A Coop Foreclosure Explained. Learn more: https://www.hauseit.com/coop-foreclosure-explained/
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A coop foreclosure happens faster than a traditional foreclosure on a condo or a house because court approval is unnecessary. Furthermore, coop board approval is not necessary for a coop foreclosure which can save months of time.
The Collateral for a Coop Mortgage
A coop mortgage is secured by the borrower’s ownership interest in the cooperative corporation, i.e. the borrower’s stock certificate and proprietary lease. A coop mortgage consists of a promissory note and a cooperative loan security agreement.
The promissory note is essentially a written promise to pay a debt, and the cooperative loan security agreement establishes the stock certificate and the proprietary lease as collateral which will secure the lender’s debt.
After a coop mortgage is finalized, the bank will file a UCC Financing Statement and take the physical coop stock certificate and proprietary lease as collateral until the debt is cleared.
Co op Foreclosure Process
Since a loan on a co-op apartment is not technically a mortgage, a bank can conduct a foreclosure sale under Article 9 of the Uniform Commercial Code without needing a judge’s approval.
1. Bank Sends Notice of Default
The lender will send an official notice of default typically between 5-15 days after a borrower has missed a loan payment
2. Borrower’s File Gets Referred to Bank’s Attorney
If the borrower does not cure the default, the borrower’s case will get referred to the bank’s attorney. The bank’s attorney will typically send some additional notices and make some additional demands to the borrower to cure the default.
3. Newspaper Publication of Pending Foreclosure
Assuming the borrower still has not cured the default, the bank’s attorney will publish a notice of the pending foreclosure for the co-op apartment in a local newspaper for three successive weeks.
4. Courthouse Auction
If the borrower still hasn’t bothered to reach out to negotiate, pay off the loan, refinance the loan or sell the property perhaps through a short sale, then an auction will be held at the local county courthouse.
5. Property Is Sold or Retained by the Bank
The bank will have a reserve price, commonly known as a “knockdown price,” which is the minimum price that the bank will accept from a bidder. If a bidder offers even $1 more than the knockdown price, the coop apartment will be sold to that bidder. If however no one bids more than the bank’s reserve price, the bank will take the property onto its books and the home will be classified as a real estate owned (REO) property.
6. Managing Agent Transfers Ownership
No board approval is needed in a coop foreclosure. The bank will bring the physical stock certificate and proprietary lease to the managing agent’s office, and the managing agent will issue a new stock and lease to the buyer of the foreclosed coop apartment. Remember that you’ll need to do a coop lien search beforehand.
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