Bill Morris: Welcome to Legal Talk, a conversation about governance issues that New York co-op and condo boards are tackling as we speak. I'm Bill Morris with Habitat, the magazine for New York co-op and condo directors. And with me this morning is Matthew Goldberg, a partner at the firm of Hankin & Mazel.
Welcome aboard Matthew.
Matthew Goldberg: Thanks for having me.
Bill Morris: My pleasure. Now as we know, housing cooperatives are corporations and the people who live in them are not apartment owners. They're shareholders in that corporation. Therefore, they have stocks. Now, sometimes those stocks get transferred from one party to another.
Quickly walk us through the reasons for transfers, and then maybe we can get into some of the details about the mechanics of those transfers.
Matthew Goldberg: Sure. A lot of times when a stock transfer occurs, it's either adding the name of a spouse or a child or removing a name of a spouse or a child for maybe estate planning purposes, or if the shares at the co-op were bought by an unmarried couple and then they broke up.
Or friends who bought together and wanted us to have one person stay there and the other person moved. Those are the most typical situations where stock changes hands.
Bill Morris: Now when the stock changes hands, is it a simple matter of adding or subtracting a name? You just go onto a piece of paper and magically erase or add, or how does that work?
Matthew Goldberg: No. So it's not as simple. Most shareholders think it's just as simple as crossing out the name and issuing a new stock. But any change in ownership to the shares and the proprietary lease, which accompanies that have to be approved by the board. So all the boards we represent have stock transfer applications that the shareholders have to fill out.
And believe it or not, it actually is a legal, it really is a legal transaction. Technically it's the two. If there's two people on the shares removing a name, it's the two people selling it to the one person for no consideration. So a judgment and lien search has to be filed, done, before the transfer is effectuated.
After obviously the boards approve the trans, the transfer, to make sure there's no liens or judgments against the shareholders. If they have a current mortgage, the bank has to be involved. They have to approve the name change as well. We also have to record ACRIS documents, which basically is the city's filing system.
'Cause anytime there's a change in ownership, the city has to be notified. There's no transfer tax due like I mentioned earlier, because there's no money being exchanged. And in some cases there are in cases of divorce. Or separations or things like that, then there would be a transfer tax due.
But yeah, it is a legal proceeding. It's not as simple as just striking a name.
Bill Morris: Now, tell me about this judgments and liens. What, explain a little bit about what that means. If a stock certificate has a judgment or a lien against it, why is that blocking the transfer?
Matthew Goldberg: So stocks are personal property, so if you have a personal judgment against you, the judgment creditor can put a lien on the premises to get to satisfy their judgment. And we wouldn't transfer the shares over a lien. So we run the judgment and lien search to make sure there's no liens of record ,because they have a lien on the shares and we don't wanna transfer it over the lien because then the co-op can be liable for that.
We also do that to make sure that there are no outstanding mortgages. If there are, like I mentioned earlier, the bank would have to be involved because they would have to approve it, and also they would have to show up with the original stock and lease if the shareholder doesn't have it.
'Cause the banks hold it as collateral when they purchase.
Bill Morris: So in other words, the board is making sure that there's nothing blocking, nothing standing in the way of this peaceful transfer of these shares. They don't want to have any debtor in, involved that's gonna, that's gonna complicate the issue.
Matthew Goldberg: That's correct.
Bill Morris: Now and to sum up, Matthew, what would you, what's the lesson here for co-op boards that are faced with these situations? There's, it's a little bit more complicated than we thought going in.
Matthew Goldberg: Yeah it's a little more complicated than, like I said, most shareholders think. I think the most prudent way to handle it and what we advise our co-ops is to have a transfer application where if, for instance, if you're adding a name, that the applicant who's coming on and becoming a shareholder, they're able to run searches on them get, review their information just as if they were purchasing the unit. Make sure that they're a suitable shareholder and they financially stable.
And also in the instances of removal. We wanna make sure that the party that's leaving, the party, that's staying on the shares can financially support the unit by themselves so that there's certain financial information they ask for, even though that person's been a shareholder for, could be years.
But they wanna make sure that just like anytime someone's purchasing the co-op that the shareholder is suitable for the building.
Bill Morris: That leads me to one last question. Does that new person have to go through the application process, the interview process with the board and all of that, all those hoops?
Matthew Goldberg: Yeah. So if they're adding a name, we advise our boards to like I said, have an application filled out. Some boards do interviews on transfers, some don't. Some just do it on the paper applications. But yeah, you wanna make sure that the person that you're adding who is now gonna have the same rights as every other shareholder in your building is vetted in the same way that every other shareholder is vetted.
Bill Morris: All right. Thank you Matthew Goldberg from Hankin and Mazel. Thanks for that little lesson on stock transfers.
Matthew Goldberg: Not a problem. Thanks for having me.