Because of the unique form of ownership in cooperative housing corporations, boards have a weapon in its arsenal to enforce shareholder obligations – the nonjudicial foreclosure sale. In cooperatives, owners are shareholders in the cooperative corporation and lessees under a property lease with the cooperative. Because of this ownership structure, proprietary leases contain provisions allowing for termination of the lease for breaches and because shares are security interests, they can be sold by the board at a nonjudicial foreclosure sale. This weapon was confirmed by Appellate Division, Second Department in a decision a few weeks ago in Hargraves v. Tyler Towers Owners Corp.
The facts of that case were a bit complicated but in the end, the cooperative shareholder withheld paying maintenance because he didn’t agree with the coop board’s position on an agreement with the shareholder, and ended up in a lot of hot water. The coop served the shareholder with a notice to cure and after the cure period expired without the shareholder paying, the cooperative terminated the proprietary lease and then notified the shareholder under the lease that it was considering the shares for the apartment forfeited and sold at a nonjudicial foreclosure sale.
When receiving the last notice of sale, the shareholder woke up and brought suit to try to stop the weapon from being used by the cooperative, but the Court held that the shareholder was too late. Like a commercial lease where a Yellowstone Injunction could be sought before the cure period expired, the shareholder couldn’t bring a preliminary injunction demand against the cooperative after the cure period expired. It was too late and the shareholder should have done so before the cure period expired.
You snooze, you lose and in this case, the cooperative board used a powerful weapon of a nonjudicial foreclosure sale, to address its dispute with a nonpaying shareholder.
Read the decision here.
