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Second Department Rules That Cooperative Apartment Owners' Rights Are Precarious
On June 14, 2023, the Second Department decided Walsh v Ocwen Loan Servicing, LLC. The court, with little fanfare, appeared to rule that cooperative apartment owners are saddled with an unavoidable risk of loss. That is, if a lender alleges that the owners have defaulted, and then conducts a nonjudicial foreclosure sale, the former owners are left with few remedies. Regardless of whether the owners were truly in default, and regardless of whether they were notified of the sale, they can lose their home — for good.
A co-op shareholder does not have the same protections that a traditional homeowner has. The owner of a house, for example, who defaults on a mortgage, would not lose the home in a foreclosure sale until and unless the lender conducted a judicial foreclosure action, and until and unless the homeowner had the opportunity to present defenses to the court, and then only if the court specified at the end that the foreclosure would take place.
Shareholders of co-ops do not have those protections. Shareholders do not use the mortgage system — they obtain loans which are secured by their shares. If a lender deems the shareholder to have defaulted, the lender can ultimately conduct a nonjudicial foreclosure sale. This is just as it sounds — the court is not involved at all.
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