For many prospective co-op shareholders, finding the living space of their dreams is only half the goal. The other half involves making the cut before the co-op’s admittance committee, meeting all of the seemingly mysterious criteria that can mean the difference between a new home and a rejection letter.

The admittance process can be a tricky one, for both applicant and co-op. For example, in October 2006, John Walsh sued the board of a nine-story co-op building at 68 Beacon Street in Boston for denying him entry, alleging he was rejected because he was not a blue-blood patrician like the other members of the co-op.

The rags-to-riches Walsh, who became the CEO of the Elizabeth Grady cosmetics chain and is reportedly worth $100 million, went through a rigorous interview process with the 68 Beacon Street board and was subsequently sent a rejection letter stating in part that the board worried he wouldnot “reasonably coalesce as a member of the cooperative community.” After pricey and lengthy legal scuffling, 68 Beacon Street last year paid a $2.2 million settlement to Walsh.

Co-ops are Like Private Clubs

In many ways, this case embodies some of the conflicts and difficulties inherent in the co-op application process. In short, co-ops operate in many ways like a private club and are allowed by law to deny applicants entry into the co-op community for any reason that does not fall into a discriminatory category such as race, religion, sex or age, among others.

Richard Nixon, for example, was rejected from a co-op after resigning the presidency. He was not the only big name to get handed a rejection notice – Madonna, Gloria Vanderbilt and Calvin Klein all have suffered the same indignity. Problems arise when the board doing the rejecting and the person being rejected disagree on the real reasons at hand, as was the case with John Walsh and 68 Beacon Street.

In most cases, the number one reason an applicant is denied entry into the co-op is financial. “It could be credit, a former eviction case, any kind of incident that would cause the board to worry about that person’s ability to keep up financially,” says Frank Flynn, managing partner of the Boston-based law firm of Downing & Flynn. In most cases, “if someone meets the qualifications, then that means the unit should be made available to them,” Flynn says. “Otherwise, they could sue.”

The second most common reason is the one responsible for most of the complaints and potential problems: The applicant is being denied because they’re not seen as being a “good fit” with the other residents, notes attorney Robert Berger of the law firm of Goodman, Shapiro & Lombardi, LLC, based in Dedham, Massachusetts, and Providence, Rhode Island. “That can cover a whole host of factors depending upon the kind of community the cooperative wants to foster and encourage, the idea being that those who live in the cooperative should be able to choosewho they want to be their neighbors within the bounds of the law. Of course, such criteria can seem unfair to the potential applicant…”

In fact, as a result of the Walsh/68 Beacon Street lawsuit, legislators in Massachusetts passed a law decreeing that finance could be the only legal basis of rejection from a co-op. Bay State Governor Deval Patrick vetoed the law because it would have “affectedsubsidized or limited equity co-ops,” says attorney Seth Emmer of Marcus, Errico, Emmer & Brooks, PC, in Braintree, Massachusetts. Those affected co-ops may have included senior housing, low-income housing, and even artists’ cooperatives.

The best way to avoid these problems? Be fair to applicants and stop the issues before they even start. That means that co-op boards should have a firm understanding of the federal Fair Housing Act as well as their respective state fair housing acts. In addition to race, religious creed, color, national origin, age, gender and sexualorientation, boards also cannot deny an applicant due to genetic information, marital status, ancestry or the fact that an applicant is a veteran or current member of the armed forces.

“Treat Everyone the Same”

In short, boards “should treat everyone the same,” Flynn says. “You shouldhave standards that you apply evenly.”

It is imperative that boards know what the co-op’s overarching policy is on who qualifies for acceptance and who does not. “Develop an internal policy and guidelines as to the types of things they’re looking for,” Emmer says. “Certainly finance is fine but otherthings get more touchy-feely about who you want in your community. Laying everything out makes it easier to defend the case and also easier for boards to make their decisions.”

While the board should have a guideline in place, it is not necessary to reveal those criteria to the outside world. “While as a general proposition, I prefer to advise client boards that more transparency is better than less, that might not always work to a board’s advantage with respect to the application process,” Berger says. “For one thing, the acceptance or rejection of an applicant might depend not on objective criteria but perhaps on less tangible things. A board may get a vibe from an applicant that doesn’t feel right or there may appear to be a personality issue. By publishing specific objective criteria or ‘ground rules’ for acceptance, it may tend to lock in a board," he says. “In addition, a board can run the risk that an applicant may be able to tailor his or her answers if all the criteria are made known. While such answers might not be outright untruths, the tailored answers also may not portray the applicant accurately.”

And the board needs to “become generally familiar with the laws concerning discrimination,” Berger adds. “I’m not saying that the board has to become expert on the topic but it would be prudent to know what types of criteria cannot be used to deny an application.” Hand in hand with that, Berger says, should be a strong dose of common sense. “In this day and age, we should all have developed, if nothing else, an intuitive sense of whatquestions would and would not be acceptable. One can never go wrong with the general rule that if one is not sure whether a question is appropriate or not, chances are it isn’t.”

Boards, though, should never hesitate to ask questions that could genuinely impact the safety, happiness and well-being of residents. Asking an applicant about criminal issues, for example, is perfectly acceptable and, in fact, should be broached. “A board is always on firm footing when it limits its inquiry to gathering information which is a matter of public record,” Berger says. “Those portions of a person’s criminal record which are public as well as records on file in the courts and filed in the registry of deeds, to name a few, are all available to a board.”

Flynn adds, “It’s not a discriminatory question to ask about a criminal record or ask if they’ve ever been convicted or pled guilty to a felony. That has nothing to do with race, religion, et cetera. Crime is an independent criteria.”

Before starting to quiz a candidate on any arrests, or even their creditworthiness, Flynn strongly advises boards to have the applicant sign a release so that the co-op can properly research those matters.

Other problems between boards and applicants can arise because of something like perceived bias. “With tenant boards, a lot of times people believe that the board plays favorites and that can get the board in trouble,” Flynn says.

Whenever any hesitation arises or problems appear to be looming on thehorizon, boards should not hesitate to get legal counsel. “If the board has any doubts as to the propriety of one or more questions, it is always wise to confer with its attorney,” Berger says.

It Pays to Be Open

Although boards are not technically bound in any way to provide reasons for rejecting an applicant, it pays to be as open and transparent as possible. “They’re not obligated to give reasons, but the problem you run into is that if a person is rejected, they can argue that they were rejected for one of the protected [anti-discriminatory] reasons,” Emmer says. “It could be in the best interest of the building to express whythey actually did reject the person.”

Flynn agrees. “Applicants who are rejected should get a letter saying, ‘Youwere rejected because of bad credit or your previous landlord recommendation was not good,’ or something along those lines,” he says. In short, they should be told the reasons why.

Not only does this head trouble off at the pass, it also allows for prospective applicants to perhaps provide more information or clarify an issue. “Let them explain themselves,” Flynn says. “Let them explain that maybe it wasn’t really bad credit but instead they were actually the victim of identity theft.” Someone who might make a great addition to the co-op community couldbe lost simply because they were not given a chance to rectify a situation.

During the application process, the board should also keep written records. Agencies that investigate possible discrimination will often ask for documentation, Flynn says. “Showus how this person who became part of the co-op qualified. If the person had the same qualifications but was a different race than someone rejected, the agents will say, ‘Explain to us how they were accepted.’ Records should be kept.”

In the end, the most important thing to keep in mind during an application process is that it works best as a conversational two-way street: honest, open dialogue can create a positive environment in which applicant and board can get to know one another and hopefully movefrom being strangers to becoming neighbors.

Liz Lent is a freelance author and a frequent contributor to New England Condominium magazine.