Zombie Coop Units Get Some Protections Applicable To Zombie Houses
Effective August 14, 2019, New York law was amended to require holders of loans on abandoned residential cooperative apartments to “pay. . .cooperative fees as needed to maintain the property.” The lender must first jump through required hoops to determine that the unit has been abandoned. The exemption for lenders with small market shares that I discussed in a prior blog continues to apply, so if you are exempt from the prior version of the Zombie Housing Law, you are [probably] exempt from this.
I say “[probably]” because, after spending decades reviewing New York statutes, I’m nominating this amendment for induction into the Hall of Fame of bad legislative drafting. It is difficult to interpret many parts of the statute, notably including the market share provision that determines who is exempt. It is unclear, in calculating a lender’s market share, whether coop loans are included in the numerator, the denominator, both, or neither. I expect that DFS will weigh in with amendments to its zombie housing regulations to clarify this and other issues. I hope to inject our views into that process.
Today’s Takeaway? This is an issue that, at least as to coops, is a tempest in a very annoying teapot. Since coop maintenance charges jump ahead of a security interest in a coop unit, this is only a cash flow timing issue. Ultimately, the coop will get its money first when the unit is sold at a secured party sale or in bankruptcy. However, if you are not exempt from the Zombie Housing Law, you must be alert whenever a coop loan goes into default. You must satisfy the advance notice and posting requirements to determine vacancy and abandonment and then be ready to make advances to the coop.