NYC Real Estate Investing: A Deal Suddenly Undone

In Part III of a four-part series on house-hunting in New York City, the doctor’s deal to purchase a co-op is suddenly undone -- and her downpayment in jeopardy — when her agent drops the ball on residency restrictions. A Deal Undone At 8 a.m. on June 18, we were buying a property in Manhattan. At 2:30 p.m the same day, we were not.

Our deal fell through because the co-op -- learn the difference between a co-op and a condo here -- we wanted to buy did not accept pied e terres. Though I thought this might be the case, I relied on my agent and the selling broker to asses this detail. Also, I believed that 16 years of owning another co-op in Manhattan would be sufficient to get around this technicality, should it arise.

Apparently not. An email was sent by the seller to my real-estate agent at 11:36 a.m.: “In order for one to own and live in my building, it must be their primary residence. I thought that was clearly understood by you and the buyers and that would indeed be a deal breaker. I don't care where they live, but this unit needs to be represented as their primary residence. Have a great weekend but don't spend the commission yet.”

At 2 p.m., just hours after the email was sent, I met with our real-estate lawyer in his midtown Manhattan office. He told me the seller could claim that my husband and I misrepresented ourselves and we might lose our down payment -- 10 percent of the property’s selling price -- if we persisted in the application. It is no small sum. Our lawyer also told me that the existing owner had insisted on keeping the “fixtures” in the apartment, something that had not come up before.

I wasn’t worried about the fixtures. The thought of losing our down payment was enough to make me want to run. But first, I had to ask: “Why didn’t the real-estate agent know this?” His response: “Real-estate agents are optimists. Real-estate lawyers are pessimists.”

Our real-estate agent could have avoided this situation by calling the managing agent of the building before the property was shown to ensure the co-op management permitted pied e terres. The building managers also could have just provided this information upfront. Neither had done so.

So what I discovered, quite by accident, is that when a person who does not pay New York State taxes attempts to purchase a property in New York City, the condo or a co-op must allow pied e terres. Otherwise, the seller can claim false pretenses on the part of the buyer and keep part or all of the down payment if the applicants are rejected by the board. Buyer beware.

A Sale Reconsidered

The following Monday, the co-op owner must have realized that getting his asking price from someone other than us might be problematic. So he made his own determination to attempt to maneuver his building’s policies favorably toward selling at his asking price sooner rather than later. The owner spoke with some of its board members and evidently received the “go ahead” for us to proceed. In the event that we were not accepted by the board, he said he would not attempt to claim our down payment.

To make the deal binding and legal, he agreed to sign a “side letter” to that effect. Some of this willingness on the owner’s part, and members of the board, may have been because there were three apartments in the building for sale. Selling one or more quickly would be positive not only for the owner, but also for the co-op board that wants to have its units occupied rather and not for sale. So now, the deal that was once undone was back on.

Next Week: Part IV: How a co-op board compromise leads to unexpected closure.