Do you owe money and own a co-op apartment in New York? If you’re worried about the property being taken by a debt collection attorney to repay your debt, read on.
There is an important distinction between a condominium (condo) and a cooperative apartment (co-op). A condo is considered real property, a co-op is personal property.
The designation of real property or personal property is crucial for both the apartment owner—their rights and permitted usage of the apartment—and for creditors. The process for a judgment creditor and their debt collection attorney to attach and/or acquire real property differs from acquiring personal property to satisfy a debt owed.
Understanding Co-op Ownership
When one owns a co-op, they do not own property. They are shareholders in a corporation, owning shares in that corporation. The shareholder is given a stock certificate and a proprietary lease.
When the co-op owner finances the purchase of the co-op apartment, they pledge the shares of stock to the lender. The stock certificate is given to the lender as collateral and security for the loan. In addition to holding the original stock certificate, the lender has filed financing statements with the county and state, putting everyone on notice that they are a secured lender. By doing so, if the borrower defaults in payment to the lender, the lender can readily prove ownership and foreclose on the shares of stock and security agreement.
As judgment creditor owed an unsecured debt, you would not have a security interest in the co-op apartment .For you or your collection attorney to effectively transfer the debtor’s ownership to you, affirmative steps need to be taken to acquire the judgment debtor’s interest in the shares of stock.
If you are considering pursuing a transfer of ownership of the apartment, you would want to ensure that your efforts will be worthwhile. You should check whether there are secured lenders involved , the amounts of debt owed to the lenders, and the co-op board for unpaid maintenance fees to confirm if there will be equity left for you.
Also factor in that if the co-op is the primary residence for the judgment debtor, there is a homestead exemption, which safeguards a person’s primary residence (including co-ops and condos) from being used in its entirety to satisfy a monetary judgment. Currently, the homestead exemption for NYC and neighboring counties is $204,825.
So, if you have a judgment against both a husband and wife and they “own” the co-op together, the couple would be entitled to twice the homestead exemption, and then the secured lenders would be paid.
If the judgment debtor is part owner of the unit, you may be able to acquire their interest in the unit.
If there is a subtenant in the apartment and you seek ownership, you would be responsible for evicting the subtenant—assuming you are successful in acquiring the apartment and are approved by the board as the new owner.
And so yes, while a debt collection attorney could take over a debtor’s interest in a co-op, it may not always make financial sense to do so.
Have questions about debt collection? Contact Frank, Frank, Goldstein and Nager by email or call +1 (212) 686-0100. We have the experience that pays.
