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Cooperative May Disapprove Purchase of Unit at Foreclosure Sale

A Cooperative Board was within its rights in disapproving the proposed sale of a unit to the successful bidder at a foreclosure auction, according to an appellate court’s decision in Plotch v. 435 East 85th Street Tenants Corp., 2020 N.Y. App. Div. LEXIS 6230, 2020 N.Y. Slip Op. 6031 (1st Dep’t Oct. 22, 2020).

The plaintiff submitted the successful bid in a foreclosure auction conducted by the mortgage lender on shares associated with an apartment in the Cooperative. Under the terms of sale, the purchase was subject to the terms of the proprietary lease and it was the purchaser’s responsibility to comply with those terms. The relevant paragraph of the proprietary lease provided that upon a default, the shares associated with the unit could be sold “to a reputable person of good financial standing subject only to the approval of the then managing agent of the [Cooperative], which approval shall not be unreasonably withheld.” Similarly, the recognition agreement between the Cooperative and the lender provided that the lender “shall have no right to transfer the apartment upon foreclosure or otherwise either to [itself] or anyone else without [the Cooperative’s] approval as required by the lease.”

The managing agent initially approved the transfer to plaintiff, but “eventually rescinded its approval before the closing, in light of plaintiff’s history of litigation arising from his purchase of cooperative apartments at foreclosure sales.” The would-be purchaser sued to compel a transfer of the shares and proprietary lease.

The court dismissed all claims asserted against the Cooperative and the managing agent, “based on the longstanding precedent … that a contract vendee has no standing to enforce a cooperative proprietary lease provision.” The court also dismissed the claims against the lender because “plaintiff did not plead facts demonstrating that [the lender] owed a duty to compel the cooperative or [the managing agent] to accept plaintiff as a purchaser or breached the terms of sale.” Further, the court rejected plaintiff’s attempt to add a claim for tortious interference with his purchase contract, because “the tortious interferences alleged was merely the denial of plaintiff’s purchase application, an option which was contemplated in the terms of sale.” Finally, the court rejected plaintiff’s argument that the proprietary lease provision restricting transfers of the lease was prohibited under the Uniform Commercial Code.