02.06.19   •   Document Updates

Product Updates: New Support for HELOC Cooperative Loans in New York

We are expanding the scope of our support for loans secured by a borrower’s ownership shares and lease in a cooperative unit (“cooperative loans”) to include home equity lines of credit (“HELOCs”) when the cooperative unit is located in New York.

New Documents

Similar to our traditional HELOC mortgage loan documents, we will be making HELOC-specific copies of our standard New York cooperative documents, rather than making HELOC-specific changes within these documents. Our new HELOC cooperative documents include the following:

  • Assignment of Lease – HELOC COOP (Cx22933)
  • Consent to Assignment of Proprietary Lease – HELOC COOP (Cx22934)
  • Acceptance of Assignment and Assumption of Lease – HELOC COOP (Cx22935)
  • Irrevocable Stock Power – HELOC COOP (Cx22936)
  • Loan Security Agreement – HELOC COOP (Cx22937)
  • Assignment of Security Agreement – HELOC COOP (Cx22938)
  • Affidavit of No Further Encumbrances – HELOC COOP (Cx22939)
  • Notice of Assignment of Security Agreement – Managing Agent – HELOC COOP (Cx22940)
  • NY Aztech Recognition Agreement – HELOC COOP (Cx22941)

These will be configured to print under the following conditions:

  • Base Type = Conventional
  • Cooperative = Yes
  • Document Package Type = Closing
  • HELOC = Yes
  • Print Generic HELOC Security Instruments = Yes
  • State Code = New York

Please note that these documents are designed to be used with our generic HELOC Agreement (Cx21652) and other generic HELOC documents. These documents are not compatible with any custom HELOC documents (including agreements).

Document Edits

While our new HELOC cooperative documents are copies of our New York cooperative generic documents, we are making textual changes to some of these copies, to make them compatible with the nature of a HELOC. Substantive changes to these documents are as follows:

  • Loan Security Agreement – HELOC COOP (Cx22937). Unless otherwise specified, these changes will apply when “State Code = New York”:
    • Reversing the pronouns used in this document, so that “you” refers to the borrower and “I” refers to the lender. Doing so will make the narrative match that used in our generic HELOC Agreement (Cx21652).
    • Adding the high-cost home loan and subprime mortgage legends required under N.Y. Banking Law §§ 6-l & 6-m and N.Y. Comp. Codes R. & Regs. tit. 3, Pt. 41, which will only print if “HCL – State = True” or “HPML -State = True”, respectively.

    These laws require the legends to appear on a “mortgage.” While the loan security agreement is not a mortgage, the laws cited above do apply to loans secured “by any certificate of stock or other evidence of ownership in, and a proprietary lease from, a corporation, partnership or other entity formed for the purpose of cooperative ownership of real estate” (Supra § 6-l[1][e][iv]). While it is uncertain as to whether the legend requirements apply to a loan security agreement, the legends themselves are factually correct within the context of a HELOC cooperative loan, thus we will print them irrespective of whether they are required or not, to ensure compliance with New York’s laws.

    • Similarly, N.Y. Real Prop. Law § 281 provides that any future advances under a “credit line mortgage” are secured and treated similarly to any original advances, if (inter alia) the “mortgage or deed of trust . . . states that it secures indebtedness under a note, credit agreement or other financing agreement that reflects the fact that the parties reasonably contemplate entering into a series of advances, payments, and readvances . . .”

    Even though Cx22937 is a loan security agreement and not a “mortgage or deed of trust” and cooperative loans in New York are generally considered to be secured by personal property (and thus, arguably, New York’s Real Property Law does not apply to these types of loans), New York case law states the following:

    “The interest in a cooperative apartment is sui generis in modern property law, because it does not fit neatly into traditional property classifications; the interest is represented by shares of stock, which are personal property, yet in reality what is owned is not an interest in an ongoing business enterprise, but instead a right to possess real property [citations omitted]. Characterization of an interest in a cooperative apartment, therefore, is ‘not resolved by uncritical resort either to the rubrics governing real property or those governing personal property.’ [citations omitted] Instead, this court, and other courts, have assessed on a case-by-case basis which aspect of this paradoxical interest predominates, in order to determine the applicability of a particular rule of law or statutory scheme . . .” (Matter of Estate of Carmer, 71 N.Y.2d 781, 784–85 [1988])

    Thus, to take a conservative approach, we will be adding the following legend to the beginning of Cx22937:

    “THIS AGREEMENT SECURES AN INDEBTEDNESS UNDER A HOME EQUITY CREDIT LINE AGREEMENT WHICH REFLECTS THE FACT THAT THE PARTIES REASONABLY CONTEMPLATE ENTERING INTO A SERIES OF ADVANCES OR ADVANCES OR ADVANCES, PAYMENTS, AND READVANCES.”

    • Adding a provision to paragraph 3 which states that if there are any conflicts between the provisions of the loan security agreement and the HELOC agreement, the provisions of the HELOC agreement take precedence.
    • Adding a provision to paragraph 13 which limits the lender’s right to consider the borrower to be in default “to the extent permitted by applicable law.”
    • Replacing all references to the “note” with “Home Equity Credit Line Agreement and Disclosure Statement” (or “HELOC Agreement”, for short).
    • Adding a provision to paragraph 22 stating that any notices sent in connection with the loan security agreement may also be sent in accordance with the provisions of the HELOC agreement.
    • Adding a new subparagraph under 26 in which the borrower waives their homestead rights, as detailed in New York law (including N.Y. C.P.L.R. § 5206).
    • Modifying paragraph 30 to clarify that the loan security agreement remains in force until all of the borrower’s obligations under the HELOC agreement and loan security agreement – including obligations related to future advances – have been terminated.
    • Adding a new paragraph 31, in which the borrower promises to occupy the cooperative unit as their primary residence within 60 days of execution of the loan security agreement. This provision may be modified by some of the HELOC Riders to the security agreement (as detailed later in this announcement).
    • The following changes apply when “Lien Position does not equal First Lien”:
      • Due to the nature of a junior lien cooperative loan, we are adding several conditions to paragraphs 4, 6, 11, 16, & 18 which limits certain provisions of these paragraph’s provisions in cases where a superior lienholder’s security agreement takes precedence. For example, if the superior lienholder’s security agreement entitles said lienholder to any of the rents in the cooperative unit under certain conditions, then language is added stipulating that the junior lienholder is not entitled to collect these rents under these same conditions.
      • Adding a new subparagraph under 26 which permits the junior lienholder (subject to applicable law) to redeem the collateral if the payments to a superior lienholder are accelerated.
      • Adding the following notice just before the borrower’s signature lines, pursuant to N.Y. Banking Law § 590-a:

“DEFAULT IN THE PAYMENT OF THIS LOAN AGREEMENT MAY RESULT IN THE LOSS OF THE PROPERTY SECURING THE LOAN. UNDER FEDERAL LAW, YOU MAY HAVE THE RIGHT TO CANCEL THIS AGREEMENT. IF YOU HAVE THIS RIGHT, THE CREDITOR IS REQUIRED TO PROVIDE YOU WITH A SEPARATE WRITTEN NOTICE SPECIFYING THE CIRCUMSTANCES AND TIMES UNDER WHICH YOU CAN EXERCISE THIS RIGHT.” 

  • Second Home Rider – HELOC (Cx20384). Unless otherwise specified, these changes will apply when “State Code = New York” and “Cooperative = Yes”:
    • Modifying references of “Property” to refer to either “Apartment” or “Property” (which term includes the ownership shares and proprietary lease) as the context demands.
    • Adding a definition of “Loan” (which refers to the “Home Equity Credit Line Agreement and Disclosure Statement”) to the paragraph titled “Borrower’s Loan Application”.
    • Adding a provision which repeals paragraph 31 of the loan security agreement (wherein the borrower agrees to occupy the cooperative apartment as a primary residence).
    • Modifying the title and footer of the documents to indicate that the rider is made in connection with a cooperative loan transaction. This will apply regardless of State.
  • NY UCC-1 Financing Statement (Cx19882)
    • N.Y. U.C.C. Law § 9-323(h)(1)(D) stipulates that for a security interest in a cooperative interest to be perfected with respect to future advances, “the filed financing statement [must include] a cooperative addendum disclosing that the security agreement contains a commitment to make future advances.”

Cx19882 contains a copy of NY UCC-1Cad (Cooperative Addendum), Box 27 of which contains a checkbox with text stating that “the security agreement provides for FUTURE ADVANCES.” By default, this checkbox will be marked for cooperatives when “HELOC = Yes”. 

  • HELOC Agreement (Cx21652). Unless otherwise specified, these changes will apply when “State Code = New York” and “Cooperative = Yes”:
    • Modifying the definition of “Property” by changing the phrase “real property” to “property”.
    • Modifying the fourth paragraph in Section 2 to clarify that the “Property” secured includes (but is not limited to) the rights of occupancy to the cooperative apartment.
    • Modifying references of “security instrument” to “security agreement”.
    • Modifying Section 21 to state that any notices provided in connection with the HELOC agreement may be provided in the manner outlined in the loan security agreement.
    • Removing Section 26 (titled “Occupancy”) and renumbering subsequent paragraphs. We are adding this section in the loan security agreement, so that it can be modified (as needed) by any riders (e.g. the Second Home Rider).
    • Removing the clause “and to the extent required, by the laws of the jurisdiction where the Property is located” from Section 31. Doing so will make the HELOC agreement subject to whichever governing law is inputted by clients, rather than on the location of the “Property” (which, for a cooperative, includes multiple documents which may be located in different states).
    • Adding the clause required under N.Y. Banking Law § 590-a when “Lien Position does not equal First Lien” (this change will be made regardless of whether the subject property is a cooperative or not).
    • Modifying the title of the document so that it reflects the fact that the HELOC agreement is made in connection with a cooperative loan transaction. This will apply regardless of State.
  • HELOC Important Terms (Cx21651). Unless otherwise specified, these changes will apply when “State Code = New York” and “Cooperative = Yes”:
    • Modifying the clause “mortgage on” in the paragraph entitled “Security Interest” to state “security interest in”.
  • Assignment of Lease – HELOC COOP (Cx22933)
    • References within this document to the “loan” and the “Note” will be replaced with references to a “home equity line of credit” and “Home Equity Credit Line Agreement and Disclosure Statement”, respectively.
    • When “Lien Position does not equal First Lien”, the second to last paragraph will be revised so that the borrower covenants and represents to the lender that they are permitted to assign the proprietary lease in accordance with any agreements between the borrower and any superior lienholder, as well as any agreements between the borrower and the cooperative association.
  • Assignment of Security Agreement – HELOC COOP (Cx22938)
    • A reference to the “promissory note(s)” will be changed to refer to “home equity credit line agreement(s).” Clarification is also made in the second paragraph that the security agreement secures a home equity line of credit.
  • 1-4 Family Rider – HELOC (Cx20387). Unless otherwise specified, these changes will apply when “State Code = New York” and “Cooperative = Yes”:
    • References to “Property” are replaced by references to the “Security” or to the “Apartment”, as the context requires.
    • The clause “the other hazards for which insurance is required by the INSURANCE Section of the Security Instrument” is replaced with “any other insurances required by the Security Instrument” in Paragraph D.
    • Paragraph E (“’Borrower’s Right to Reinstate’ Deleted”) is removed and is substantively replaced by a new paragraph, appearing at the end of the rider, which deletes paragraphs 17 and 18 of the loan security agreement.
    • When “Lien Position does not equal First Lien”, conditions are added to Paragraphs F & G (re-lettered E & F) which stipulate that certain provisions do not apply if a loan security agreement with a superior lienholder takes precedence.
    • Cross-references in the document to section numbers in a mortgage/deed of trust are replaced by either referring to the equivalent paragraphs in the loan security agreement or by stating the substantive provisions of such sections.
    • Removing the following from Paragraph G (re-lettered F):

    “Borrower represents and warrants that Borrower has not executed any prior assignment of the Rents and has not performed, and will not perform, any act that would prevent Lender from exercising its rights under this paragraph.”

    • Adding descriptions to the title and footer of the document, which identify it as being made in connection with a cooperative loan. This will apply regardless of State.

Configuration Changes

We will be adding the condition “HELOC = No” to the print configurations for the following documents:

  • Assignment of Lease – COOP (Cx4982)
  • Consent to Assignment of Lease – COOP (Cx4983)
  • Acceptance of Assignment and Assumption of Lease – COOP (Cx4984)
  • Irrevocable Stock Power – COOP (Cx4986)
  • Assignment of Security Agreement – COOP (Cx4988)
  • Affidavit of No Further Encumbrances – COOP (Cx4989)
  • Notice of Assignment of Security Agreement – Managing Agent – COOP (Cx4991)

We will also change the print configurations for the following documents so that they print when “HELOC = Allow Any”:

  • NY UCC-1 Financing Statement (Cx19882)
  • NY UCC-3 Financing Statement Amendment (Cx22780)
  • NY UCC-3 Financing Statement Amendment from MERS (Cx22781)

Finally, we will be adding the condition “Cooperative = No” to the following documents:

  • HELOC Mortgage – NY (Cx1327)
  • Condominium Rider – HELOC (Cx20385)
  • PUD Rider – HELOC (Cx20386)

Effective Date

These changes will take effect on February 13, 2019. If you have any questions or concerns about these changes, please contact Client Support at 1.800.497.3584.

DR 282107