Hearing Decision

Petitioner, Emigrant Mortgage Company, Inc., commenced this holdover proceeding against Respondent Louise Greenberg to recover possession of co-op premises located at 185 S. Middle Neck Road, Apt. No.1P, Great Neck, New York 11021.

Petitioner loaned money to Respondent under a Security Agreement which enabled Respondent to purchase co-op stock for occupancy of Apt. #1P. The co-op stock was pledged as collateral. Respondent defaulted under the Security Agreement and Petitioner became the owner of Respondent's co-op stock through a sale at a public auction conducted on August 27, 2010. Through its purchase at the auction, Petitioner acquired all of the borrower's "right, title and interest" in Respondent's co-op stock. It thereby acquired "all right, title and interest" to Respondent's Proprietary Lease for Apartment #1P at 185 South Middle Neck Road, Great Neck, New York.

See Bankers Trust Co. of California, N.A. v. Vandekar, 1998 WL 209622 (S.D., NY 1998), (confirming that a sale of co-op stock pledged as collateral to the secured party transfers all of the owner's rights in the cooperative).

Petitioner initially brought the proceeding to evict Respondent pursuant to RPAPL § 713(5), which allows an eviction where:

The property has been sold in foreclosure and either the deed delivered pursuant to such sale, or a copy of such deed, certified as provided in the civil practice law [*2]and rules, has been exhibited to him.

Respondent moves to dismiss this proceeding pursuant to CPLR 3211(a)(2) on the grounds that the Court lacks subject matter jurisdiction. Petitioner opposes this application and cross moves for an order allowing it to plead RPAPL § 713(1) as a basis for bringing this summary proceeding. RPAPL § 713(1) allows an eviction where:

The property has been sold by virtue of an execution against him or a person under whom he claims and a title under the sale has been perfected.

RPAPL § 701 grants jurisdiction in a special proceeding to recover possession of real property. RPAPL § 713, in turn, authorizes evictions after foreclosures or execution sales. The principal question presented in this proceeding is whether these statutes may be applied to a case involving the sale at a public auction of co-op shares after the owner's default.

This Court is aware that cooperative apartments "are personal property, not real property" under the law governing a lender's foreclosure of a security agreement. See L.I. Equity Network v. Village In The Woods Owners Corp., 79 AD3d 26, 910 N.Y.S.2d 97 (2nd Dept 2010). Nevertheless, the tenant in reality is occupying living space in a building which is real property. Since the cooperative apartment (personal property) is part and parcel of a building which is real property, proceedings involving the occupants of a cooperative apartment present a hybrid situation.

In Sloves Associates v. Boudouris, 156 Misc 2d 165, 592 N.Y.S.2d 236, (Civ. Ct., NY County 1992), the court held that a petitioner lender who acquires title at an auction after the default of the respondent borrower has the right to evict the respondent pursuant to RPAPL § 713(1). This Court agrees with the Civil Court's holding.

In Bergman on New York Mortgage Foreclosures § 37.07 entitled Eviction After Foreclosure of Co-Op Unit, the text recognizes that while a cooperative unit is personalty, "it has indices of real estate." Consequently, RPAPL §§ 713(1) and 713(7) may be used when evicting the defaulting tenant, as explained in that text:

Whether the co-op foreclosure goes forward in the form of a mortgage foreclosure or, more commonly, pursuant to article 9 of the Uniform Commercial Code, eviction of the proprietary lessee, a tenant of the lessee, or any other occupant who remains in possession, may become necessary, just as it may when a mortgage foreclosure is completed against real property.

A reading of R.P.A.P.L. section 713, the provisions for a special proceeding when no landlord-tenant relationship exists, suggests that eviction after foreclosure of a [*3]co-op was never specially contemplated by the statute as it was developed over the years. Some authority, however, urges that R.P.A.P.L. section 713(1) as applicable, providing for the special proceeding when the property has been sold by virtue of an execution against the proprietary lessee or a person under whom he claims. Application may be found as well for R.P.A.P.L. section 713(7).

Recall that ownership of a co-op is in actuality ownership of shares in a cooperative corporation, which in turn, entitles the shareholder to an assignment of a proprietary lease. It is suggested that such is analogous to a license, thus triggering the applicability of R.P.A.P.L. section 713(7), which authorizes maintenance of a special proceeding after a 10-day notice to quit has been served pursuant to R.P.A.P.L. section 735.

The grounds for obtaining possession are that the person remaining in occupancy is a licensee of the person entitled to possession and his license has expired, or has been revoked by the licensor or the licensor is no longer entitled to possession. Where a co-op apartment has been the subject of a foreclosure, either the secured party or some third party has become the owner of the shares and the assignee of the proprietary lease. Whatever rights the occupant may have had no longer exist.

Contrary to Bergman, the court in Newell Funding, LLC v. Tatum, 2009 NY Slip Op 29153, 24 Misc 3d 597, 884 N.Y.S.2d 577 (Civ. Ct. of NY, Kings County, 2009), held that a secured party who has acquired title through a non judicial sale, may not commence summary proceedings to recover possession of the cooperative apartment. This Court respectfully disagrees.

Under well settled decisions in other contexts, courts have held that the relationship of a cooperative and its shareholders is of landlord and tenant so that the cooperative may bring summary proceedings. See Jimerson v. Butler, 102 Misc 2d 423, 425 N.Y.S.2d 924 (App Term, 2nd Dept 1979).

Although shares in a cooperative are generally treated as personal property, see L.I. Equity Network, supra, in reality its tenants are residing in buildings which are real property. Cooperatives have been treated by courts as realty in many different situations. See, e.g. Baranello v. 700 Shore Road Waters Edge Inc., 159 Misc 2d 1040, 607 N.Y.S.2d 584 (Sup. Ct., Nassau County 1993), where the court held that cooperatives were real property for purposes of the automatic stay provided by CPLR 5519(a)(6).

The Baranello court cites the following for its rationale for classifying cooperatives as realty:

It is true that on the sale of a cooperative apartment the stock interest is sold; however, it is equally true that along with that interest goes a lease to use the apartment. It is common [*4]knowledge that many cooperatives preclude leasing to other than shareholders. The stock and lease are inextricably tied together for many purposes. . . .

In Matter of State Tax Commn. v Shor (43 NY2d 151, 154-157, 400 N.Y.S.2d 805, 371 N.E.2d 523 [1977]), the Court (Breitel, Ch. J.) stated:

"The ownership interest of a tenant-shareholder in a cooperative apartment is sui generis. It reflects only an ownership of a proprietary lease, and therefore arguably an interest in a chattel real, conditional however upon his shareholder interest in the co-operative corporation, an interest always treated as personal property. The leasehold and the shareholding are inseparable. For some special purposes, the real property aspect may predominate [citation omitted]" (at p. 156, 400 N.Y.S.2d 805, 371 N.E.2d 523).

"The co-operative corporation owns the land and the building. Shares in the corporation are sold to each apartment 'owner', who receives a stock certificate, not a deed to real property. The shares entitle the shareholder to a long-term apartment 'proprietary' lease. (See 4B Powell, Real Property [Rohan-rev ed], par. 633.4.) One has, therefore, a mixed concept and terminology, superficially resembling the traditional rental apartment lease, except, for example, that the lessee pays monthly maintenance charges and is subject to assessments instead of rent. For some purposes it is a lease; for others it is a compact between co-operative corporation and co-operative tenant ...

"Neither the stock certificate nor the lease, inseparably joined, can appropriately be viewed or valued in isolation from the other." (at p. 156, 400 N.Y.S.2d 805, 371 N.E.2d 523).

In Matter of Carmer (71 NY2d 781, 530 N.Y.S.2d 88, 525 N.E.2d 734 [1988]), then Chief Judge Sol Wachtler wrote:

"The interest in a cooperative apartment is sui generis in modern property law, because it does not fit neatly into traditional property classifications; the interest is represented by shares of stock, which are personal property, yet in reality what is owned is not an interest in an ongoing business enterprise, but instead a right to possess real property (see, Matter of State Tax Commn. v Shor, 43 NY2d 151, 156 [400 N.Y.S.2d 805, 371 N.E.2d 523]; United Hous. Found. v Forman, 421 US 837, 851 [95 S.Ct. 2051, 2060, 44 L.Ed.2d 621]). Characterization of an interest in a cooperative apartment, therefore, is 'not resolved by uncritical resort either to the rubrics governing real property or those governing personal property.' (Matter of State Tax Commn. v Shor, supra [43 NY2d] ,at 156 [400 N.Y.S.2d 805, 371 N.E.2d 523]). Instead, this court, and other courts, have assessed on a case-by-case basis which aspect of this paradoxical interest predominates, in order to determine the applicability of a particular rule of law or statutory scheme; for example, in United Hous. Found. v Forman (supra [421 U.S.], at 848-851 [95 S.Ct. at 2058-60]) the United States Supreme Court held that because shares in a housing cooperative are purchased primarily to provide living space, and lack the characteristics traditionally associated with stock, they are not 'securities' for the purpose of Federal securities law, ..." (71 [*5]NY2d at 784 - 785, 530 N.Y.S.2d 88, 525 N.E.2d 734).

In Carmer, supra, the Court treated a cooperative as realty, thereby holding that a decedent's interest in her cooperative passed to her residuary legatees as opposed to her specific legatees, to the latter of whom " ... all shares of common or preferred stock of any corporation which I may own at the time of my death, ... " were bequeathed. (id., at p. 783, 530 N.Y.S.2d 88, 525 N.E.2d 734).

In Chiang v. Chang, 137 AD3d 371, 529 N.Y.S.2d 294 (1st Dept 1988), the court treated cooperatives as realty for purposes of partition. The court also noted the continuing struggle over the classification of cooperatives as personal property versus realty:

In Shor the Court determined that as far as statutory priorities of judgment creditors was concerned, the property interest of a judgment debtor in his co-operative apartment "fit better, legally and pragmatically, although with imperfect linguistic formulation, into the statutory framework governing personal property." Id. at 154, 400 N.Y.S.2d 805, 371 N.E.2d 523. The personal property interest of a co-operative apartment also assumed priority in the context of determining that UCC 2-713 was applicable in measuring damages for breach of a contract of sale of the shares to a cooperative apartment. Weiss v. Karch, 62 NY2d 849, 850, 477 N.Y.S.2d 615, 466 N.E.2d 155. However, the sale or conveyance of an interest in a co-operative apartment has been held to be a contract for the sale or conveyance of real property, thereby requiring a writing pursuant to the Statute of Frauds (General Obligations Law § 5-703); Moloney v. Weingarten, 118 AD2d 836, 837, 837, 500 N.Y.S.2d 320, lv. to appeal denied, 69 NY2d 608, 516 N.Y.S.2d 1023, 509 N.E.2d 358. Similarly, the United States Supreme Court has ruled that the sale of stock of an apartment house cooperative corporation does not constitute the sale of a "security" for purposes of the Securities Act of 1933 and the Securities Exchange Act of 1934 and should be treated instead as the sale of an interest in realty. United Hous. Found. v. Forman, 421 U.S. 837, esp 854-860, 95 S.Ct. 2051, 2061-64, 44 L.Ed.2d 621 reh. den., 423 U.S. 884. 96 S.Ct. 157, 46 L.Ed.2d 115; Grenader v. Spitz, 537 F.2d 612, esp 617-620, cert. denied 429 U.S. 1009, 97 S.Ct. 541, 50 L.Ed.2d 619.

Based upon the foregoing, the Court concludes that it has jurisdiction to grant an eviction pursuant to RPAPL § 701, and that RPAPL § 713(1), and perhaps RPAPL § 713(7), may be used by secured party, which obtains ownership of the cooperative apartment after a non judicial sale of the defaulting tenant's interest, to evict the tenant who no longer has any interest in the cooperative. As between the secured party and the defaulting tenant, the secured party has a superior right to the apartment and may seek to evict the defaulting tenant when his/her interest has been extinguished.

Thus, this Court denies the motion to dismiss and grants the cross motion to amend the pleadings to reflect RPAPL § 713(1). [*6]

This matter is set down for conference on April 23, 2012.

So Ordered:

/s/ Hon. Scott Fairgrieve

DISTRICT COURT JUDGE

Dated:March 8, 2012

cc:Rosenblum & Bianco, LLP

Nassau/Suffolk Law Services, Committee Inc.

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