Cooperatives & Condominiums

AppDiv, Second Dept.

(memorandum opinion)

In co-op shareholder's action to enjoin the co-op corporation from foreclosing on shareholder's units, the co-op corporation appealed from Supreme Court's grant of a preliminary injunction. The Appellate Division reversed, holding that the shareholder had demonstrated neither a likelihood of success on the merits nor irreparable harm.

Shareholder owns shares associated with 11 co-operative apartments in the building, and defaulted on maintenance payments for those apartments. (Shareholder did not reside in any of the apartments.) On Nov. 20, 2009, the co-op corporation issued a notice of default and issued a ten day notice to cure the default. On Dec. 8, the co-op corporation issued a notice of termination, terminating the proprietary leases effective Dec. 21, 2009. Shareholder attempted to cure on Feb. 16, 2010, but the co-op corporation rejected the attempt. On March 26, 2010, the co-op corporation gave shareholder a notice of foreclosure, noting that the proprietary leases had terminated on Dec. 21, and indicating that the shareholder's interest in the shares and proprietary leases would be sold at public auction on April 15, 2010. On April 8, 2010, shareholder brought this action to enjoin foreclosure, and Supreme Court granted a preliminary injunction. The co-op corporation appealed.

In reversing, the Appellate Division noted that shares of stock in co-operative corporations constitute personal property, not real property. The court then noted that UCC 8-209 provides that a lien in favor of an issuer of a certificated security is valid if the issuer's right to the lien is conspicuously noted on the security certificate. In this case, the certificate itself, the bylaws, and the offering plan, all made it clear that the co-op corporation had a first lien on the shares for all sums due under the proprietary lease. As a result, the co-op corporation had an enforceable security interest in shareholder's shares, and was entitled to proceed under UCC article 9 without judicial process. The court rejected shareholder's argument that RPL 753(4) affords a losing residential tenant a 10-day period to cure lease violations, noting that the statute applies when a landlord brings a proceeding to recover possession after tenant holds over past expiration of the lease term. Here, because the co-op corporation was not bringing a proceeding to recover possession, and none of the occupants are holding over, the court held that the statute was not applicable. Moreover, because the shareholder is not living in the units and his interest is purely commercial, the shareholder failed to demonstrate why he would suffer irreparable injury if a preliminary injunction were denied.

Co-op Seller Has Standing to Raise Claim of Discrimination by the Board

Stalker v. Stewart Tenants Corp.

NYLJ 3/26/12, p. 18, col. 4

AppDiv, First Dept.

(memorandum opinion)

In an action by co-op shareholders against the co-op board and its individual members for housing discrimination and breach of fiduciary duty, shareholders appealed from Supreme Court's dismissal of the discrimination claim, and the co-op board cross-appealed from Supreme Court's denial of the motion to dismiss the breach of fiduciary duty claim against it.
The Appellate Division modified to reinstate the discrimination claim and to dismiss the breach of fiduciary duty claim against the co-op corporation, holding that Executive Law section 286(5)(a)(2) affords a co-op seller standing to challenge discrimination against a potential buyer.

One of the two unit owners is of Brazilian descent. In 2008, the two unit owners entered into a contract to sell their unit to two senior citizens who live primarily in Florida. The co-op corporation denied the purchasers' application to buy the unit on the stated ground that they did not meet a requirement in the bylaws that purchasers use their units as their primary residence. Sellers contend that the bylaw include no such requirement, and that the co-op corporation's stated reason was a pretext for discriminating against purchasers because of their age and against the Brazilian seller because of his national origin. Supreme Court granted the co-op's motion to dismiss the discrimination claim, but denied the motion to dismiss the breach of fiduciary duty claim against the co-op corporation.

In modifying, the Appellate Division first held that Executive Law section 296(5)(a)(2), which makes it unlawful to discriminate against any person in the sale of a housing accommodation on the basis of age or national origin, provides a remedy against any person adversely affected by reason of discrimination ' including a co-op seller. The court then held that the seller had standing to assert discrimination against a buyer under the federal Fair Housing Act. As a result, the court held that the discrimination claim had been improperly dismissed. At the same time, the court held that the breach of fiduciary duty claim against the co-op corporation itself should have been dismissed, because a corporation owes no fiduciary duty to its members or shareholders.

Contributions to Down Payment and Mortgage
Payments Do Not Create Ownership Interest

McGuire v. McGuire

NYLJ 3/16/12, p. 24, col. 2

AppDiv, Second Dept.

(memorandum opinion)

In an action for a declaration of rights to a co-op apartment, plaintiff Muriel appealed from Supreme Court's order that her sister, defendant Ruth, would be the sole owner of the shares upon payment of a sum of money to Muriel. The Appellate Division affirmed, holding that deference was due to the trial court's findings of fact.

The contract of sale of the co-op unit lists only Ruth as the purchaser, and one version of the co-op's certificate of shares lists only Ruth as the shareholder. Muriel, however, signed the contract of sale, and her name appears on the loan documents, and earlier version of the certificate of shares, and the proprietary lease. It is undisputed that Muriel made contributions to the down payment and to paying off the mortgage, but Ruth contends that these payments were either gifts or loans that were already repaid. Supreme Court rejected the contention that the payments were gifts, but concluded that the parties intention was for Ruth to be sole owner of the premises, upon repayment of amounts advanced by Muriel. The trial court therefore rejected Muriel's contention that she was a tenant in common.

In affirming, the Appellate Division concluded that conflicting testimony should be resolved by the trial court as the trier of fact, and that in this case, the trial court assessed the credibility of the witnesses in finding that some of the payments advanced by Muriel had not been repaid.

Violation of Interstate Land Sales Full Disclosure Act

Rai v. WB IMICO Lexington Fee, LLC

NYLJ 3/28/12, p. 21, col. 1

U.S. Dist. Ct., SDNY

(Gardephe, J.)

In an action by condominium purchasers to rescind their purchase agreements and recover their deposits, the condominium has counterclaimed for breach of contract. The court awarded summary judgment to purchaser, concluding that the failure of the sale contract to provide tax lot numbers constituted a violation of the Interstate Land Sales Full Disclosure Act (ILSA).

In 2007, developer filed an offering plan for a new condominium to consist of 110 residential units, one retail unit, and one rental unit consisting of 24 apartments. Developer did not, however, obtain tax lot numbers for the units until 2009, after many of the purchasers had bought units and paid deposits. Moreover, in 2008, developer amended the offering plan to reduce the number of residential units to 98, after some individual purchasers had sought combination of the initial units to make larger units. In December 2009, purchasers received notices setting the closing date as Feb. 1, 2010. Purchasers did not close on that date, but instead brought this action contending that the purchase agreements violated ILSA because they did not include tax lot numbers for each purchased lot.

In granting summary judgment to plaintiff purchasers, the court first held that ILSA applies to condominium developments because each unit is a lot within the meaning of ILSA. The court then held that ILSA's exemption for developments of fewer than 100 lots did not apply in this case because at the time purchasers signed their agreements, the condominium's offering plan indicated that the development would include 110 units; the subsequent reduction in the number of units could not generate an exemption that the developer did not enjoy at the time the sale contracts were executed. The court then held that the sale contracts violated ILSA because without tax lot numbers, the description of the property purchased was not in a form acceptable for recording. (see section 1703(d)(1) of ILSA). As a result, purchasers were entitled to rescind their sale contracts.

Co-op Entitled to Foreclose on Shareholder's Units

Lombard v. Station Square Inn Apartments Corp.

NYLJ 4/6/12, p. 27, col. 4

AppDiv, Second Dept.

(memorandum opinion)

In co-op shareholder's action to enjoin the co-op corporation from foreclosing on shareholder's units, the co-op corporation appealed from Supreme Court's grant of a preliminary injunction. The Appellate Division reversed, holding that the shareholder had demonstrated neither a likelihood of success on the merits nor irreparable harm.

Shareholder owns shares associated with 11 co-operative apartments in the building, and defaulted on maintenance payments for those apartments. (Shareholder did not reside in any of the apartments.) On Nov. 20, 2009, the co-op corporation issued a notice of default and issued a ten day notice to cure the default. On Dec. 8, the co-op corporation issued a notice of termination, terminating the proprietary leases effective Dec. 21, 2009. Shareholder attempted to cure on Feb. 16, 2010, but the co-op corporation rejected the attempt. On March 26, 2010, the co-op corporation gave shareholder a notice of foreclosure, noting that the proprietary leases had terminated on Dec. 21, and indicating that the shareholder's interest in the shares and proprietary leases would be sold at public auction on April 15, 2010. On April 8, 2010, shareholder brought this action to enjoin foreclosure, and Supreme Court granted a preliminary injunction. The co-op corporation appealed.

In reversing, the Appellate Division noted that shares of stock in co-operative corporations constitute personal property, not real property. The court then noted that UCC 8-209 provides that a lien in favor of an issuer of a certificated security is valid if the issuer's right to the lien is conspicuously noted on the security certificate. In this case, the certificate itself, the bylaws, and the offering plan, all made it clear that the co-op corporation had a first lien on the shares for all sums due under the proprietary lease. As a result, the co-op corporation had an enforceable security interest in shareholder's shares, and was entitled to proceed under UCC article 9 without judicial process. The court rejected shareholder's argument that RPL 753(4) affords a losing residential tenant a 10-day period to cure lease violations, noting that the statute applies when a landlord brings a proceeding to recover possession after tenant holds over past expiration of the lease term. Here, because the co-op corporation was not bringing a proceeding to recover possession, and none of the occupants are holding over, the court held that the statute was not applicable. Moreover, because the shareholder is not living in the units and his interest is purely commercial, the shareholder failed to demonstrate why he would suffer irreparable injury if a preliminary injunction were denied.

Co-op Seller Has Standing to Raise Claim of Discrimination by the Board

Stalker v. Stewart Tenants Corp.

NYLJ 3/26/12, p. 18, col. 4

AppDiv, First Dept.

(memorandum opinion)

In an action by co-op shareholders against the co-op board and its individual members for housing discrimination and breach of fiduciary duty, shareholders appealed from Supreme Court's dismissal of the discrimination claim, and the co-op board cross-appealed from Supreme Court's denial of the motion to dismiss the breach of fiduciary duty claim against it.
The Appellate Division modified to reinstate the discrimination claim and to dismiss the breach of fiduciary duty claim against the co-op corporation, holding that Executive Law section 286(5)(a)(2) affords a co-op seller standing to challenge discrimination against a potential buyer.

One of the two unit owners is of Brazilian descent. In 2008, the two unit owners entered into a contract to sell their unit to two senior citizens who live primarily in Florida. The co-op corporation denied the purchasers' application to buy the unit on the stated ground that they did not meet a requirement in the bylaws that purchasers use their units as their primary residence. Sellers contend that the bylaw include no such requirement, and that the co-op corporation's stated reason was a pretext for discriminating against purchasers because of their age and against the Brazilian seller because of his national origin. Supreme Court granted the co-op's motion to dismiss the discrimination claim, but denied the motion to dismiss the breach of fiduciary duty claim against the co-op corporation.

In modifying, the Appellate Division first held that Executive Law section 296(5)(a)(2), which makes it unlawful to discriminate against any person in the sale of a housing accommodation on the basis of age or national origin, provides a remedy against any person adversely affected by reason of discrimination ' including a co-op seller. The court then held that the seller had standing to assert discrimination against a buyer under the federal Fair Housing Act. As a result, the court held that the discrimination claim had been improperly dismissed. At the same time, the court held that the breach of fiduciary duty claim against the co-op corporation itself should have been dismissed, because a corporation owes no fiduciary duty to its members or shareholders.

Contributions to Down Payment and Mortgage
Payments Do Not Create Ownership Interest

McGuire v. McGuire

NYLJ 3/16/12, p. 24, col. 2

AppDiv, Second Dept.

(memorandum opinion)

In an action for a declaration of rights to a co-op apartment, plaintiff Muriel appealed from Supreme Court's order that her sister, defendant Ruth, would be the sole owner of the shares upon payment of a sum of money to Muriel. The Appellate Division affirmed, holding that deference was due to the trial court's findings of fact.

The contract of sale of the co-op unit lists only Ruth as the purchaser, and one version of the co-op's certificate of shares lists only Ruth as the shareholder. Muriel, however, signed the contract of sale, and her name appears on the loan documents, and earlier version of the certificate of shares, and the proprietary lease. It is undisputed that Muriel made contributions to the down payment and to paying off the mortgage, but Ruth contends that these payments were either gifts or loans that were already repaid. Supreme Court rejected the contention that the payments were gifts, but concluded that the parties intention was for Ruth to be sole owner of the premises, upon repayment of amounts advanced by Muriel. The trial court therefore rejected Muriel's contention that she was a tenant in common.

In affirming, the Appellate Division concluded that conflicting testimony should be resolved by the trial court as the trier of fact, and that in this case, the trial court assessed the credibility of the witnesses in finding that some of the payments advanced by Muriel had not been repaid.

Violation of Interstate Land Sales Full Disclosure Act

Rai v. WB IMICO Lexington Fee, LLC

NYLJ 3/28/12, p. 21, col. 1

U.S. Dist. Ct., SDNY

(Gardephe, J.)

In an action by condominium purchasers to rescind their purchase agreements and recover their deposits, the condominium has counterclaimed for breach of contract. The court awarded summary judgment to purchaser, concluding that the failure of the sale contract to provide tax lot numbers constituted a violation of the Interstate Land Sales Full Disclosure Act (ILSA).

In 2007, developer filed an offering plan for a new condominium to consist of 110 residential units, one retail unit, and one rental unit consisting of 24 apartments. Developer did not, however, obtain tax lot numbers for the units until 2009, after many of the purchasers had bought units and paid deposits. Moreover, in 2008, developer amended the offering plan to reduce the number of residential units to 98, after some individual purchasers had sought combination of the initial units to make larger units. In December 2009, purchasers received notices setting the closing date as Feb. 1, 2010. Purchasers did not close on that date, but instead brought this action contending that the purchase agreements violated ILSA because they did not include tax lot numbers for each purchased lot.

In granting summary judgment to plaintiff purchasers, the court first held that ILSA applies to condominium developments because each unit is a lot within the meaning of ILSA. The court then held that ILSA's exemption for developments of fewer than 100 lots did not apply in this case because at the time purchasers signed their agreements, the condominium's offering plan indicated that the development would include 110 units; the subsequent reduction in the number of units could not generate an exemption that the developer did not enjoy at the time the sale contracts were executed. The court then held that the sale contracts violated ILSA because without tax lot numbers, the description of the property purchased was not in a form acceptable for recording. (see section 1703(d)(1) of ILSA). As a result, purchasers were entitled to rescind their sale contracts.