Manhattan Real Estate: Q&A: What is an Aztec Recognition Agreement?

Real Estate Agent

A: The Aztec Recognition Agreement (sometimes spelled Aztech) is a three-party contract between the borrower, lender, and coop. It is a form that must be signed by the borrower, lender and the coop.

(The form gets its name from the company that produces it)

It is the document that the bank draws up to give its lien the first priority over the co-op's lien in case the shareholder defaults. Also, the co-op corporation promises to notify the lender if the owner fails to pay maintenance or other fees to the co-op.

The co-op corporation is prohibited from permitting additional financing or canceling the shares/lease without the lender’s permission. This protects the security interest of the lender. The co-op, on the other hand, is given a superior lien on the equity. In the event of a default, a co-op’s lien is automatically prioritized over that of the lender. Only a few lenders will do HELO's in coops since they will be third lien.

Procedures for the lender and co-op to take in the event of a default are also established. The co-op agrees to inform the lender if the shareholders monthly maintenance payments fall into arrears (3 months). This functions as an early warning system of a borrower’s financial difficulty to the lender. In return, the lender agrees to make payments on behalf of the delinquent shareholder/borrower in order to prevent the co-op from foreclosing.

The lender also recognizes the co-op board’s right to review the transfer of shares in the event of a foreclosure.

The terms of the Recognition Agreement must be mutually agreed upon by the co-op and lender before a loan can close. Some co-ops require the use of their own recognition agreement and will not accept the lender’s version.

As part of this agreement the mortgage holder will pay maintenance and repossess the apartment. If shareholders don't pay their maintenance, the mortgage lender will pay after a while.

A co-op foreclosure has to be initiated by the co-op board. Because co-op units are not considered real property, co-op foreclosures do not have to go through the court, and instead will go to auction.

The coop building is safe financially (as opposed to condos with owners in arrears) as long as shareholder/owners have a mortgage. The Aztech protects the coop. For this reason many coops prefer purchaser's to have a mortgage (even a small mortgage) with assets left over rather than an all cash purchase.


courtesy of:

Mitchell Hall, Associate Broker, The Corcoran Group

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Comments (13)

Muhammad Mushtaq
Weichert, Realtors® - SBA Group - Fall River, MA

Good post for anyone working in the coop and/or timeshare business.

Jan 26, 2011 01:55 AM
Aaron Seekford
Arlington Realty, Inc. - Arlington, VA
Ranked Top 1% Nationwide 703-836-6116

I thought it was an agreement made with an ancient Mexican tribe. Glad I know the true meaning now...

Jan 26, 2011 02:08 AM
Mitchell J Hall
Manhattan, NY
Lic Associate RE Broker - Manhattan & Brooklyn

SB&A , Thanks

Aaron, LOL. Everyone thinks that.

Jan 26, 2011 02:22 AM
Jackie Connelly-Fornuff
Douglas Elliman Real Estate in Babylon NY - Babylon, NY
"Moving at The Speed of YOU!"

Hi Mitchell, I'm well-versed when it comes to co-ops. A lot of the developments here have high income requirements. You rarely see a short sale or foreclosure for co-ops in these parts. But, it's always good to have protection in place.

Jan 26, 2011 04:22 AM
Mitchell J Hall
Manhattan, NY
Lic Associate RE Broker - Manhattan & Brooklyn

Hi Jackie, Some of the most sought-after buildings in Manhattan are coops. They have very tough requirements. The most prestigious coops on Fifth Avenue, Park Avenue and Central Park West only allow 50% financing plus high income and high-net worth.  We have very few short sales and foreclosures in Manhattan but the few are usually in condos and rarely coops.

Jan 26, 2011 04:47 AM
Karen Pannell
Real Living / Home Realty - Owensboro, KY
Owensboro KY Real Estate -270-903-2167 Homes, Cond

What a great post.  We do not have coops here in Owensboro, KY, and I always wondered how this worked.  Tnanks for the great info!  Blessings to you for 2011!

Jan 26, 2011 09:30 AM
Mitchell J Hall
Manhattan, NY
Lic Associate RE Broker - Manhattan & Brooklyn

Hi Karen, Thank you and Blessings to you to for 2011.

Hi David, Thanks, you learn something new everyday in the rain lol.

Jan 26, 2011 03:50 PM
Gail Robinson
William Raveis Real Estate - Southport, CT
CRS, GRI, e-PRO Fairfield County, CT

Mitchell, Saw your comment on Lenn's blog and thought I'd take a look at your post.  Thank you for this clear explanation of the Aztech agreement.  We have one co-op complex in my market area.  I'll reblog this.

Jan 27, 2011 02:45 AM
Mitchell J Hall
Manhattan, NY
Lic Associate RE Broker - Manhattan & Brooklyn

Hi Gail, Thanks for stopping by and for the re-blog. Coops are a unique form of home ownership.

Jan 27, 2011 10:24 AM
David Popoff
DMK Real Estate - Darien, CT
Realtor®,SRS, Green ~ Fairfield County, Ct

See that, you do learn something new everyday, esp. on ActiveRain. ~ Thanks

Apr 16, 2011 05:27 AM
Daniel Zettler, Esq. - Barnstable Mortgage Grp
Barnstable Mortgage Group NMLS 49104 - Allendale, NJ

great info. thanks!

Feb 27, 2013 01:57 AM
Florida Management and Consulting Group Inc.
Florida Management and Consulting Group, Inc. - Coral Springs, FL
Real Estate Brokerage and Property Managers

Very informative. It seems like co-ops are very popular in the NYC area.

Feb 20, 2014 06:22 AM