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WELCOME Brooklyn Law School Real Estate Clinic 1 Boerum Place, 3 rd fl. Brooklyn, N.Y. 11201 718-780-7994 (ph) 718-780-0367 (fax) We are the Brooklyn Law.

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Presentation on theme: "WELCOME Brooklyn Law School Real Estate Clinic 1 Boerum Place, 3 rd fl. Brooklyn, N.Y. 11201 718-780-7994 (ph) 718-780-0367 (fax) We are the Brooklyn Law."— Presentation transcript:

1 WELCOME Brooklyn Law School Real Estate Clinic 1 Boerum Place, 3 rd fl. Brooklyn, N.Y. 11201 718-780-7994 (ph) 718-780-0367 (fax) We are the Brooklyn Law School Corporate and Real Estate Clinic. Our mission is to provide legal services to HDFC’s in Brooklyn, Bronx, and Manhattan. Our work primarily consists of loan closings, co-op unit closings, shareholder meetings and by- law and proprietary lease amendments. We also provide this seminar periodically to inform directors of their options for the future of their HDFCs.

2 Contents -Background---------------------------------------------------------------------------------------pg. 3 -What is A 60/40? --------------------------------------------------------------------------------pg. 4 -Ending the 60/40 --------------------------------------------------------------------------------pg. 5 -What is a 70/30? --------------------------------------------------------------------------------pg. 6 -HPD’s Audit --------------------------------------------------------------------------------------pg. 7 -How To Use ACRIS ----------------------------------------------------------------------------pg. 8 -Overview ------------------------------------------------------------------------------------------pg. 9 -Term ------------------------------------------------------------------------------------------------pg. 10 -Profit Split -----------------------------------------------------------------------------------------pg. 11 -Affordability Standards -------------------------------------------------------------------------pg. 12 -Purchaser Income Standards ----------------------------------------------------------------- pg. 13 -Primary Residence Requirement ------------------------------------------------------------ pg. 14 -Sublease Requirement ------------------------------------------------------------------------- pg. 15 -HDFC Leasing Restrictions -------------------------------------------------------------------- pg. 16 -Training Standards ------------------------------------------------------------------------------- pg. 17 -Reporting Standards ----------------------------------------------------------------------------- pg. 18 -Reserve Fund Standards ----------------------------------------------------------------------- pg. 19 -Maintenance Fees -------------------------------------------------------------------------------- pg. 20 -Moving Forward ----------------------------------------------------------------------------------- pg. 21 2

3 Background 1.To satisfy the current Security Agreement(whether because it has expired or the HDFC wishes to sign on to a new Regulatory agreement) a Satisfaction must be provided by the City. 1.By-laws, proprietary lease and Certificate of Incorporation will remain unchanged unless amended. 1.While signing onto the New Regulatory Agreement is not a requirement at the time being, it is something which the HPD and UHAB recommend. The agreement could highly benefit the HDFC operations and include a higher income limit. 3

4 What is a 60/40 Security Agreement -Each of the Co-op’s you are a part of are subject to a Security Agreement. -At the HDFC’s creation, they signed onto this agreement with the city. -Like a mortgage, the 60/40 Security Agreement is a promise to pay money. Also like a mortgage, the Security Agreement is recorded with the city. -Each time a unit is sold, 40% of the profit from the sale must be paid to New York City -They last 25 years, but even when they expire all the 60/40 related restrictions do not expire. There is a detailed process that must be completed in order to satisfy the security agreement and to make your corporate documents reflect this. 4

5 Ending the 60/40 1.Once the security agreement expires, a satisfaction must be requested and granted by the City before the HDFC is released from the security agreement. 1.TO GET A SATISFACTION LETTER: a.Send a satisfaction request to MATTHEWM@HPD.NYC.GOV. b.HPD checks to see if payments were properly made. c.A satisfaction, which terminates the security agreement, will be prepared by HPD. 1.AFTER SATISFACTION HAS BEEN GRANTED: Certificate of Incorporation, proprietary lease and by-laws MUST be amended. a.Note that there must be enough Shareholders eligible to vote for amendments to these documents. Without enough eligible voters, the HDFC will not be able to adopt the new regulatory agreement. 1.If these steps are not taken, then after the expiration the corporations documents will be incorrect and a shareholder who sells their unit would get 100% of the profit, leaving the HDFC empty handed. 5

6 HPD’s Audit for Flip-Tax -HPD will audit the HDFC requesting the satisfaction to make sure the 40% flip tax was paid to the city for all sales within the resale period. -HPD will use ACRIS to check for the sales which occurred during the resale period and determine how much is still owed to them. -The HDFC should use ACRIS to look for outstanding flip- taxes owed to the city. If flip-taxes are owed, City may withhold satisfaction letter. 7

7 How to Use ACRIS 1.ACRIS is NYC’s online record database. 2.Type into the navigation bar, or simply type ACRIS into a Google search. 3.Click “Find Addresses and Parcels.” 4.Fill in the top portion (i.e. Borough/County, Street Number, Street Name, Unit). 5.Click “Document Search by BBL” on the bottom right corner of the page. 6.Click “Search” on the bottom left. 7.Increase “Max Rows” to 99. 8.The column that reads “Document Type” should lead you to the document you are looking for. In the case of transfers of co-op shares, look for “Real Estate Transfer Tax” or “UCC” filings. 9.A tab with the letters “IMG” is on the left. Click that to open the document. 8

8 What is the new 70/30 Regulatory Agreement -It is a new regulatory agreement being offered by the City, and city allows all HDFC’s to sign onto the new agreement, EVEN IF THE 60/40 HASN’T EXPIRED. -Instead of splitting unit sale profits with the city, the profits are split between the seller and the HDFC (70% profit to the Shareholder and 30% profit to the corporation. -There are many other benefits to choosing the 70/30 Regulatory Agreement. 6

9 Overview of Regulatory Agreement There are many differences between the 60/40 Security Agreement and the 70/30 Regulatory Agreement. Over the next few slides we will go over the following: 1.Term Length - How Long? 2.Profit Split - Who gets what? 3.Purchaser Income Standard - How much can a new buyer make? 4.Affordability Standards - How much can an apartment be sold for? 5.Primary Residence Requirement - How many days per year does the owner need to be living in their apartment? 6.Sublease Requirement - Who can an owner sublet to? For how long? 7.HDFC Leasing Restrictions - Who can the co-op rent to? When will the co-op NOT be able to rent a unit? 8.Training Requirements, Reporting Requirements, Reserve Fund Requirements - What does the board have to do each year? 9.Maintenance Fees - How much will maintenance be increased? 9

10 Term Security Agreement Expired *Must make request in writing to City for satisfaction of this agreement. Once the satisfaction is granted, HDFC must record it. Regulatory Agreement : Expires 30 years from signing. (“Commencement Date”) 10

11 Profit Split If HDFC Doesn’t Sign Onto New: Article XV, Sec. 2 of By-Laws: The profit sharing with corporation only lasts through the “resale period.” At this point, it appears that a shareholder could sell a unit and take 100% of the profits. The HDFC could amend the by-laws to change the allocation of the non- city profit share. Regulatory Agreement : 70% of Profits to Shareholder and HDFC (Non-city profit share will be decided by shareholders and reflected in by-laws). 30% of profit from sales goes to the HDFC. 11

12 Purchaser Income Standards If HDFC Doesn’t Sign Onto New: Income of prospective tenant cannot exceed 6-7x annual maintenance and utilities. i.e. $600 maintenance + $100 utilities = $50,400/$58,800 Regulatory Agreement : Income of prospective tenant cannot exceed 120% of AMI as determined by HUD from time to time. 12

13 Affordability Standards If HDFC Doesn’t Sign Onto New: The buyer’s income must be below 6 or 7 times the maintenance - HOUSING COSTS (maintenance, utilities, mortgage, etc.) must not be more than 30% of the buyers income. -6 times the annual maintenance + utilities (approx. $9,456.00) means that buyer must not make more than $56,736.00 per year. -Also, this means that the total housing cost must not exceed $17,020.80. (30% of 56,736). -After maintenance and utilities (9,456) this only leaves room for a mortgage payment of about $630.00 per month. -A person within these guidelines will only be able to afford a total purchase price of about $100,000.00. -95% of $100,000.00 is $95,000.00 *Based on 20% down payment and 6% mortgage rate. Regulatory Agreement : The buyers income must not exceed 120% of the Area Median Income. For a family of 4 that is $95,050. -Only 30% of this income can be used towards housing costs -30% of 95,050 is $28,515.00 -After Maintenance and utilities(9,456.00), this leaves room for a mortgage payment of $1,588.25 per month. -A person within these guidelines could afford a purchase price of approximately $250,000.00 -70% of $250,000.00 is $175,000.00 *Based on 20% down payment and 6% mortgage rate. 13

14 Primary Residence Requirement Current Proprietary Lease : Must be primary residence. Must be domiciled in unit or live in unit for 183 days (approx. 6 months) out of the year. Regulatory Agreement : Must be the primary residence. Must be domiciled in unit or live in unit for 183 days (approx. 6 months) out of the year. Cannot sublet for more than 6 months at a time. Same 14

15 Sublease Requirement Current Proprietary Lease : Sublessee must fit the income guideline of 6/7x maintenance Need Board approval to sublet. If not, then ⅔ shareholder approval. Cannot sublet for more than 10% more than maintenance fees Regulatory Agreement : Sublessee must meet the 120% or less of the AMI requirement. Sublessor cannot rent out for more than 18 months every 5 years. 15

16 HDFC Leasing Restrictions Security Agreement : Any resident/shareholder of the HDFC must fit the income guidelines Current: brings in lower income individuals via renting and HDFC still gains revenue. Also maintain some control. Limits renting. Regulatory Agreement : 80% must be owner occupied. HDFC cannot rent if it owns more than 20% of the units. Regulatory: HDFC forced to enter into proprietary leases rather than rent (at a certain point). Non-rental of vacant units could results in loss of revenue for HDFC. (Counterbalanced by sales income) -All residents, whether renters or shareholders must still meet income guidelines 16

17 Training Requirement Current Proprietary Lease : There are currently no training requirements. Regulatory Agreement : - All Board Members must take a training course (each year) in housing management which is approved by the HPD. 17

18 Reporting Requirements Security Agreement : There are currently no regulations regarding the submission/review of documentation to HPD. Regulatory Agreement : Board shall submit documents to HPD annually. HPD can inspect and audit documents and financials. 18

19 Reserve Fund Requirement If HDFC Doesn’t Sign Onto New: There are no requirements for the HDFC to establish and/or maintain reserve funds. Regulatory Agreement : HDFC must establish a reserve fund to be used for repairs and emergency repairs in which they deposit: -$750/dwelling the first year -$200/dwelling each year This is highly recommended for all Co-Ops regardless of security agreements. 19

20 Maintenance Fees If HDFC Doesn’t Sign Onto New: There currently are no requirements for increasing maintenance fees. Regulatory Agreement : Mandatory requirement for maintenance to be increased AT LEAST 2% EACH YEAR. 20

21 Moving Forward Directors that are pleased with the Regulatory Agreement should seek a satisfaction letter, whether or not their current agreement has expired. Prior to the satisfaction letter, Directors must be certain that they have enough Shareholders eligible to vote. The amendments to the corporate documents, which is required for the adoption of the Regulatory Agreement, cannot be done without the vote of the Shareholders. If you have any questions or concerns with regards to the Regulatory Agreement please get in touch with HPD, UHAB, or the Brooklyn Law School Real Estate Clinic. 21

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