Anyone who has applied for a co-op apartment in NYC will be familiar with what’s called the Aztech Recognition Agreement. If you’re wondering what an ancient Mexican civilization has to do with purchasing a co-op apartment then don’t worry. It tends to cause a bit of confusion and not just because of the name. Here we break it down for you, explaining what it is and how it works. As you’ll see, it has nothing to do with Mexican history and everything to do with board packages of buyers financing a co-op purchase.
What is an Aztech Recognition Agreement and why is it needed?
The Aztech Recognition Agreement (sometimes spelled Aztec) is a three-party contract between the buyer, lender, and co-op. it gets its name from the company that produces it, the Aztech Document Systems company, which dates from a not so ancient date of 1973 A.D. previously, lenders would negotiate directly with developers and co-op converters to create custom documents for individual shareholders.
Simply put, it’s an agreement that protects both the lender and co-op. Anyone who wishes to purchase a co-op apartment does so by purchasing shares in the corporation. If you are doing so through mortgage financing, one of these documents will be needed. The document stipulates that the co-ops lien gets first priority over the banks. If the buyer defaults on their payments there will be no changes to the lease without the bank being first notified. Through the agreement, the co-op also promises to notify the lender if the buyer fails to pay maintenance or other co-op fees.
Procedures are also set out for the lender and co-op on what to do in the event of a default. This way it works as an early warning system of a borrower’s financial difficulty with the lender. In return, the lender agrees to make payments on behalf of the defaulted shareholder. Thus preventing the co-op from foreclosing.
What are the benefits?
The main benefit of an Aztech agreement is that it allows buyers to purchase a co-ops apartment with financing that will improve property values to the benefit of all shareholders. As an added bonus, it permits the lender to monitor the shareholder’s timeliness of maintenance payments. This effectively makes the lender a guarantor of a shareholder’s maintenance fees. Shareholders tend to be a lot more concerned about potentially going into arrears than making timely maintenance payments. As such, all it usually takes is one letter from the lender to ensure they keep their payments on time.
How can I get one?
Most Aztech Agreements are issued by the banks. The terms of which must be mutually agreed upon between the three parties before a loan can close. Once issued and agreed upon they will be submitted as part of the board package. The whole point of the agreement is to protect the co-op in the event of a default. In return, the security interest of the lender is protected. However, some co-ops require the use of their own recognition agreement and will not accept the lender’s version.