Typically, cooperatives and common interest community associations have the right to scrutinize and ultimately admit or reject potential buyers. This right is furthered via the adoption and use of admissions policies, set and amended from time to time by the Board of Directors. During this challenging time, Boards are maintaining their strict and tough admissions standards, and often making them stricter. Ensuring that only those financially secure buyers are admitted helps to minimize the risk to the cooperative of shareholders in foreclosure, its own foreclosures, collection-related legal fees and delinquencies that lead to deficits in the monthly and annual budget.
Some cooperatives have amended admissions rules to require buyers to post as much as a 50% down payment. Some have mandated that buyers deposit funds into an escrow fund to cover upcoming HOA fees, monthly maintenance fees, special assessment fees, and/or HOA transfer fees. Cooperatives are frowning upon buyers with interest-only mortgages or adjustable rate mortgages. Buyers with fixed-rate mortgages are preferred. Even more interesting perhaps are those cooperatives that are rejecting applications because they feel that the proposed sale price was too low. In such instances the co-op believes that a low sale price will adversely impact the values of their other apartments.
Boards have become less restrictive however with respect to subletting. While typically disfavored, subletting provides financially troubled shareholders with the ability to remain current on maintenance fee charges as well.
Each Board should consult with legal counsel or skilled and experienced management prior to amending admissions rules. Such consultations can help ensure that a Board does not jeopardize the protections afforded by the business judgment rule in the face of a challenging and troubled economy.