New York's Cooperative and Condominium Community

HABITAT

ARCHIVE ARTICLE

Subscriber Login


My Homestead, My Castle

In The Lambs Inc. v. Diven, a case of first impression, it was held that, for purposes of a homestead exemption in New York, co-op shares would be treated as real property exempt from execution not exceeding $10,000 in value above liens and encumbrances, although for technical reasons the action was dismissed. In this proceeding, the petitioner sought to compel the sale of a co-op apartment owned by respondent Diven, Apartment 10-I in the Presidential Towers, 315 West 70th Street, to satisfy petitioners' judgment against him in a prior action.

Petitioners sued Diven in New York County Supreme Court to recover corporate funds he had converted for his personal use while a director and treasurer of the petitioner. It was transferred to the New York City Civil Court. On July 14, 1998, the civil court entered a judgment in favor of petitioners against Diven for $276,055.34. Petitioners have collected only $55,281.29 of the judgment, including accrued interest, leaving a total balance of $283,873.46 as of the date of the petition.

Petitioners then sought an order directing the sale of Diven's apartment; appointing a receiver to conduct the sale, and compelling respondents to deliver to the receiver all documents concerning Diven's interest in the premises, as necessary; to facilitate the sale. Because Diven had never answered the petition and had defaulted, the court considered petitioner's factual allegations admitted, as long as they were supported by admissible evidence. Without factual issues, the court said that it could determine the petition summarily.

The court had jurisdiction over special proceedings to enforce the court's judgments. This court could not, however, order execution through the sale of real property based on a civil court judgment. Instead, the court said that the judgment creditor had to file a judgment transcript with the county clerk, making the "civil court judgment for purposes of enforcement." Petitioners nowhere showed that they had docketed their judgment as required by the civil court act.
However, the court said that the petitioners could not overcome the jurisdictional bar by characterizing the ownership of co-op apartment stock as personal property, rather than real property, thus avoiding the limitations on the sale imposed by the civil court act. It said that co-op apartment ownership derives from the purchase of securities, which, for many purposes, is considered a transaction involving personal property governed by Article 2 of the Uniform Commercial Code. While, for many commercial purposes including determining creditors' rights against shareholders, a shareholder's interest in a co-op apartment is treated as an equity investment in personal property, for other purposes residential co-op shares are considered real property.

Petitioners sought to avail themselves of the procedures for enforcement of judgments against homesteads under the Civil Practice Law and Procedures (CPLR). A homestead not exceeding $10,000 "in value above liens and encumbrances, owned and occupied as a principal residence, is exempt" from execution. Any remaining interest in a homestead is not exempt. Real property, to which the homestead exemption applies, whether the property is exempt or non-exempt under the statute's application, includes "shares of stock in a cooperative apartment corporation." Thus, for purposes of the very statutory provisions petitioners invoked, and for determining the rights of prior lien-holders and others having an interest in the premises, the court said that co-op apartment shares were real property.

The court noted that this characterization was consistent with the overall interest advanced by the homestead exemption: protection of property "owned and occupied as a principal residence." This property interest is represented by shares of stock that are personal property rather than a deed to real property, which an owner has a right to occupy and reside in on a long-term basis.

The inclusion of co-op shares as real property subject to the exemption means, of course, that the shares are also subject to the statutory procedures available to enforce a judgment against the non-exempt stock. Nevertheless, coverage of the property against which execution is sought by the real property exemptions, coupled with the express prohibition barring this court's execution of judgments against real property, compelled the conclusion that the procedure required by the civil court act and the CPLR. applied to this proceeding.

In sum, the court concluded that it had no jurisdiction to order execution of a judgment for money, even the court's own judgment, against real property, including co-op shares. The failure to follow the procedure for docketing the civil court judgment transcript with the county clerk is fatal to any enforcement of the judgment against such real property. Even if the docketing procedure did not apply here, petitioners failed to establish, by admissible evidence, that Divan's equity interest in the premises exceeded $10,000 and the total of any outstanding liens and encumbrances.

In the end, the petitioners failed to establish the court's jurisdiction to grant the requested execution against Diven's property or to establish the factual predicate to jurisdiction: that Diven's interest in the property exceeded the exemption provided in the CPLR. Therefore, the court dismissed the petition. (The judgment was given without prejudice, allowing a new petition that presented admissible evidence that Diven retained the requisite interest in his property and otherwise demonstrated jurisdiction to grant the requested relief.)

Comment: This is another in a long line of cases seeking to construe the nature of co-op ownership. In considering the dual nature of co-op ownership, a mixture of personal and real property, the court here concluded, for purposes of determining how a co-op was treated in a statutory homestead exemption from a legal attachment situation, that it was to be treated as real property. The reason: co-op shares represented the right to occupy and reside in real property. Despite this conclusion, the court refused to afford any relief to the petitioners on the ground that they had selected the wrong forum, an error that could be corrected by another lawsuit in a court of appropriate jurisdiction.

Ask the Experts

learn more

Learn all the basics of NYC co-op and condo management, with straight talk from heavy hitters in the field of co-op or condo apartments

Professionals in some of the key fields of co-op and condo board governance and building management answer common questions in their areas of expertise

Source Guide

see the guide

Looking for a vendor?