From the Editor:
 Most people like surprises--but only if they involve flowers, dinner
reservations, and tickets to a Broadway play. In the financial world, surprises are rarely
that pleasant.
When a co-op board begins any major activity, from refinancing the building's
underlying mortgage to scheduling capital improvements, it's essential that they consult
all of their professional advisors--managing agent, attorney, accountant, engineer, and
mortgage broker. The best time to get them involved? Right from the start!
In "Help is Here!" I address this issue from the specific perspective of a
mortgage refinancing, but the parallels in many other major decisions are easy to see. As
a mortgage broker, I firmly believe in the team approach. Much of my success comes from
the strong support and creative ideas I get from my clients' professional teams. Whenever
all of a co-op's professional advisors work together to protect the co-op's interests,
everyone comes out on top.
I'd also like to call special attention to the Mortgage Masters program on Page 2.
Created specifically for managing agents and other professionals, Mortgage Masters is a
comprehensive educational program that teaches the basics of refinancing an underlying
mortgage. If you're interested in this program for the members of your firm, call me at
(800) 777-4422 and I'll send you an outline.
Please enjoy this issue of Co-op Financing Quarterly. As always, I thank you for
reading.
Patrick B. Niland
President
First Funding of New York
©1998 by Patrick B. Niland |
Help is
Here!
Refinancing an underlying mortgage is a big job. Get help from all of your
professional advisors.
Imagine learning that your son or daughter is getting married when they invite you to
the reception. That's how many professional advisors feel when one of their co-op boards
decides to refinance its underlying mortgage without even the courtesy of a "heads
up" phone call. I frequently talk to attorneys, managing agents, and accountants who
don't find out about a refinancing until the co-op board asks them to review a commitment
letter or appear at the closing. By then, it's usually too late for the advisors to render
their most valuable advice.
Co-ops who fail to contact the appropriate professional advisors before and during the
refinancing process can cost themselves a lot of time and money. Incidentally,
"saving money" is the reason most often cited by co-op boards who get themselves
into this kind of "do-it-yourself" trouble. But, as almost always happens in
do-it-yourself projects gone awry, the money co-op boards thought they would save is not
only spent, but spent tenfold. However, calling the right advisor at the right time can
help co-op boards protect themselves from expensive surprises, and make the refinancing
process less labor-intensive and more cost-effective.
If your co-op doesn't have professional advisors or needs to hire new ones, your board
should get recommendations from your current advisors and/or other boards. These
individuals know the industry and can suggest qualified professionals to interview. To get
any important activity off to a good start, it always pays to have a full team of
professional advisors on your side.
Refinancing is perhaps the single most important decision that any board will make. It
affects not only the financial stability of the co-op as a whole but also the monthly
maintenance and market value of every shareholder's apartment. Therefore, it is not a step
to be taken lightly--or alone. In the last issue of Co-op Financing Quarterly
(Issue 1, Volume 2), we discussed the need to develop both short- and long-range plans for
your co-op. These plans require the input of your professional advisors, each of whom also
has an important role to play in your refinancing.
In the Beginning
When refinancing first comes under serious consideration, the issue should be
rescheduled for a future meeting at which the following professional advisors should be
prepared to brief your board on issues within their realm of responsibility:
1. Managing Agent-- Other than your super or perhaps a long-time resident, your
property manager usually knows your building better than anyone. They can tell you which
repairs or improvements should be considered as well as their approximate cost. They then
can help you decide how much money you need in your new loan.
2. Attorney-- Your attorney should review all of the documentation for your
existing underlying mortgage to be sure there are no provisions that would either prohibit
refinancing outright or result in unaffordable prepayment penalties or other expenses.
Further, assignment and existing lender notice requirements should be reviewed to prevent
expensive delays later in the refinancing process. Your attorney also is the best person
to estimate the closing costs for your new loan.
3. Accountant-- Ask your accountant for a comprehensive report on your
building's current financial position, as well as a 5-year (or, even better, 10-year)
projection of the effects of inflation and other increases on your co-op's budget. To do
this, your accountant will have to work closely with your property manager.
4. Engineer-- Hire a professional engineer to thoroughly inspect your building's
major components. Request a schedule of repairs and capital improvements needed over the
next ten years, together with their estimated costs. The engineer also can help you
prioritize projects to make sure the most urgent jobs get done first. These cost estimates
and schedules then should be incorporated into your accountant's long-range financial
plan.
Now's the Time
Once the decision to refinance has been made, another professional should be added to
your team of advisors--a good mortgage broker. Refinancing requires a tremendous amount of
data and documentation. A skilled mortgage broker knows exactly what information is
needed, how to collect whatever the board doesn't have or can't find, and then how to
package it for the most favorable presentation to lenders.
Also, since an experienced broker is active in the market every day, he knows what loan
products are available, what structures are possible, and which lenders will be most
competitive for your new loan. Most importantly, he can help the board evaluate the terms
of each loan offer, highlight the often-overlooked "fine print" details, and
explain the relative benefits of each lender.
Finally, since the broker doesn't get paid until your new loan closes, he has a vested
interest in monitoring every aspect of your transaction until the job is done. You could
try to do all of this by yourself, but a good broker will do it better, faster, and
cheaper. |
