No Notice of Pendency on a Co-Op Apartment in New York

A lis pendens cannot be filed against an individual apartment in a co-op building because the co-op building is owned by one entity with members who are given shares of the co-op in exchange for the right to occupy their one unit. Since a co-op is not considered real estate owned, it is not the same as owning a townhouse where a lender can file a lis pendens against that one unit if the owner fails to pay his or her monthly mortgage payment

Mechanics Lien/Lis Pendens

The same is true for when a contractor does work for a particular apartment unit in a New York co-op or the entire co-op building such as painting the outside of the building. It is assumed that the co-op board has control and possession of the entire building, including all apartment units in the co-op and all common areas such as hallways, lobby, gym, community room, card room, etc., and should have been aware of the work. Therefore, a mechanics lien or lis pendens would need to be filed against the entire building and not anyone specific unit in order for the contractor to get paid.

Implications on the Co-op Building

If there is a mechanics lien on a co-op, new purchasers, the co-op or existing shareholders trying to refinance may not be able to get their financing from a lender because the lender will want the co-op to provide them with an indemnification. The lien would delay closings of new purchasers and other transactions related to obtaining financing concerning the co-op building. The reason is under the law, mechanics liens have a priority over mortgages so the lender would be hesitant to lend money because the lien would be seen as a risk to the lender getting back their investment.

If you own a co-op in New York and need assistance with estate planning or help with a lis pendens matter concerning real estate, it is suggested that you speak with a New York litigation and estate attorney to assist you with the mater.

What a Notice of Pendency Is and What It Does

A notice of pendency, also called a lis pendens, is a public filing that puts the world on notice that there is a lawsuit pending which affects title to, use of, or possession of a specific piece of real property. It is recorded in the county clerk's office in the county where the property is located. Once filed, the notice attaches to the property in the public record, and any subsequent purchaser, lender, or other person acquiring an interest in the property takes that interest subject to the outcome of the lawsuit.

The legal authority for the notice of pendency comes from CPLR Article 65 (Sections 6501–6516). Under CPLR 6501, a notice of pendency may be filed in any action in which the judgment demanded would affect the title to, or the possession, use, or enjoyment of, real property. The notice expires three years after filing but may be extended by court order.

Why Real Property Versus Personal Property Matters

The key reason a notice of pendency does not work against a co-op interest is that, as a matter of black-letter New York law, a shareholder in a co-op corporation does not own real property. The shareholder owns shares of stock in the corporation that holds title to the building, together with a proprietary lease that entitles the shareholder to occupy a particular unit. Both the shares and the proprietary lease are personal property, not real property. CPLR 6501 only authorizes a notice of pendency in actions affecting real property. There is no statutory authority for a notice of pendency against personal property in New York.

This distinction is more than a technicality. It controls how interests in co-ops are taxed, how they are secured, how they pass at death, and how they are reached by creditors. It also controls whether a notice of pendency, a mechanic's lien, or a similar instrument that runs against real property can be used.

Alternative Remedies Available Against a Co-op Shareholder

Even though a notice of pendency cannot be used, there are several alternative remedies available to a creditor or claimant who wants to secure their rights against a co-op shareholder's interest.

UCC-1 financing statement. Because co-op shares and the proprietary lease are personal property, a creditor's security interest is perfected by filing a UCC-1 financing statement, typically with the New York Department of State and with the co-op corporation itself. This is the same method used by the original purchase lender when financing a co-op acquisition.
Order of attachment. CPLR Article 62 provides for the attachment of a defendant's property in advance of judgment in appropriate cases. Attachment can reach personal property, including co-op shares.
Receivership. In appropriate cases, a court can appoint a receiver to take control of a defendant's interest in a co-op pending the outcome of the litigation.
Injunction. If the lawsuit seeks to prevent the transfer of the shares, an order of injunction can be sought to bar the shareholder from selling, encumbering, or transferring their interest pending the case.
Notice to the co-op corporation. A creditor or claimant can give written notice to the co-op corporation of the pending litigation. The board, having been put on notice, may decline to approve a sale or transfer that would frustrate the plaintiff's claims.

Practical Examples in Litigation

The inability to file a notice of pendency on a co-op shows up in a variety of disputes. In contract-of-sale disputes, where a seller refuses to close on the sale of a co-op, the buyer typically sues for specific performance. In the case of a house or condo, the buyer's lawyer files a notice of pendency to prevent the seller from selling to anyone else during the case. With a co-op, the buyer must rely on an injunction or on prompt notice to the board. In matrimonial cases, where one spouse fears the other will transfer or encumber a marital co-op pending equitable distribution, the typical remedy is an automatic orders provision and, if needed, a temporary restraining order. In estate disputes, where a beneficiary fears the executor will improperly transfer a co-op out of the estate, the remedy is usually a Surrogate's Court order restraining the transfer.

Condominiums Are Different

Unlike co-ops, condominiums in New York are real property. A condo unit owner holds a deed to a defined airspace plus an undivided interest in the common elements. A notice of pendency can be filed against a condo unit, and a mechanic's lien can be recorded against a condo unit. The condo board's involvement is generally limited to common areas. When evaluating whether a notice of pendency is available, the first question is always whether the building is a co-op or a condo.

What About the Land the Co-op Sits On

The land and building owned by the co-op corporation are real property, owned by the corporation. A notice of pendency could in theory be filed in an action that affects that real property. But it would have to be an action against the corporation about the building as a whole, not an action against an individual shareholder about an apartment. Filing a notice of pendency on the entire building because of a dispute about one apartment would, in most cases, be improper and subject to cancellation under CPLR 6514, possibly with sanctions.

Mechanics' Liens on Co-op Buildings

Mechanics' liens stand in a similar position to notices of pendency. A mechanic's lien under Lien Law Article 2 can be filed against real property where labor or materials have been furnished. A contractor who improved an individual co-op unit cannot file a lien against that unit alone, because the unit is not real property. The lien attaches to the building as a whole. As the original page notes, the result is that the entire building bears the weight of the lien, which complicates refinancings and unit sales for every shareholder.

Cancellation of a Wrongful Notice of Pendency

If someone files a notice of pendency against a property that does not satisfy CPLR 6501, the property owner can move to cancel under CPLR 6514. Cancellation is mandatory where the action is not one in which a notice of pendency is authorized. The court can also award costs and expenses, and a wrongful notice of pendency can sometimes give rise to a separate claim for damages.

When Co-op Liens Are Sold and Bought

Where a creditor obtains a money judgment against a co-op shareholder, the judgment can be enforced by levying on the shares and proprietary lease, often through the New York City Marshal or a county sheriff. Co-op interests are sold at sheriff's auction in a process governed by Article 52 of the CPLR. The auction purchaser steps into the shareholder's shoes, subject to the co-op board's approval and to the existing security interests on the shares.