GEDDES LAKE CO-OP TO CONDO CONVERSION FREQUENTLY ASKED QUESTIONS Volume 2 , Date Published: March 24, 2008 QUESTION: Is the upcoming vote on conversion a new vote? ANSWER: No, the Geddes Lake shareholders have already voted to convert based on the 2002 vote. The question before the community will be when and how. Recent developments in the community and economic changes in the area have made the conversion to condominium now, rather than later, a more compelling option. QUESTION: When will shareholders who might remain in a “mini-co-op” as deferred participants of the conversion actually know their increased costs? ANSWER: The exact cost of remaining a co-op shareholder will not be determined until AFTER the Group Closings have been completed since the cost of bridge financing will not be known until then. However, some of the increased costs are known or can be estimated based on past results. For example, the conversion fee will increase by 30% immediately and graduate up from there depending on when the shareholder participates during the two-year deferment period. In addition, the cost to maintain a “mini-co-op” will be shared by a smaller group of shareholders and therefore monthly co-op maintenance fees will likely increase by 10-30% for deferred shareholders immediately after conversion. QUESTION: Will the rate charged by the primary lender, Magellan Mortgage, under Fannie Mae, Freddie Mac or FHA be the same or less than alternate lenders? ANSWER: Most lenders under these various programs charge virtually the same combination of rates and points. The primary lender has agreed to lower fees and zero point loans at competitive rates. You will not lock your rates at time of application since we can’t establish a precise closing date, but we should be able to lock approximately 30 days prior to the scheduled group closing. While alternate lenders are welcome, it is vital that shareholders obtain a written agreement from their lender of choice as to the mandatory conditions for funding. You can obtain a copy of the Alternate Lender form from ROA Hutton. QUESTION: If foreclosed units at Geddes Lake have lenders that pay the monthly fees, why should we worry about having other shareholders pickup the shortfall? (Continued on back) GEDDES LAKE CO-OP TO CONDO CONVERSION Page 2 FREQUENTLY ASKED QUESTIONS (Continued) ANSWER: In most cases, banks will pay fees as long as the unit values exceed the loan amount. Many Geddes shareholders owe more than their units are worth in today’s market which reduces the likelihood that their banks will continue to pay fees while in foreclosure proceedings. QUESTION: Why shouldn’t we wait unit 2017 to convert to a condominium when the blanket mortgage will be paid off? ANSWER: The cost and exposure of staying a co-op for the next 10 years may be too high to bear. The blanket mortgage has a rate of 7.31% which is relatively high for the current market. More importantly, Geddes Lake is facing a spiral downward of prices which could accelerate shareholders loosing all their equity, and worse their homes. Conversion to a condominium, even with the projected prepayment penalty and today’s economic conditions, can be justified with increased unit values, the ability to finance the Capital Improvement Assessment and favorable refinancing options available today. QUESTION: Is the projected prepayment penalty of $2.3M fixed or could it go up before we close on the conversion? ANSWER: The prepayment penalty is tied to the U.S. Treasury rates which fluctuate daily. The lower the rates, the higher the prepayment penalty will be. The estimated prepayment penalty was based on a relatively low rate of interest prevailing at the time of the conversion. An offsetting factor is that the lower rates also mean lower mortgage rates and lower monthly payments after conversion. So, if rates increase, the prepayment penalty will go down but the mortgage rate for refinancing will go up. The bottom line is that the impact of an increase in prepayment penalty should be offset, in part or whole, by reduced mortgage rates. If you have a question on the impact to your Individual Unit Analysis, please call our office and speak with a Geddes Lake Conversion Specialist. QUESTION: Is my portion of the prepayment penalty tax deductible? ANSWER: Assuming the payment of the prepayment penalty is treated as an advance interest payment by the lender (which it normally is), you will be able to deduct the entire prepayment amount on your taxes in the year that it is paid. QUESTION: Why do I need to payoff my personal mortgage? ANSWER: Your own share loan which must be paid off (ordinarily through refinancing) at conversion since the shares collateralizing the loan will be cancelled. Although not typical, your lender may be interested in exchanging its collateral, in which case you will need to arrange a Collateral Replacement Agreement with them, which ROA Hutton will assist you in obtaining, provided that the balance of your conversion obligation can be paid in cash, line of credit or secondary financing.