Once The Sale Is Done, Can It Be Undone?
Court Says No.
Schneider Buchel LLP recently secured a significant victory on behalf of a cooperative corporation in a closely watched dispute involving a former shareholder’s attempt to overturn a completed UCC non-judicial foreclosure sale and regain ownership of her Co-op apartment.
After the foreclosure sale was completed, the former shareholder brought an action seeking to invalidate the transaction, challenge the purchaser’s rights as owner, and ultimately recover the apartment. The lawsuit asked the Court to overturn the sale, restore ownership of the shares and proprietary lease, and stop the purchaser from moving forward with efforts to recover possession of the apartment.
The plaintiff argued that the sale should be set aside for several reasons, including, among other things, alleged issues with the sale process. Schneider Buchel LLP successfully argued that, under New York law, challenges to a UCC non-judicial foreclosure sale must be raised before the sale occurs. Once the transaction has been completed, the sale cannot simply be undone through later litigation seeking to reclaim the property.
The Suffolk County Supreme Court initially and improperly the Court held the auction had to be undone and the original shareholders were entitled to their apartment back. Schneider Buchel knew this was not correct and was contrary to the law. As a result, Schneider Buchel asked the Court to reconsider its decision. After oral argument before the same Judge who rendered the improper decision, the Judge agreed and dismissed most of the plaintiff’s lawsuit including all of the claims and relief requested which sought to overturn the UCC non-judicial foreclosure sale, challenge the purchaser’s rights, and restore ownership of the shares and proprietary lease. As a result, the purchaser remains the lawful owner of the shares and lease, and the completed sale remains intact.
For cooperative boards, the Decision provides meaningful confirmation and assurances regarding a Board’s authority when confronted with the need to foreclose a Co-op apartment; a powerful remedy when a shareholder doesn’t pay their maintenance or otherwise defaults in their compliance with the terms of the Proprietary Lease. Once a properly conducted UCC non-judicial foreclosure sale has been completed, ownership rights cannot simply be undone through litigation seeking to reverse the transaction. The ruling reinforces the finality of completed UCC non-judicial foreclosure sales and helps protect the stability of cooperative communities.
At Schneider Buchel LLP, we remain committed to protecting cooperative communities and helping boards navigate complex disputes with confidence, clarity and excellence!
