New York's Cooperative and Condominium Community

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Handling Co-op Stock Transfers

Matthew Goldberg, Partner, Hankin & Mazel in Legal/Financial

New York City

Unlike traditional apartment ownership, co-op residents are shareholders in a corporation, entitling them to stocks rather than tangible property. Consequently, when shares change hands, whether due to familial changes, relationship shifts, or other circumstances, a series of legal steps must be followed. 

Reasons for transfers. Oftentimes when a stock transfer occurs, it's the result of shareholders adding or removing the name of a spouse or a child for estate planning purposes. It might also be related to changes in relationships, or accommodating shifts in occupancy arrangements. However, the seemingly straightforward act of altering names on a stock certificate entails a meticulous process and co-op boards should understand the importance of legal compliance in order to ensure the co-op is protected from any liability. 

Compliance matters. Stock transfers aren't as simple as striking out a name and issuing a new certificate. Each transfer requires approval from the cooperative's board. If there’s a current mortgage, the bank must be involved, and must approve the name change. Changes also need to be recorded on ACRIS, the city's filing system, because the city must be notified of any change in co-op ownership. In some cases, where there’s a divorce or separation, there may be a transfer tax due. However, if no money is exchanged, no transfer tax would be paid. A stock transfer also requires conducting a personal judgment and lien search to safeguard against potential legal entanglements. 

Conducting a lien search. Personal judgments or liens against a shareholder can result in problems with the transfer of shares. Stocks are personal property and transfers cannot be made over a lien. A judgment and lien search ensures there are no liens of record. The due diligence should also ensure there’s no outstanding mortgage. If there is, the bank would have to be involved and show up with the original stock and lease — if the shareholder doesn't have it — because the banks hold it as collateral when they purchase. The board's role in overseeing these transactions serves to protect the interests of the co-op and its shareholders, thereby mitigating potential risks. 

Consistency of approach. It’s important to subject prospective shareholder additions to the same scrutiny applied to initial applicants. Consistency in vetting procedures also ensures cohesion within the community. The best approach for co-op boards when dealing with stock transfers is to be proactive by implementing comprehensive transfer applications for shareholders, which are similar to those used in unit purchases. This enables boards to scrutinize an applicant’s financial stability and suitability as a shareholder in order to approve the transfer. Whether adding or removing names, the vetting process ensures that all parties involved uphold the co-op’s standards. 

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