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Co-op attorneys look at all sides of market.

Co-op attorneys look at all sides of market

The Resolution Trust Corporation is not permitting lenders under its control to amend offering plans and sell co-op apartments that have come under their domain, it was revealed by the New York State Attorney General's office at a day-long meeting of co-op attorneys.

The RTC has taken this stand to avoid compromising its legal position in the lawsuit brought against it by Attorney General Robert Abrams, who has enjoined the RTC from evicting rent-controlled and rent-stabilized tenants in apartments that have been taken over because of defaulting sponsors and banks. The information was brought to light during a New York State Bar Association seminar on the current co-op market.

Real estate attorneys were given an overview of the current legal climate surrounding the co-op, condo and homeowner's association market during the program which was moderated by Matthew J. Leeds, a partner with Robinson, Silverman, Pearce, Aronsohn & Berman. The seminar focused on the state of the market, he said, and gave perspectives from boards, sponsors, lenders and the attorney general. "We were trying to put together a program for all segments of the business, considering the current market and economy," Leeds said.

Assistant Attorney General Mary Di Stephan noted at the meeting that the RTC has advised many of the banks they have taken over that if they have taken over shares, the Attorney General's office has a position that the offering plan has to been amended. "The RTC said they don't want to do anything that might damage their position in the case and are suggesting the offering plan should not be amended at this time," Leeds said. "The RTC is trying to suggest they are not subject to state regulations." But in the meantime, he noted, these assets are not being managed properly.

Felisa Neuringer, a spokesperson for the RTC, confirmed this in a telephone conversation last week. "We have directed the regional office that they should be refraining from amending offering plans and selling apartments," she said. While the lawsuit is pending, she said, they do not want to break the law and sell units without issuing offering plans as the judge could later rule against their claim.

"Our claim is that we don't have to follow state and local rental laws. If we start selling, the judge could later say we violated the law." Neuringer also indicated that subsidiaries of the thrifts under RTC receivership are excluded from these directives.

Nicholas Episcopia, who is a senior consultant at the CorEast Federal Savings bank, which was taken over by RTC, spoke to the group on lender perspectives. When people approach the RTC, Episcopia said at the conference, they should have a plan of action. He suggested they be honest, and not present a complex solution which cannot work because no one has the time or energy to implement it. Present what you can deliver, do not lie, be realistic and put your best foot forward but make it something that can actually work, Episcopia explained.

Leeds said the various speakers helped define trends in other areas of the co-op and condominium market. "Things aren't frozen anymore, and the market has come to terms with the situation," he said. "The problems that came up are being absorbed by the community and the different segments are adjusting. Assets will be repositioned and going forward we will all have a slightly different perspective."

Leeds noted that the market now recognizes the dichotomy between older established buildings and where sponsors have blocks of share. Older buildings have retained their value, he said and are beginning to sell.

There is also now some movement in newer building since, Leeds said, attorneys and lenders now know how to look at the financial disclosure amendments. "Purchasers feel the market has settled," he said. "Six months ago people were afraid the market was free falling. Now, the perception is that the market has bottomed out. People are more willing to go ahead and buy."

Additionally, he said, the banks that took back apartments are starting to work with them. "They are beginning to market them to the people in there or thinking of auctioning them off," he said. "The banks were completely out of that market and are now coming back in.

Speakers included Assistant Attorney General Mary Di Stephan, attorneys David L. Berkey of Gallet, Dreyer & Berkey; Walter D. Goldsmith of Phillips, Nizer, Benjamin, Krim & Ballon; Douglas P. Heller of Robinson Silverman; Frank E. Karelsen III, of Kurzman, Karelsen & Frank; William Jay Lippman of Kronish, Lieb, Weiner & Hellman; and Lewis C. Taishoff of Rosenberg & Estis. Nicholas Episcopia, a senior consultant to CorEast Federal Savings Bank from the RTC; and Hope Sherman, managing director of the Whitehill Group, Inc. also spoke.

Another issue that came up during the day's discussions include operating problems within the buildings. Leeds said the speakers said it was important to police delinquent shareholders so that a few problem cooperators do not ruin the whole building.

Leeds said the Di Santis vs. White Rose case on 61st Street brought out the problem of a building whose sponsor does not pay and what that means to the lender. "The theme of that case is that if they foreclose, it may be that the decision is one they don't want," he said." Do they want a stabilized building or do they want a way to get out of their mortgage?" In that case, the building has reverted to rent regulation and will be worth are less that if it had been worked out as a co-op.

Walter D. Goldsmith spoke on the legal obligations of lenders, while Douglas P. Heller gave an overview of current problems and legislation including perfection of security interests and lien priorities in foreclosures.

Hope Sherman, who is not a lawyer but the marketing director of the Whitehill Group, an advisory and asset management firm, discussed marketing strategies for buildings and the lenders business perspectives. "Many lenders are still gun shy about lending in buildings which still have unsold shares," Leeds said. The industry is working to educate lenders because, he noted, too many just operate on a checklist and do not evaluate the properties. There are many buildings where (sponsors) own the shares but are more solid than where buildings are in trouble because of individual owners," he added.

Sponsors have had to think about giving sponsor financing in order to get the pre-sale requirements needed by banks before they will lend on building units. Leeds said. The sponsor financing is now about five years, he said, so within that period they are hoping the building will be settled. "Not every sponsor can afford to do that," he added.

A new co-op recognition agreement is also in the works as a joint city and state bar association project. Leeds said the agreements allow the bank to cure so the bank can protect its interest. Although there was a form that was frequently used, he said, a lot of questions have been raised because of the defaults and the consensus is to see if these agreements can be changed. "It used to be the lenders felt they were protected if they entered into that agreement," Leeds said. "Now there is some question to see if we need to go to a second generation form."

William Jay Lippman spoke on sponsor's concerns, including disclosure forms. Frank E. Karelsen, III took the side of existing co-ops and condominiums in dealing with troubled sponsors, and Lewis C. Taishoff discussed the foreclosure of blanket building mortgages while David L. Berkey concentrated on the foreclosure of individual mortgages.

About 135 people took in the seminar at the Omni Park Central. "We focused on the problems we've all seen and the predictions for the years head," Leeds said. "We're all on the cutting edge which is one of the exciting things, and we're all trying to use common sense so people can land on their feet and keep people on an even keel."

Leeds believes that the highest profile, most visible sponsors that were highly leveraged "flippers" have already been forced into bankruptcy or pressured in to making deals with their banks. "Most of the high flyers of the past decade have been the subject of headlines and have come to terms with their situations," he said. "Their lenders have also come to terms. That doesn't mean those assets have been placed in the marketplace. In some cased deals have been made, in others they are in negotiations. The biggest and fastest movers have either made the adjustment or are a long ways into making it."

In the end, Leeds said, it all comes down to the market. "The concerns of an individual purchaser are the concerns of the biggest sponsor."
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Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Oct 16, 1991
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