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Co-operative Foreclosure 101

With the foreclosure moratorium created by the COVID-19 Emergency Eviction and Foreclosure Prevention Act of 2020 expiring on January 15, 2022, a rush of co-operative foreclosures will be coming. However, unlike a foreclosure on a house or condominium, the foreclosure process for a co-operative apartment is quite different and can lead to the sale of your co-operative apartment before you realize what is happening. 

What makes a co-operative foreclosure different from a house foreclosure?

Dissimilar from a house or a condominium, “co-ops” are not considered to be real property, but are personal property. When you buy into a co-operative, you do not receive a deed but instead receive a certificate of shares in a corporation that owns the interior, exterior, and all common areas of the building. As a shareholder, you are entitled to exclusive use of an apartment in the property. You are also issued a proprietary lease by the co-op, which allows occupancy of a particular unit and states the terms and conditions of their share ownership.  When taking out a mortgage loan to purchase the co-op apartment, instead of pledging the property itself as collateral, you pledge your shares as collateral for the mortgage.  

How do co-operative foreclosures work?

Foreclosing on a cooperative apartment is a profoundly different process than the one employed to foreclose on a home or a condominium. Since a mortgage on a co-op does not involve real property, a lender can conduct a foreclosure sale under Uniform Commercial Code Article 9 without the need to involve the courts.  In New York, this is known as non-judicial foreclosure.   

Under Uniform Commercial Code Article 9 two notices are to be served before a foreclosure auction sale on the certificate of shares can begin. First, the lender must serve you with a pre-foreclosure notice ninety (90) days before the sale. The notice must inform you of steps you can take to avoid foreclosure and provide a list of not-for-profit housing counselors in the county where the apartment is located that can assist you. Second, the lender must serve a notice at least ten (10) days before the actual sale notifying you of the date, time, and location that the sale will take place. The statute also requires the lender to run a lien search on the unit in dispute between twenty (20) and thirty (30) days before the sending of the second notice in addition to any additional notice requirements found in the mortgage.

What can be done to stop a co-op foreclosure?

Under New York State law, you can stop a co-op foreclosure using many methods. Despite the law not requiring a burdensome and time-consuming foreclosure process,  you can still delay or even stop the co-op foreclosure from occurring.

1. Filing for bankruptcy

Filing for bankruptcy will prevent co-op foreclosure from occurring temporarily and potentially give you the ability to stay in your apartment through a court-supervised loan modification review. However, filing for bankruptcy is not the right option for everyone, especially if you have assets. If you are considering filing for bankruptcy, you should speak to experienced bankruptcy attorneys who can help guide you through the decision. Clair Gjertsen & Weathers PLLC can evaluate your case and determine if filing bankruptcy is the best option to stop the co-op foreclosure.

2. Applying for a mortgage loan modification

After submission and approval of an application, the lender can agree to several mortgage loan modifications to make your payments easier. There are numerous examples of how a lender can restructure your mortgage. However, each lender has different restrictions on what they can offer you for a modification. You must reach out to your lender as soon as possible to explore these options.

3. Reinstating the terms of your loan

Reinstatement occurs when you bring the delinquent loan current in one lump sum payment. Reinstating a loan stops a foreclosure because you catch up on the defaulted payments. You would also have to pay any overdue fees and expenses incurred because of the default. Once the loan is reinstated, you resume making regular payments on the debt.

4. Paying off the loan in its entirety

A payoff occurs when you pay the total amount required to satisfy the loan balance completely. Paying off the loan stops a foreclosure as the loan would be deemed satisfied. Paying off the loan also removes the mortgage as a lien against your home.

5. Challenge the Foreclosure Action

Unlike a typical foreclosure action that is very procedural in nature, lenders seeking to foreclose on co-op shares have a much easier process to go through. 

However, the notice requirements of UCC Article 9 notices must be strictly complied with and any defect found can be grounds to request a stay of sale. To do so you must file an action in the State Supreme Court where your apartment is located and seek an immediate stay of sale. By filing an action you can fight and expose these defects to the Court, which could potentially result in a delay of the Co-op Foreclosure Auction Sale. Clair Gjertsen & Weathers PLLC can evaluate your foreclosure case and determine what mistakes were made by the lender to give you the best chance at stopping the Foreclosure Auction Sale.

Having questions about an upcoming Co-op Foreclosure Auction Sale? 

If you are trying to stop a foreclosure auction of your co-op, time is of the essence, and the matter of utmost importance is returning your home into your possession. Clair Gjertsen & Weathers PLLC has been helping people through this complex process for the last 40-years.  We offer free initial consultations to see which option is the best fit for you to stop a foreclosure auction sale to keep your home.  Please give us a call at 914.472.6202.

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