Real Estate Agent Magazine Law and Ethics Exposing Hidden Discrimination in Co-op Transactions

Exposing Hidden Discrimination in Co-op Transactions

REALTORS(r) have had significant successes in their fight for transparency.

An NY State Association of REALTORS(r) member represented an openly gay city council member seeking to purchase a co-op in New York, offering all cash with retirement savings exceeding $150,000 in retirement accounts and providing no rationale for why his application had been denied by the co-op board despite all these assets – leaving both member and client bewildered over any possible hidden bias on account of being gay?

Co-ops Can Be the Wild West
Discrimination may be difficult to detect in any failed bid for property; when dealing with co-op boards however, circumstances surrounding their rejections become even less transparent.

Cooperative housing (or co-ops) represents a unique form of shared ownership arrangement compared with its more prevalent equivalent, condominium ownership. Where buyers typically purchase both their unit as well as ownership rights for common areas in a condominium building, people living in co-ops own shares in all aspects of the complex as a whole. Each owner receives a proprietary lease on one or more apartments and must pay a monthly maintenance charge representing their proportionate share of operating expenses and debt service on the mortgage being covered by the corporation. Co-ops are most prevalent in New York, Washington D.C. and California but can also be found in Arizona, Colorado, Illinois, Indiana and Kansas; Massachusetts; Michigan Minnesota Missouri Oregon Pennsylvania Texas Wisconsin Georgia Florida are just some states where co-ops exist.

Co-ops’ self-governing structure gives their owners the ability to create an ideal living environment while choosing who gains entry or not. While some co-op boards provide reasons for rejecting applicants, many don’t; nor is this often required of them; many co-ops use “good neighbor” selection criteria as justification; this could open them up to bias or discrimination claims by prospective tenants. But in certain areas a determined group of REALTORS(r), members of the National Association of REALTORS(r), are making strides toward greater transparency.

Progressive Gains Over the past 20 years, REALTORS(r) have led efforts to promote reforms that ensure fair and transparent co-op housing transactions.

“Buyers of co-ops must pay application and mortgage application fees that are nonrefundable if their offer is denied,” according to Barry Kramer, SRES, principal broker-owner of Better Homes & Gardens Real Estate Scarsdale New York. Kramer has been an influential voice advocating for greater transparency within this process.

Reform proponents argue that the current process for co-op applications, reviews, and approval is creating an environment in which discrimination can both easily take place and difficult to detect or prevent. They are fighting for uniform guidelines as well as an obligation on co-op boards to provide reasons when rejecting applicants in order to minimise discriminatory opportunities.

“Co-ops offer an ideal entry into homeownership in New York City due to the high costs associated with real estate,” notes Marlo Paventi, senior director of public policy and government affairs at the Long Island Board of REALTORS(r). In addition to first-time buyers looking for their first place, seniors looking to downsize often explore co-op ownership says Kramer, 2018 president of Hudson Gateway Association of REALTORS(r), which spans Manhattan, The Bronx and Westchester County.

There’s something deeply comforting in knowing you have options available should a crisis strike – such as when it comes to healthcare costs. Mike Kelly, Director of Government Affairs for NYSAR, predicts that after Newsday published “Long Island Divided,” an expose detailing results of fair housing testing on Long Island in 2019, there would be movement on legislation intended to reform co-op sales and management processes statewide and within New York City. There have been attempts, according to Mr. Nader. New York City Council Bill Int. 915(link is external) would require co-ops to provide prospective purchasers with written statements detailing each reason why their application for ownership has been denied within five days after being decided against. State Bill A02685(link is external), would amend New York’s Civil Rights Law SS19-A to require cooperative housing corporations to provide any prospective purchaser who is denied housing an explanation as to why their application has been denied. Despite REALTORS(r) efforts and similar legislation being proposed or introduced elsewhere in Albany, neither of these laws has moved forward yet.

Not dissuaded by slow movement, REALTORS(r) have successfully advocated for co-op transparency bills in five New York counties–Nassau, Suffolk, Westchester, Rockland and Dutchess–which include Nassau County. Suffolk County saw its first success when they passed a REALTOR(r) supported bill requiring co-op boards to make a decision and give written notice within 45 days after receipt of an application or provide written reasons why rejection took place if appropriate.

Westchester and Rockland Counties both passed legislation with the assistance of REALTORS(r). Both now require co-op boards to disclose any minimum financial requirements to applicants before applying to them. REALTORS(r) supported legislation passed in Nassau County in 2019 which establishes a financial penalty against co-op boards who fail to respond within 45 days. Dutchess County passed legislation in 2020 mandating that co-ops keep records for seven years of all applications submitted, including written notice of grounds for rejection. Co-op boards must produce these records to the Deputy Commissioner for Housing upon request from their county of domicile – all except Nassau require this practice when rejecting applicants.

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