Skip to main content
Fulltext search
FILTER RESULTS BY:
RECOMMENDED IN RENT
Moving to NYC after college? Here's how to find a rental apartment
RECOMMENDED IN BUY
How buying real estate in NYC is unlike anywhere else
RECOMMENDED IN SELL
A guide to using a no-fee renovation loan from a NYC real estate firm
RECOMMENDED IN IMPROVE
How to make your NYC renovation more pet-friendly
Brick Underground BRICK UNDERGROUND
BRICK UNDERGROUND
BOARDS & BUILDINGS
  • Buy
    • Buy
    • The Market
    • Investing
    • New Construction + Condos
    • Affordable Housing
    • Co-ops
    • Negotiating + Financing
    • How to Buy in NYC Guide
    Haley and JP move to Prospect Lefferts Gardens
    New Construction + Condos
    From Prospect Heights to Prospect Lefferts Garden: We wanted three bedrooms so we could each have a home office
    An image of the top of a brick New York City apartment building, including its parapet.
    Design + Architecture
    Parapet inspections: What NYC boards and building owners need to know about Local Law 126
    one-bedroom condo at 702 Hancock Street
    The Search
    7 reasons why ground-floor apartments are desirable—instead of dealbreakers
  • Rent
    • Rent
    • Affordable Housing
    • Roommates + Landlords
    • The Market
    • The Search
    • How to Rent in NYC Guide
    Apartment buildings at Grand and Crosby streets in Soho, Manhattan
    Affordable Housing
    Ask Altagracia: My mom is moving out of our rent-stabilized apartment. How do I take over the lease?
    Sponsored By Outerbridge Law P.C.
    Tenant protest outside Rent Guidelines Board preliminary vote
    Affordable Housing
    Rent Guidelines Board intends to raise stabilized rents for a fourth time
    A beautiful pink flowering cherry tree next to an old brick residential building with a fire escape in Astoria Queens New York during spring
    The Search
    A wet, hot, broker fee-free summer? A major change to rental broker fees is supposed to start in June
  • Sell
    • Sell
    • Staging + Open Houses
    • Negotiations + Closings
    • Getting Ready
    • How to Sell in NYC Guide
    Madison avenue and East 67th Street, Manhattan, New York City
    Sell
    Median sales price for Manhattan co-ops and condos jumps to $1,165,000
    new condo building and older co-op buildings in Prospect Heights, Brooklyn
    Sell
    Brooklyn median price nears $1 million but the spring market is a question mark
    View of NYC condo buildings from New Jersey
    Sell
    Private listings: What NYC sellers and buyers need to know about the off-market controversy
  • Live
    • Live
    • Neighbors
    • Kids + Pets
    • Neighborhood Intel
    • Products + Test-drives
    • Troubleshooting
    FlatRate moving brick underground
    Live
    How to troubleshoot your move in advance
    Sponsored By flatrate
    big apple moving NYC
    Troubleshooting
    How can I save money when hiring a moving company in NYC?
    Sponsored By Big Apple Moving
    Houses and apartment buildings in Queens, NYC
    Troubleshooting
    Mayor Adams is bringing the tax lien sale back. Here’s how to get your property off the list
  • Improve
    • Improve
    • Small Spaces
    • Small Projects + DIY
    • Renovations
    • Design + Architecture
    • Products + Services
    • How to Renovate in NYC Guide
    An image of the top of a brick New York City apartment building, including its parapet.
    Design + Architecture
    Parapet inspections: What NYC boards and building owners need to know about Local Law 126
    solar panels on a small house roof
    Design + Architecture
    Simple Yet Powerful Steps To Turn Your Apartment Eco-Friendly
    Sponsored By Ecoflow
    This is a photograph of a street in the Upper West Side in NYC viewed from the Summit in Central Park through bare tree branches.
    Renovation
    Fewer buyers, steeper rents, and costlier renovations: How tariffs could impact NYC real estate
  • Boards & Buildings
    • Boards & Buildings
    • Boards
    • Finance
    • Insurance
    • Legal
    • Property Management
    • Structure & Systems
    • Sustainability
    Burned and Boarded Up Windows
    When should your board hire a public adjuster?
    Manhattan GM
    What should we consider when renewing insurance for our building?
    Facade of NYC buildings
    How much is insurance on a NYC co-op or condo building?
  • Advertise
    • Advertise with us
    • Sponsored Content
    • Experts
    FlatRate moving brick underground
    Live
    How to troubleshoot your move in advance
    Sponsored By flatrate
    Apartment buildings at Grand and Crosby streets in Soho, Manhattan
    Affordable Housing
    Ask Altagracia: My mom is moving out of our rent-stabilized apartment. How do I take over the lease?
    Sponsored By Outerbridge Law P.C.
    big apple moving NYC
    Troubleshooting
    How can I save money when hiring a moving company in NYC?
    Sponsored By Big Apple Moving
  • Brick Report
  • About Us
  • About Us
Social Links
follow:
  • Facebook
  • Twitter
  • Instagram
  • Flipboard
  • search
☰
Fulltext search
FILTER RESULTS BY:
New Main menu
  • Buy
    • Buy
    • The Market
    • Investing
    • New Construction + Condos
    • Affordable Housing
    • Co-ops
    • Negotiating + Financing
    • How to Buy in NYC Guide
  • Rent
    • Rent
    • Affordable Housing
    • Roommates + Landlords
    • The Market
    • The Search
    • How to Rent in NYC Guide
  • Sell
    • Sell
    • Staging + Open Houses
    • Negotiations + Closings
    • Getting Ready
    • How to Sell in NYC Guide
  • Live
    • Live
    • Neighbors
    • Kids + Pets
    • Neighborhood Intel
    • Products + Test-drives
    • Troubleshooting
  • Improve
    • Improve
    • Small Spaces
    • Small Projects + DIY
    • Renovations
    • Design + Architecture
    • Products + Services
    • How to Renovate in NYC Guide
  • Boards & Buildings
    • Boards & Buildings
    • Boards
    • Finance
    • Insurance
    • Legal
    • Property Management
    • Structure & Systems
    • Sustainability
  • Advertise
    • Advertise with us
    • Sponsored Content
    • Experts
  • Brick Report
  • About Us
    • About Us
    • Advertise
  • About Us
SUBSCRIBE TO OUR NEWSLETTER →
Social Links Footer
  • Facebook
  • Twitter
  • Instagram
  • Search
Boards & Buildings > Finance  [ SPONSORED ]

We want to refinance our co-op building’s mortgage—what do we need to consider?

In partnership with Adam Leitman Bailey, P.C.
March 3, 2021 - 12:30PM
image

The board’s attorney plays an important role in negotiating the term sheet from the lender.

iStock

Question
We are considering refinancing our New York City co-op building’s mortgage—what should we keep in mind?
Answer

“There are several reasons why your board might want to refinance. The building may need to raise money for capital improvements, the board may want to take advantage of low interest rates or the original loan may be expiring,” says Steven Wagner, a real estate attorney and partner at Adam Leitman Bailey, P.C., who represents co-op and condo boards and is the president of his 420-unit co-op.

One of the first areas to address when you are refinancing is whether the building has enough funds for its capital needs. This will determine the size of the loan, Wagner says. “The board must have some idea of the building’s capital needs so it can make sure they get whatever portion of those anticipated needs from the financing,” he says. 

If you miss this window to generate funds, the board may be forced to draw on other lines of credit when, for example, the boiler or roof needs replacing. 

“That could be very expensive and if there are no capital reserves, you may have to collect assessments, which can be unpopular,” Wagner says.

Establishing capital needs

If you plan on taking out a mortgage with a 10-year refinance agreement—meaning the loan would mature and need to be repaid within 10 years—Wagner recommends getting your building’s architect or engineer to draw up an informal survey outlining the anticipated repairs over the next one-, three-, five-, and 10-year spans.

The reason it is an “informal” draft has to do with tax depreciation schedules, explains Wagner. 

“For example, elevators, if they are properly cared for, can run for decades but their depreciation schedule will indicate that they need to be replaced in five, 10, or 15 years, so for accounting purposes it’s best to have a draft version of your capital needs,” he explains, pointing out that very few co-ops or condos include a report on building conditions in their financial statement for this reason.

With that in mind, there are important considerations for this draft report, including the building’s Local Law 97 and Local Law 152 requirements. “These relate to energy and gas pipe examinations, which can be very expensive and should absolutely be included in the report,” he says. 

If you’ve prepared a survey of your capital requirements in the past few years, you will want to make sure the lender will accept an update of the existing paperwork, rather than request an entirely new document, Wagner says. “Preparing a new report can be costly and time consuming,” he says. 

Keep an eye on timing

The timing of the closing can be important both as it relates to any prepayment penalty you might incur but also the payment schedule for your expiring mortgage. 

“There are different strategies lenders use to make sure they are not out of pocket,” Wagner says. Prepayment fees are one of these methods. “You may incur a prepayment penalty or if the loan is expiring there may be a free period for 90 days at the end,” Wagner says. 

You also want to avoid having to make an additional payment on your expiring mortgage just because of the timing of the new closing. “For example, some lenders require you to close on the last day of the month and if the closing is delayed the board is responsible for a full additional monthly payment of the old mortgage,” Wagner says.  

Negotiating the term sheet

Your lender will provide a term sheet for the mortgage and this is where your attorney plays an important role. 

“Some very serious negotiations can take place with respect to the term sheet that will save the building many thousands of dollars,” Wagner says. “For example, if you have five years left on the loan and the lender allows you to prepay without penalty for six months before the loan expires, your attorney can negotiate the prepayment penalty calculation based on four and a half years instead of five. This can save a lot of money,” Wagner says.

The wording you are looking for in your documents is that any prepayment fee calculation be made to the open prepayment date and not the loan maturity date.

Another area of negotiation would be to make sure shareholders are not restricted from transferring the shares of their apartment to a trust or for estate planning purposes. Sometimes lenders set restrictions on what shareholders can do, but an attorney can negotiate more flexibility in this area.

Lenders typically outline requirements for a building’s reserve funds. Ideally, you don’t want them to require reserves for capital repairs costing under $100,000. Also pay attention to whether the lender will waive monthly escrow payments for taxes and insurance. “You may be able to negotiate waiving these costs on the condition there is no default,” Wagner says.

Assignment of the mortgage

Another important consideration is whether your new lender and old lender will agree to an assignment of the existing mortgage. “This can mean savings of hundreds of thousands of dollars on the payment of the mortgage recording tax,” Wagner says. 

If you have a $10 million mortgage and you are refinancing for $12 million, an assignment of the $10 million mortgage means you will only pay mortgage recording tax on the additional $2 million. However, Wagner explains, if you pay off the $10 million loan and borrow $12 million without having the old mortgage assigned, you’ll pay a mortgage recording tax on the full $12 million. 

“Banks regularly allow this to be done and you can also discuss with them about capping their legal fees,” Wagner says.

Getting the best rate

You obviously want to get the borrowing rate as low as possible. 

“Rates are currently at historic lows and the question is, if you are in a position to refinance, how quickly can you do it?” Wagner says. 

He points out that “many borrowers use mortgage brokers and some are excellent and can get you significantly better rates than you would by going directly to the lender.”

Recent changes, including the phasing out of the London Inter-Bank Offered Rate (LIBOR), may also require some attention, Wagner says. LIBOR has been the benchmark interest rate at which global banks lend to one another and is being replaced by the Secured Overnight Financing Rate (SOFR). 

This variable rate does not affect the mortgage itself once the rate is set, but part of your financing arrangements will likely provide access to a line of credit for emergencies. “The variable rate will affect this line of credit for the duration of your mortgage,” Wagner says.  

New York City real estate attorney Steven Wagner is a founding partner of Adam Leitman Bailey, P.C., with more than 30 years of experience representing co-ops, condos, as well as individual owners and shareholders. To submit a question for this column, click here. To arrange a free 15-minute telephone consultation, send Steve an email or call (212) 584-1973. 

You Might Also Like

image
Live 5 things to consider before hiring a managing agent for your co-op or condo building
image
Live A commercial tenant in our co-op building stopped paying rent. What can we do about it?
image
Live Our building is scheduled for a Local Law 152 gas line inspection. How do we prepare?

In partnership with

Adam Leitman Bailey, P.C.

Related Articles

image
A commercial tenant in our co-op building stopped paying rent. What can we do about it?
image
Our building is scheduled for a Local Law 152 gas line inspection. How do we prepare?
image
5 things to consider before hiring a managing agent for your co-op or condo building
Adam Leitman Bailey, P.C.
SHARE
TWEET

Sign Up for our Boards & Buildings Newsletter (Coming Soon!)

Email Address

Thank you for your interest in our newsletter. You have been successfully added to our mailing list and will receive it when it becomes available.

Got a question for us? We'd love to hear!
Brick UndergroundBRICK UNDERGROUNDREAL LIFE. REAL ESTATE. REAL NEW YORK.
Social Links Footer
  • Facebook
  • Twitter
  • Instagram
  • Search
Main menu footer
  • Buy
    • The Market
    • Investing
    • New Construction + Condos
    • Affordable Housing
    • Co-ops
    • Negotiating + Financing
    • How to Buy in NYC Guide
  • Rent
    • Affordable Housing
    • Roommates + Landlords
    • The Market
    • The Search
    • How to Rent in NYC Guide
  • Sell
    • Staging + Open Houses
    • Negotiations + Closings
    • Getting Ready
    • How to Sell in NYC Guide
  • Live
    • Neighbors
    • Kids + Pets
    • Neighborhood Intel
    • Products + Test-drives
    • Troubleshooting
  • Improve
    • Small Spaces
    • Small Projects + DIY
    • Renovations
    • Design + Architecture
    • Products + Services
    • How to Renovate in NYC Guide

Get more news you can actually use...

Email Address

Delivered to your inbox weekly - for free.

*By signing up you agree to receive occasional emails on behalf of our sponsors

Footer Menu
  • About Us
  • Advertise

Copyright 2009-2024 by BND Ventures Inc | Privacy Policy | Terms of Service | Ad Choices | Login