Thursday, January 15, 2015

Legal Question: UCC-1 Filing Requirements and Co-ops


Question
I am a real estate salesperson and I was recently at a co-op closing which was delayed because the UCC-1 filing statement was incorrect due to a change in the law relating to UCC-1 filings. Can you please explain what a UCC-1 is and how the law has changed?
AnswerWhen a purchaser buys a co-op apartment and is also obtaining a loan, the bank that is making the loan will file a Uniform Commercial Code financing statement (the “UCC-1”). The UCC-1: (i) creates a lien against the co-op purchaser’s shares and proprietary lease (this is similar to a mortgage in a real property transaction), (ii) is filed in the county clerk’s office where the co-op is located and (iii) gives notice to the public that the bank has a lien against the co-op purchaser’s shares and proprietary lease.

In order to file the UCC-1, the bank must follow certain rules set forth in the Uniform Commercial Code (the “Code”).  Recently there was a revision to the Code regarding the way that the purchaser’s name appears on the UCC-1 (the “UCC Revision”).  The UCC Revision, which became effective on December 18, 2014, requires that the name of the purchaser on the UCC-1 must match exactly the name of the purchaser as it appears on the purchaser’s valid and non-expired New York State driver’s license or non-driver photo identification.   If the name does not match exactly, the lien created by the UCC-1 may not be valid.

Given the consequences of not complying with the UCC Revision, it should be expected that the attorneys for banks will be asking for a copy of each purchaser’s New York State driver’s license or non-driver photo identification in order to file the UCC-1.

Important Tip:  When preparing a “deal sheet” for the purchase of a co-op, you should ask the purchaser to provide you with the exact spelling of his/her name as such appears on his/her driver’s license or non-driver photo identification.  Furthermore, you should recommend that the attorneys involved with the transaction utilize the same spelling of the purchaser’s name on the contract of sale.  This will prevent the need to correct the contract of sale or the UCC-1 at a later time during the transaction.

By Neil B. Garfinkel, 
REBNY Broker Counsel

No comments:

Post a Comment