Re: Membership sale agreement questions | <– Date –> <– Thread –> |
From: Jim_Snyder-Grant . LOTUS (Jim_Snyder-Grant.LOTUSCRD.lotus.com) | |
Date: Tue, 19 Apr 94 14:31 CDT |
(This is my first reply to this mailing list: please let me know by direct email if something went wrong with this posting) Here's a review of how New View's legal & financial agreements changed (and will change) over time: Phase 1) Toss in some mony each to appear serious In this phase, each of the 7 households agreed to put $1000 each into an earnest money fund. The use of the money was described in a one page agreement signed by all the members as an earnest money fund: the money could only be used by the consensus of all concerned, and it was intended to make us look serious to bankers, developers, etc. This phase continued up to about the 12th household joining. (We were also billing ourselves for ongoing soft costs by having the finance committee prepare assessments: at this stage we rarely got over $100/household per month) Phase 2) Incorporation to protect against liability. When it looked like we might be in a position to sign a contract with a developer (a deal that didn't work out) we hired a lawyer to work with our legal committee to incorporate as a non-profit corporation. The over-riding goal here was to protect individuals against liabilities of the corporation. The corporation is a good shield against liability (at least for stupid actions, but not for malicious actions). We also got officers & directors liability insurance. (Did you know that Massachusetts is one of the most litigious states in the country? It's almost as bad as California..). The bylaws also helped us clarify in writing what our operating procedure were: consensus with a fallback to voting, committee structure, the flow of money, etc. This form has held us up to our present size of 25 households. The form of our bylaws did not let us become tax-exempt: but that was not our goal: we simply avoid most taxes as a corporation by simply spending about as much as we make...Filing as a non-profit corporation also expressed our intent better then a regular corporation for such things as having membership dues instead of shares, and for allowing us the option of participating in affordable housing programs. Plus, filing as a non-profit corp. in Massachusetts is way cheaper than filing as a for-profit corporation. 3) Contracts with other entities as a corporation. We signed contracts with lawyers, with our development consultant, with our architect, etc. These we signed as a corporation. We also wrote up little membership certificates for households & our recording officer to sign that basically acknowledged when households became members & that confirmed that households had read our bylaws. We also filed for permits with the town of Acton as a corporation. We also have a memorandum of understanding with a builder to work with us to develop a formal construction contract to go into effect once our permits & plans are complete. 4) The bank wants it all. They always want it all. Then we closed on our first piece of land. (We had wanted to wait until the permits were in place before closing, but this was a smaller parcel we thought we needed & the seller did not want to wait...So we set a time limit in the P&S and the time limit came to pass). The bank, in lending us the money to close, wanted an agreement that placed each of us as a guarantor of the loan, so that the bank could go after each of us 'severally & jointly' as the legal jargon goes. So, we sent them all our tax forms & financials & they lent the corporation the money, but held each of us responsible. The bank has been very helpful, actually. They understood & had a good reaction to the cohousing concept after we presented it to them (Our development consultant, Bob Engler, does most of the meeting with them, but our finance committee talks with the bank a lot, too). They understand that we are much less of a risk than the standard developer arrangement: For one part, we are 'presold': we already have the members we need, plus a good waiting list. For the other part, we are deeply committed, financially & emotionally: we are not like a developor who could afford to go broke on one project, declare bankruptcy & start again (as so many developers did in the late 80's / early 90's). Most of us already have close to a 20% downpayment invested, between growing soft costs & huge deposit requirements required by the main land seller. We have made a side agreement among all the members to divide any possible loss equally: so if it all goes south & the bank goes after the richest person, everyone else will be legally bound to chip in & share the loss. But so far, even with all the delays, we haven't seen a scenario that results in a big loss for all: even if we end up folding, we do have control of a piece of land that we could sell off for at least what we paid for it. 5) This is Massachusetts. What's a co-op? Speaking with many banks, it became clear that becoming a condo was our best option by so much that it was not worth pursuing a coop. The main issue is the appraisals (and thus the amount we could borrow). Co-ops are appraised around here as if they are rental properties, and condos are appraised closer to single-family ownership. Since we are already working with an expensive piece of land with a limited capacity for units, the lower co-op appraisals meant that families would be needing to come up with 30% or more down payments. That was out of most of our range. Even being condos, we will be stretching it, with average cash invested probably well over 20% at the height of construction. 6) It will be a condo, so the paperwork will be standard. As New View finally begins construction (we still don't know when: permitting & negotiation problems seem to multiply like hydra heads), the corporation will be drawing on a line of credit from the bank, with the land & plans as collateral (and the usual first-born children, etc., of a bank financing agreement). We have a draft of a fairly standard set of condo documents that outline the existence & operating rules for the ownership entity: the collection of all households that collectively own all the common land & facilities. We will write purchase & sale agreements between New View the development corporation & the individual households to legally match up households with the houses they will be living in, and at the first closing (we will build in phases) the first household will become the first member of the condo owner's association. 7) Possible exciting confusions. One of the permitting options we are working on is a comprehensive permit, which would require that we have 25% affordable housing on our site. There's lots of interesting details about this that we could talk about later, but in terms of the legal & financial history, the interesting point here is that the affordable housing commision would be involved for 15 - 30 years (depending on the deal we strike) with verifying that new owners of these units fit, as a whole, the income guidelines, and that the sale & resale prices stay within the affordable housing guidelines. 8) Condos are Private Property. Though there is a significant minority sentiment about controlling the overall equity growth of individual households, structuring as a condo gives us little control over resale values (except for the affordable units, if we have any). Thus households will be able to construct P&S agreements at any price if they want to sell out after they move in. The condo association will retain the sort of limited right of first refusal that is allowable in condo agreements sold on the secondary market (FNMA guidelines). Basically, the association can put in place an alternate buyer, from our waiting list, for example, but cannot interfere with some market-based price-setting (either by an appraisal or by a bonafide purchase offer). 9) Out on a limb But I'm ahead of myself here. We are still in the permitting phase, and much could happen between now and then. Good luck to us all... -Jim Snyder-Grant, New View cohousing.
- Re: Re: Membership sale agreement questions, (continued)
- Re: Re: Membership sale agreement questions Martin Schafer, April 18 1994
- Re: Re: Membership sale agreement questions Rob Sandelin, April 18 1994
- Re: Re: Membership sale agreement questions Rob Sandelin, April 18 1994
- Re: Re: Membership sale agreement questions Stephen Hawthorne, April 19 1994
- Re: Membership sale agreement questions Jim_Snyder-Grant . LOTUS, April 19 1994
- Re: Re: Membership sale agreement questions Stephen Hawthorne, April 19 1994
- Re: Membership sale agreement questions Rob Sandelin, April 19 1994
- Re: Membership sale agreement questions Larry Henson, April 20 1994
- Re: Membership sale agreement questions Rob Sandelin, April 20 1994
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