009 9:55 AM
Thanks. I got the spoiled brat bit, however, wouldn't it be the same spoiled brat in a guarantor situation? Why is a guarantor more desirable? I would have thought the co-op would frown upon both type of arrangements if they want to keep out the trust fund babies.
Posted by: var at October 19, 2009 10:02 AM
co-op boards favorite thing in the world to do is frown upon things. basically anything really. it's what they do best. they are the same kind of people who would repeatly run for class president and lose.
*rob*
Posted by: Butterfly at October 19, 2009 10:09 AM
It is exactly as traditional mod said. Nothing else to it. The bank that has the mortgage on the building looks at owner occupancy rates when it is time to refi
Posted by: Windsor Terror at October 19, 2009 10:12 AM
If only the kid is a shareholder it's much easier to get him evicted (for breaking house rules, for example) than if the co-op had to go against both him and daddy. If both parties are on the stock and lease the place would be considered owner-occuppied; what can't happen in a co-op (unlike a condo) would be having daddy the sole owner -- that would reduce the owner-occupancy %.
Posted by: babs at October 19, 2009 10:14 AM
Plenty of people have more than one name on a coop. What happens if someone dies? it is easy to remove one name on the document.
Tenants with right of survivorship, tenants in common, etc.
Somebody is being misinformed.
What is important is whether the board likes you or not. The names of ownership is irrelevent.
it is your personal choice.
Trust funds if substantial income is derived should please the board. It is easy for the potential coop owner to budget his money and pay on time. The monthly income of the trust might stay the same.
So whats the problem?
Trust fund bohemians are just as good as anybody else.
Money is money!
Posted by: Ysabelle at October 19, 2009 10:20 AM
quote:
Trust fund bohemians are just as good as anybody else.
that is certifiably WRONG and patently UNTRUE.
also, not all money is the same. trust fund money is dirty money, it's no different than drug dealer and prostitution money, in fact it's worse. why would you want to own in a building with that kind of riff-raff?
*rob*
Posted by: Butterfly at October 19, 2009 10:25 AM
It's starting to make sense. Babs, what you said about harder to evcit two parties (one of whom does not occupy the apartment) may be the key as to why guarantor is preferred over co-purchaser.
Is there anything I can do to convince to board to accept the buyer? I am stuck in a bad place and really need to sell ASAP.
Posted by: var at October 19, 2009 10:27 AM
var, if the buyer is willing to put 1 - 2 years maintenance in an escrow account that might help, is what we did with guarantors/co-purchasers.
Posted by: DeLepp at October 19, 2009 10:32 AM
Hey Rob
Trust fund money is generational. It consists of a stock and bond portfolio.
Aristocrats, daughters of the american revolution, old line families etc., have nothing to do with drug money. This social class has nothing to with deriving income from drugs or prostitution.
You watch too much tv and read too many trashy novels. Trust funds have nothing to do with watching"Dynasty or "Dallas". These programs are strictly fantasy.
Do you discriminate against everyone that is not like you?
Divirsity is good for the economy.
Posted by: Ysabelle at October 19, 2009 10:53 AM
"trust fund money is dirty money, it's no different than drug dealer and prostitution money, in fact it's worse. "
OK that's just plain stupid (unless whoever established the trust was a dealer or pimp). I generally ignore this sort of posts but that's just too much to let pass.
Posted by: babs at October 19, 2009 10:56 AM
We have offered up the escrow option, but the board is not really showing interest when we sounded them out. We have not officially submitted this buyer to the board yet, since Board has already said that they frown upon "co-purchasers".
Maybe I should just make a big enough pest of myself that the building will just be happy to get rid of me and accept any buyer. Naked dancing in the hallway?!
Posted by: var at October 19, 2009 11:06 AM
Seems an earlier post of mine has gone missing, so I'll try again, since it does relate to the original question. var, do the co-op's by-laws specifically prohibit co-purchasors? If so, it's not likely they will change them just for you. How attractive is the buyers' offer? I have heard of co-ops that turn down applicants if they believe the offer is too low, as a low purchase price will negatively impact their property values. Quite honestly, if this guy's income isn't cutting it and he's getting a bargain price to boot, I might not want that precedent in my building either. So I'd say that if it's a good price and apart from the son's low income he seems like he'd be a good addition to the building, it may be worth a shot. But if it's a lowball price and/or it seems like he won't get along with existing owners, you're probably better off holding out for someone else. If you are selling through a broker, he/she should talk to colleagues who have handled transactions in the building before and get their advice. Otherwise your lawyer should be able to come up with some suggestions. Good luck!
Posted by: babs at October 19, 2009 11:06 AM
Here is a good one.
The trust fund of Brooke Astor.......Does it consist of drug and prostitution money?
Posted by: Ysabelle at October 19, 2009 11:07 AM
Actually Ysabelle a lot of the Astor fortune was made on shady dealings (like the Rockefellers, Kennedys, etc.), but that's not really the point.
And var, depending on the people in your building, acting out might just make them more determined than ever to sink any buyer you put up, and to have you evicted and your shares taken by the board.
Posted by: babs at October 19, 2009 11:13 AM
Babs,
Thank you for your thoughtful response. The offer is 5% lower than my purchase price in early 2008; given the soft market, I don't think it is a lowball offer.
There is no rule against co-purchasers in the bylaws, even the managment agent has indicated that co-purchaser is not necessarily a deal-breaker, but the board seems to believe otherwise. The board is obviously free to reject or approve any buyer, so they can sort of make up the rules as they go. The buyer seems very nice person, but his income is really quite low compared to the price of the co-op. His dad, on the other hand, is very well off. There will no problem of them getting a loan with Dad as co-signer, but he won't get a loan with Dad as guarantor. Hence my problem. Otherwise, I don't think the buyer will care if the dad is a co-purchaser or a guarantor.
Posted by: var at October 19, 2009 11:15 AM
Babs,
Thank you for your thoughtful response. The offer is 5% lower than my purchase price in early 2008; given the soft market, I don't think it is a lowball offer.
There is no rule against co-purchasers in the bylaws, even the managment agent has indicated that co-purchaser is not necessarily a deal-breaker, but the board seems to believe otherwise. The board is obviously free to reject or approve any buyer, so they can sort of make up the rules as they go. The buyer seems very nice person, but his income is really quite low compared to the price of the co-op. His dad, on the other hand, is very well off. There will no problem of them getting a loan with Dad as co-signer, but he won't get a loan with Dad as guarantor. Hence my problem. Otherwise, I don't think the buyer will care if the dad is a co-purchaser or a guarantor.
Posted by: var at October 19, 2009 11:15 AM
Babs... that might be so but brooke astor is not responsible for whats in the trust. After all, she didn't set it up. She inherited it. Brooke probably had no clue just that she had it and got a nice income from it.
More than likely she probably never added anything to it either.
I wish you the best of luck no matter what decision you make.
Posted by: Ysabelle at October 19, 2009 11:21 AM
That doesn't seem like a bad purchase price. Why is the son's income so low? Is he just starting out in a career and will make more in future years? Or is he in a lower-paying, but "socially redeeming" career -- schoolteacher, social worker, etc.? Those situations might be more palatable to the board than the "spoiled rich kid" scenario.
How much is he putting down? If the father is that well off, and the down payment is big enough, and if the co-op itself is in good enough financial condition, a good mortgage broker should be able to find a willing lender, even with a guarantor. it may not be the greatest rate in the world, but even the "high" rates now are at historic lows, and he can always refinance later.
Posted by: babs at October 19, 2009 11:22 AM
Actually Brooke devoted most of her life to giving away as much money as possible, in part (as she's said) because of guilt over how some of the money was earned, so she knew very well where it came from. But that doesn't make her a bad person; quite the opposite.
Posted by: babs at October 19, 2009 11:24 AM
Babs,
The buyer is just starting out on a new job with good bonus potentials. However, since the bonus is not guaranteed in anyway, we can't count that toward his income, and the base salary is quite low. It's not a traditional bonus-based career like finance either, so the board may not understand as easily.
Coop requires 20% down. However, if Dad is a guarantor rather than a co-purchaser not co-purchaser, we run into the "gift tax" problem with the downpayment (which will be paid by dad).
To top it off, I have a hard-wired drop-dead time by which I must sell the apartment (long story). If I have not closed the apartment before the drop-dead time (in about 4 months), I will not be able sell it for another three or four years at least. That's why I am super anxious about the board rejection.
Posted by: var at October 19, 2009 11:36 AM
Lot of mis-information flying around here... if there's a co-purchaser, the apt is definitely owner-occupied, since the son is both an occupier and immediate family of the other purchaser.
My experience of almost ten years on a PS coop board indicates that there are very few people these days that can buy a coop in prime Brownstone Brooklyn without familial help. Yes rob, I think that sucks, but that's how it is and board members are not supposed to let there personal biases (trust funders suck) interfere with the process.
The coop probably doesn't want to deal with the fact if the resident is late on his obligations (which he well might be) that they will have to chase the father.
In fact in my coop that exact thing happened. I think the board is being reasonable, and in fact bending over backwards to let you know this before they start the application process.
Tell the buyer to buy a condo. The scenario would work better there.
Posted by: denton at October 19, 2009 11:39 AM
quote:
very few people these days that can buy a coop in prime Brownstone Brooklyn without familial help
sad AND lame
*rob*
Posted by: Butterfly at October 19, 2009 11:44 AM
I'd say dad will just have to live with the gift tax -- should be OK if his son really wants the apartment and he really wants him to have it. But I also hope you're continuing to do everything possible to find another buyer. And seriously, if it seems that he won't be approved, do not go to contract with them. The worst would be to have a board turndown after all that.
Posted by: babs at October 19, 2009 11:48 AM
Rob - STFU
Your stupidity is astounding.
Posted by: crimsonson at October 19, 2009 12:11 PM
Rob - STFU
Your stupidity is astounding.
Posted by: crimsonson at October 19, 2009 12:11 PM
crimsonson=trustfundy with coop
Posted by: guest_poster at October 19, 2009 12:37 PM
-sigh- Thanks everyone and Babs, special thanks to you for your advice. I promise I won't dance naked in the hallway; it would not have been a pretty sight. It's just so frustrating to have your financial life in the palm of a body as unaccountable and absolute as a co-op board. Their rejection may well spell utter diaster for me whereas their approval, given the circumstances, would hardly constitue a hardship to the coop in anyway. I know that the board doesn't have to take my interest into account, but it just seems so wrong that so much of my life is depend on the board literally saying, "well, I just like purple better than lavender...so no to lavender". KWIM?
Posted by: var at October 19, 2009 12:42 PM
"crimsonson=trustfundy with coop "
Patently false - but that come back does not even make any sense.
Posted by: crimsonson at October 19, 2009 12:58 PM
Any responsible coop board prefers to have resident shareholders who can pay their own bills. It is generally not a problem with a co-owner but can be (and thery may have been purned one way or another in the past). They are looking out not for your interest but fo that of all the shareholders. And many people do not appreciate the wealthy trying to get what they want by avoiding taxes (gist tax).
Posted by: BH76 at October 19, 2009 2:06 PM
I agree that it is always nicer to have shareholder who can pay their own bills..but if the board turn down a trust fund baby, they are left with an absentee shareholder (me) who may have to default on the maintenance and mortgage. The coop will actually be the loser; of course, I will be royally screwed too.
Posted by: var at October 19, 2009 2:19 PM
trust fund is totally misused as a term... thanks for trying to clarify ysabelle. real trust funders have the money! that's what a trust fund does - gives the next generation or two down the line actual cash. i went to college with real trust fund kids, and they are seriously rich when the fund starts paying- differs at what age it comes into play. their own financials would get them anything they wanted without a co-purchaser.
i don't think someone's parents helping them out is any different now then any other time. NYC is a tough place to buy in to, and I don't thing that a young person who needs family help would necessarily make a bad neighbor.
there's a young person a couple of stories above me who I know had help from her parents, and she's been a terrific neighbor in every way and absolutely has a real job.
my hardest working employee, who is amazing, just bought a coop with the help of her Dad, and I can't imagine her causing anyone any problems.
Posted by: wine lover at October 19, 2009 8:13 PM
If there were no trust funds there would be no art museums, no theatre, no charities that help the poor, hospitals would be half the size with half the resources. Just to name a few things that are funded by philanthropists largely with inherited wealth.
Rob, you're amusing but really, MUST you always compulsively provide unhelpful comments on subjects you know absolutely nothing about? And then do it in such an authoritative way? Most of the time I find it hilarious but today it's annoying.
Posted by: traditionalmod at October 20, 2009 9:05 AM
And I'll add that we need wealthy people with trust funds to live in NYC, specifically in Brooklyn because people like to donate a chunk if not all their money locally which is essential for local organizations big and small.
Posted by: traditionalmod at October 20, 2009 9:17 AM
Yes, there is a difference between trust fund babies and kids with rich parents. A trust fund baby will have no problem qualifying for a co-op even in prime BK. I would LOVE to have a trust fund baby as a buyer for my apt; the board will welcome him/her with open arms.
Posted by: var at October 20, 2009 3:23 PM
A big advantage with a trust fund baby is you can make arrangements with the trustee to send the payment every month.
This is good in case the little darling forgets.
Trustees are highly responsible individuals.
Posted by: Ysabelle at October 21, 2009 10:21 AM
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