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Mortgages on Coops are... MORTGAGES... granted, these mortgages are not recorded in the county city registers office as they do not attach to any "real property" per se.
What lenders file are UCC's on a county and state level securing their interest in the specific shares of the corporation. security being the stock. The board cannot just take back these shares once the lender has possession.
i'm curious too as to what remedies boards have with respect to shares that are secured by lender filed UCC's and of which owners rebel.
no buyer will buy and no lender will lend with existng prior UCCs filed securing that specific apt. they have to be terminated first and the bank wont terminate until paid off.
maybe the tenant is evicted and the bank forecloses on the stock with the board buying back?
I am curious about this as well...can anyone share some more insight? Thank you!
The bank has a superior lien on the co-op shares to the proprietary lease, so they have first dibs. But in all events, a co-op rescinding a proprietary lease works just like a foreclosure sale. The co-op has a lien on the shares subject to the proprietary lease. If you violate the proprietary lease, much like if you violated your mortgage contract, the lease can be revoked, the lien perfected, and the property sold at auction. Like any lienholder, you must return any excess return beyond what was owed to the coop plus expenses to other stakeholders (including the co-op owner) in order of their priority.
It's technically not a mortgage. A mortgage is a lien on real property. The lender to a co-op owner has a lien on stock in the co-op corporation - which is personal property. A lien on stock (or other personal property) is called a "security interest" under Article 9 of the Commercial Code.
Note that the co-op itself will have a loan secured by the real property, and that will be a true "mortgage." This is separate from the loan that a co-op buyer takes to buy the stock.
It is common for the lender to a co-op buyer to file a UCC-1 financing statement against the owner. While this "perfects" the lender's security interest, it will not protect the lender against the owner giving a lien or selling the property to someone else. The lender has to take possession of the stock certificate to protect against a later sale or lien having priority over the original lender. Possession of the stock certificate (or registration if it's an uncertificated security) is the only way for the lender to be protected.
When the loan is repaid, it's important to get your stock certificate back from the lender. When you go to sell your stock to someone else (and pay off the lender), the co-op representative (known as the "transfer agent" - usually handled by the attorney representing the co-op) has to be certain to get the old certificate from the lender, or a warranty if it can't be found, cancel the old certificate properly, issue a new certificate to the buyer, and have the buyer deliver the certificate to the lender. It's a very messy process compared with real estate transfers where the recording system provides a measure of protection not available in the transfer of stock.
If you default on your loan, the lender can enforce its security interest and become the owner of the stock. Once it becomes the owner of the stock, the lender will evict you and put the unit up for sale. The lender may not be able to rent the unit out - depending on the rental rules.
It's really surprising that lenders do not charge a significant premium for co-op loans over condo/house loans. On the other hand, given the financial scrutiny that goes on to buy a co-op in the first place (and the minimum 20% down payment), defaults are probably quite rare in comparison to condos (where 5% down readily available, at least until the subprime meltdown).
I am curious about one thing. How do people get 2nd mortgages or home equity lines of credit on their co-ops (or is this simply impossible)? Anyone know?
the 2nd mortgages are no problem i have taken them in the past. , technically they are 3rd mortgages too.. most buildings have their own outstanding mortgages paid thru your maintaince and that mortgage is senior to even your own...
if the building defaults even though your current your equity can be wiped out
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