Don't Become a Textbook Case: How One Co-op Board Flubbed a Foreclosure

We mean "textbook case" literally, by the way. As The Law and Practice of Secured Transactions: Working with Article 9 (Release 19, 2004) notes, the case of Ryfun v. 406 West 46th St. Corp. illustrates what happens when "the creditor failed to satisfy the requirements for a strict foreclosure."

Manhattan Transfer

Our story begins in 1993, when John Ryfun, then in his early 80s, had already had a long-running dispute over unpaid maintenance fees and neglected repairs. That year he purportedly transferred his shares of apartment 2C at 406 West 46th Street —  a 15-unit, co-op in Hell's Kitchen a.k.a. Clinton, built in 1946 — to his sister, Dorothee Ryfun Senich. He didn't technically sell her the place, as a court later found, since the siblings had never formally transferred the shares nor even sought the co-op board's required consent.

In any case, Senich subsequently misplaced the stock certificate. So as part of a 1996 court settlement regarding a maintenance reduction for lack of repairs, she and the cooperative agreed that a new stock certificate would be issued upon her delivering an indemnity agreement for the lost one —  the equivalent of having your bank cancel a check that got lost, so that there aren't two of them floating around out there. 

For some reason, however, Senich never delivered that indemnity. And so, with the maintenance issue unresolved — and with the cooperative still holding apartment 2C's stock certificate — the board held a special meeting on Jan. 7, 1999, and amended the proprietary lease to deal with unpaid maintenance. This amendment allowed the board to terminate a severely delinquent shareholder's lease and to cancel not only the shares in the shareholder's name but also their reissuance to a transferee.

The board sent Ryfun, by now living in Florida, a registered letter informing him of all this and began eviction proceedings against his sister.

Too Little, Too Late

One problem: While the proprietary lease could be amended at a special meeting by an affirmative vote of lessees owning at least two-thirds of all the shares, the bylaws required that a notice of a special meeting be served to all shareholders at least five days before such meeting. 

While the bylaws also said such a special meeting would be valid if a quorum were present and the notice requirement had been "waived in writing by all stockholders not so present," the court in 2001 said Ryfan had never waived his right to notice. Additionally, the court wrote,

• Although it appears that the three members of the corporation's board of directors waived the notice requirement in writing on the date of the meeting, such a waiver is not authorized under the Corporation's by-laws. Therefore, this Court finds that the … special meeting was held in violation of Article I of the Corporation's bylaws. Thus, any action taken at the meeting … must be considered null and void even if those stockholders who were absent from  the meeting, including plaintiff  John C. Ryfun, were subsequently notified of the actions taken at the meeting.

Yeah, But It Took a Year 

A court did overturn this, in 2002, and found that the co-op board had acted in accordance with its bylaws in holding the meeting and amending the proprietary lease. (That decade-old decision, and its reasons, were not immediately available today.) Still, that wasted a year and this court also said the board overreached by claiming it owned apartment 2C's stock certificate — which the board was only supposed to have been holding temporarily until receiving an indemnity agreement for the lost certificate.

Indeed, said the court, the board "took undue advantage of the happenstance that, at the time, the cooperative was in physical possession of the Ryfun stock certificate … strictly the result of the pending reissuance of a new stock certificate; the shares were not being held as security for a debt." As additional screw-ups, the board also failed to follow "accounting and foreclosure sale requirements" and "various provisions of the Real Property Law and the Real Property Actions and Proceedings Law."

What happened afterward? Hard to say — given the age of the case, court records aren't immediately available. But Ryfun, who was 89 in 2001, seems to have held onto the place: The 572-square foot one-bedroom Apartment 2C was renovated and listed at an estate sale in June 2008, selling for $320,000 in July 2009, according to real-estate records. 

Regardless, the points remain: Show good faith in sending meeting notices, since even if a court eventually rules in your favor it could add a year to your case. Don't assume that because you physically hold the stock certificate that it's legally yours. And don't become a textbook case by being the dunce everybody points to for not following standard "accounting and foreclosure sale requirements" or pro forma provisions of basic real property law.

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