September2017

CONDO/CO-OP... from page 49.

cupied character of a community, they also may make it more difficult for an owner to rent. While the above differences are important, perhaps the most signifi- cant and financially impactful differ- ences between condos and co-ops relate to the priority between the co-op and any lender providing a share loan, and the nature and timing of the collections process. In a condo, with the exception of the sixth month regular maintenance limited condo lien priority created by statute, the condo’s security interest in the unit is subject to the interest of a prior recorded mortgage (and is always subject to a municipal real estate tax lien). However, in a co-op that permits shares to be pur- chased with financing, the terms of the governing documents generally grant the co-op and interest in the stock and apartment over that of the lender. In addition, co-op permission to finance is generally premised on the lender’s execution of a “recogni- tion agreement,” that, among other things, establishes the aforementioned priority and gives the lender the right to cure arrears. In other words, in a co-op “foreclosure,” the co-op usually receives payment before the lender. As a result, in some cases the lender will step into the shoes of the share- holder any pay arrears in order to pro- tect its interest in the shares and unit. The priority of the co-op interest in the shares and apartment over that of oth- ers with an interest generally means that co-ops do not have to write off

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