Articles   Purchasing a Residence in New York City by Ian R. Crawford, Esq. Fairfield County residents frequently purchase residences in New York City either for themselves to serve as a new home or as a pied-a-terre, or for their children who may be just starting their careers and need parental assistance. In either case, all purchasers should be aware of how New York City costs and procedures differ from those in Connecticut. The most common form of residence in Manhattan is the cooperative apartment which makes up over 80 percent of that borough’s residential real estate. Unlike other forms of residences, ownership of a co-op is represented by shares in a cooperative corporation which owns the entire building and which leases an apartment to the shareholder. This lease, called the proprietary lease, is the cooperative’s governing document which sets forth the rights and obligations of the shareholders and the cooperative’s Board of Directors. Because the cooperative purchaser is buying into a corporation, one should be certain that his or her lawyer conducts adequate “due diligence” before signing of the contract. This process typically consists of reviewing at least two years of the corporation’s financial statements and Board minutes to determine whether the cooperative is financially and operationally sound and to ensure that the purchaser doesn’t encounter surprises when he or she takes possession. It is imperative that the purchaser be made aware of pending or ongoing maintenance increases, assessments, litigation and other items which will affect the carrying costs. The purchaser’s attorney should also look at the income stream from commercial leases, sponsor ownership of apartments, subleases, and other situations which could affect future maintenance charges or a lender’s approval of a mortgage. If the attorney is uncertain about any of this information, he or she should ask the cooperative’s managing agent which normally operates the building and keeps the corporation’s books and records. Once the due diligence has been completed and the contract signed, the purchaser with the help of the broker then completes the cooperative’s purchase application and submits it with the mortgage commitment, if any, to the Board as a prelude to being scheduled for an interview to obtain Board approval. Assuming a favorable decision, closing can take place shortly thereafter. Other than the purchase price, the costs associated with the transfer of the stock and lease allocated to a cooperative apartment usually fall primarily on the seller. These include NYS and NYC transfer taxes which total 1.4% to 1.825% of the sales price, so-called “flip” taxes which are imposed by many boards, transfer fees charged by the cooperative’s managing agent, brokerage commissions, and various bank and legal fees, as applicable. A purchaser usually has only the latter and any application or move-in fee charged by the co-op or the managing agent unless the price is $1,000,000 or more, in which case there is a “mansion tax” of 1% of the total price. The purchase of a condominium unit more closely resembles the purchase of a suburban residence, as ownership is evidenced by a deed that is recorded with the City Registrar or the county clerk (if outside of New York City) in which the condominium is located. The condominium transfer is somewhat more streamlined than that of a cooperative since there is usually no Board interview as such. However, some condominiums Boards are starting to act like their cooperative counterparts and are looking at a purchaser’s financial position and living arrangements. The transfer charges are similar to those for a cooperative although there is usually not a flip tax. There is, however, a uniquely New York charge which is the mortgage recording tax imposed by both the state and the city on condominium and residential mortgages. In New York County, the combined total is 2% of the mortgage amount on mortgages under $500,000 and 2.125% on mortgages of $500,000 and over. In both cases, 0.25% is required by law to be paid by the lending institution. Therefore, a purchaser should count on paying a net tax of 1.75% to 1.875% of the mortgage. The other major cost is title insurance which is a one-time charge and will be required by the lending bank in an amount equal to the amount of the mortgage. However, even if there is no mortgage, purchasers should strongly consider taking title insurance to protect their equity in the property against fraud, recording or drafting errors in the deed, unpaid tax liens, or other irregularities which could affect title. Title insurance premiums are set by the state so that one title company cannot offer a lower premium rate than another, the cost being approximately $450 to $500 for every $100,000 of coverage. The purchase of a suburban residence is similar in both states with the notable exceptions of the aforementioned mansion and mortgage recording taxes and the property disclosure requirements. Regarding the latter, like Connecticut, New York has a statutory property disclosure statement to be given to a purchaser. However, unlike the practice in Connecticut, New York sellers rarely provide the statement choosing to pay the $500 penalty instead. The disclosure statement is not required with cooperative or condominium transactions. There are two other procedural differences between the states that the purchaser should be aware of. First, in New York State the closing date stated in the contract is a soft, target date that is generally subject to postponement by the purchaser or seller for a reasonable time without penalty, a reasonable time being up to 30 days. The purchaser should bear this potential delay in mind when obtaining a mortgage commitment or locking-in the interest rate. Similarly, a closing can also be delayed by the cooperative Board interview process and/or the unavailability of the managing agent, which is an essential party to a cooperative closing. These are independent entities, neither of which are under the control of the purchaser or seller, and either can cause the closing to be delayed beyond the dated desired by one or both of the parties. This delay can obviously affect the timing of the purchaser’s possession of the premises and could result in penalties to extend a mortgage commitment to a later closing date. As far as the Board interview is concerned, it is rarely the stressful, invasive encounter about which we have all heard stories. Rather, it is typically a relatively friendly “give-and-take” meeting where the Board’s main concerns are whether the purchaser’s financial condition meets the cooperative’s standards and whether the purchaser will be a good neighbor and constructive member of the cooperative community. Frequently, the purchaser will be invited to ask questions of the Board. Second, while the purchaser of a suburban residence normally has a qualified engineer or contractor perform an inspection of the property to determine the condition of the roof, boiler, plumbing, etc., it is not commonly done with a purchase of a cooperative apartment. With the latter, the building’s operating systems and structure are shared by the residents, and their maintenance and repair is generally the responsibility of the cooperative pursuant to the terms of the governing proprietary lease. Most cooperatives maintain a reserve fund to cover such repairs, and its existence and sufficiency should be determined during the due diligence review so that a purchaser has comfort that he or she has some protection from the cost of an unanticipated major repair. In conclusion, while the New York purchasing experience may seem complicated and daunting to those not familiar with the process, it need not be. In fact, it can be relatively painless with the assistance and guidance of experienced, knowledgeable professionals who will assist the purchaser in taking good title to the desired property and provide a layer of comfort and protection from the stress of the process.   IAN R. CRAWFORD, Esq. is an of-counsel attorney with Rucci, Burnham, Carta, & Carello, LLP. Mr. Crawford practices law in New York City and, besides his work in real estate, also practices in the areas of taxpayer representation and qualified and non-qualified employee benefit plans. After graduating from Brown University in 1966, Mr. Crawford received his Juris Doctorate from Syracuse University in 1969. In 1977 he received his LL.M in Taxation from New York University School of Law. He is a member of the Bar of the States of New York and Connecticut and is President of his cooperative’s Board as well as counsel to other cooperative Boards.