Closing questions
Why will a co-op lender not close without a recognition agreement?
A co-op loan is secured by shares rather than a recorded mortgage, so no lender funds until the building signs an agreement respecting its interest.
Why will a co-op lender not close without a recognition agreement?
Quick Answer
A co-op lender has no mortgage to record. Its collateral is the shares and the proprietary lease, secured by a UCC-1 filing and an assignment of the lease. That collateral is only as good as the building’s willingness to deal with the lender, and the recognition agreement is where the building agrees to do so.
The standard form used across most of the market is the Aztech recognition agreement, and lenders are accustomed to its terms. The building agrees to notify the lender if maintenance goes unpaid or the lease is in default, to give the lender an opportunity to cure, and to acknowledge the lender’s interest in the shares.
Order of priority still favors the building. The corporation’s lien for unpaid maintenance generally comes ahead of the lender, which is one reason a lender reads the co-op lien search and the building’s financial statements before it funds. A lender that is second in line wants to know how deep the line is.
On closing day the agreement is signed by all three parties, and a missing signature from the managing agent stops the table. Confirming days ahead that the building has an executed counterpart, on the lender’s required form, is a small step that prevents an adjournment nobody wants to explain.
Who signs the recognition agreement at a co-op closing?
The purchaser as borrower, the lender, and the cooperative acting through its managing agent or an officer. All three signatures are required, and the lender’s counsel will not release funds on a partly executed form. The signed counterpart travels with the stock certificate, the lease assignment and the UCC filing.
What happens if the co-op refuses to sign the lender’s form?
The deal either changes lenders or changes forms. Some buildings will sign only their own version, and some lenders will accept it after review. Where neither side moves, the purchaser is left looking for financing from a bank that works in that building, which is a reason to raise the form early rather than in the closing week.
What else should you read before closing?
In the glossary
- Aztech recognition agreementThe agreement in which a co-op corporation acknowledges a lender's security interest in a shareholder's shares and proprietary lease. The Aztech fo...
- UCC searchA search of UCC filings for security interests in personal property, run against the seller and, on entity deals, against the entity itself.
- Proprietary leaseThe occupancy lease a co-op corporation grants a shareholder for a specific unit. It is assigned at closing together with the stock certificate for...
- Stock certificate (co-op)The certificate evidencing the shares allocated to a co-op apartment. Shares and the proprietary lease travel together and cannot be sold separatel...
- Maintenance (co-op)The monthly charge a co-op levies on each shareholder, covering building operations plus that shareholder's share of real estate taxes and the unde...
- Co-op lien searchThe search performed on a co-op purchase covering UCC filings, judgments, liens and unpaid building charges tied to the shares and to the selling s...
Questions this raises
- Can a co-op board reject a buyer?A NYC co-op board can decline a purchaser without giving a reason, subject only to fair-housing law. What that means for a contract and a mortgage ...
- What happens at a co-op board interview?The NYC co-op board interview is a short fit check after the package is read. What directors ask, what to avoid saying, and how soon the vote usual...
- What is a sponsor unit in a co-op?A sponsor unit is an unsold apartment still held by the converter. How the offering plan changes board approval, transfer taxes and the condition o...
- Why is there no CEMA on a co-op?A co-op loan is secured by a UCC filing, not a recorded mortgage, so no mortgage recording tax applies and a CEMA has nothing to consolidate or save.
- What should a lender check in a co-op loan file?A co-op lender underwrites the building as well as the borrower: financials, underlying mortgage, arrears, land lease, financing cap and recognitio...
Building types
- Standard co-opThe ordinary New York City cooperative: you buy shares in a corporation and receive a proprietary lease to occupy a specific apartment.
- CondopA building split into two condominium units, one commercial and one residential, where the residential unit is owned by a cooperative corporation.
- Co-op and condo refinance, and CEMARefinancing an apartment: a condo refinance can use a CEMA to cut mortgage recording tax, a co-op refinance cannot, because there is no recorded mo...
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