This is a story of I jumped through countless complex bureaucratic, legal, and financial hurdles of Murphy’s Law and emerged with less liquidity and more debt. OK. I’m being facetious, but what happened to me is the easiest and most straightforward way to buy a property. Seriously. The events below transpired in New York City. The buying process may be different in other areas, but the most of the process such as contract of sale and mortgage application is the same across the U.S.
By RKO radio pictures (eBay item photo front photo back) [Public domain], via Wikimedia Commons. Promotional photo of Cary Grant and Myrna Loy for the film Mr. Blandings Builds His Dream House (1948)
- My mother found an affordable co-op unit for sale while browsing StreetEasy on her iPad during Christmas vacation in 2015.
- We noticed the listing was made by the seller himself. I emailed him that night.
- The seller promptly called me. I scheduled a viewing of the unit which is at the top of a six-floor walk-up.
- My parents and I climbed the six flights of stairs and met the seller who was a nice man named Alan. We walked around and inspected his unit.
- We asked Alan about the apartment’s condition, the co-op’s financials and rules, the property manager, etc.
- We sat down with Alan, chatted, and negotiated. My mother pointed out neither party has a broker which is good because brokers take a 6% commission. We felt out Alan on how many offers he’s received and what they are.
- My mother verbally offered Alan 94% of the listing price. He said he’ll see. My mom seemed confident he’d take it. I was impressed by her ability to knock off over $20K right off the bat.
- My parents and I started looking for a mortgage broker and an attorney who’s good with co-op purchases. (They were professional and competent. Contact me if you want a referral.)
- We decided how much money we wanted to borrow and how long. I settled on a 15-year mortgage at a great interest rate of 2.875%. I minimized closing and discount points in order to pay less money up front.
- My mortgage broker Deborah started collecting relevant documents from me to start the mortgage approval process. These include but aren’t limited to bank statements, pay stubs (W2), federal income tax returns (1040). I didn’t have to use a mortgage broker and could’ve shopped around myself simply by applying online at various commercial banks’ websites. But I’m pretty busy, and the broker’s fee would be paid by the lender in my case.
- Alan accepted our verbal offer and sent over a contract of sale. This document is a major
checkpoint. It stated what, when, and how we would exchange property and money. Once I signed it
and included a contract deposit (10% of the purchase price), it meant Alan and I were in a
legally binding agreement and that he wasn’t considering any other offers.
- If I reneged, Alan could keep my contract deposit.
- I’m not sure what legal recourse or damages I could pursue if Alan reneged. The contract
vaguely stated:
In the event of a default or misrepresentation by Seller, Purchaser shall have such remedies as Purchaser is entitled to at law or in equity, including specific performance, because the Unit and possession thereof cannot be duplicated.
- Our respective attorneys went back and forth modifying the contract of sale with riders that protected each of us, respectively. For example, my attorney Andrew added a clause stipulating the wall Alan built to divide the bedroom into two bedrooms was approved by the co-op board and I would get a written approval letter at closing. Alan’s attorney Michael added a clause stating I couldn’t back out of the sale if the maintenance increased after I’d signed the contract.
- I signed the contract on January 25, 2016. And I expected a counter-signed copy back shortly.
- So I waited.
- And waited.
- And waited…
- It seems that the more sellers there are on the contract, the more likely it there are to be issues. In my case, there were a total of three sellers. Two of them were individuals: Alan and his ex-wife. The third seller was the estate of Alan’s deceased father. This estate had two executors: Alan and his sister.
- If you’re not confused yet, you will be.
- Alan told me his ex-wife wasn’t being cooperative with the sale but that a court order would help convince her as a last resort.
- Meanwhile, my mortgage broker Deborah was busy securing a lender for me. I also needed to have the unit appraised which depended on the contract being fully signed.
- On February 4, Deborah tells me the co-op has an insurance policy that’s shared with other buildings. She said most lenders won’t underwrite a mortgage in a building with a pooled policy. She said she’ll try other lenders.
- After an entire month (March 5 to be precise), Alan successfully compelled his ex-wife to sign with the issuance of a court order. This allowed me to schedule the appraisal.
- Meanwhile, I still hadn’t secured the mortgage. Guaranteed Rate, Citi, Chase, Wells and various portfolio lenders all refused. With each lender that turned me down because of the co-op insurance policy, the more likely it seemed that Deborah and I would have to somehow convince the co-op board to buy a new individual policy. The property management company would also have to complete lots of paperwork. I’ve never met the board, and the management company seemed like a tangled bureaucracy. I was seriously questioning how I’d be able to pull this off.
- To be continued…