Co-op Board Options for Collecting Arrears in Estate Defaults
A shareholder dies and no one comes forward to claim their apartment. Before long, outstanding monthly rent has accrued and the apartment is now in significant arrears.
What are the Board’s options for collecting arrears when a situation like this occurs?
When a shareholder dies, the proprietary lease does not die with him/her.
In fact, a proprietary lease survives death. Anyone who is looking to inherit the shares of stock from the deceased must do so with a proper transfer.
When seeking past rent due, especially from an Estate, it is important for the Board to gather all records connected to the apartment, including the stock certificate and the proprietary lease. In addition, and equally as important, is collecting all information from any past visitors or family members listed as tenants or otherwise. An Estate that has not been administered will likely result in an investigation of executors, heirs, and beneficiaries in the future, so you want to make sure you have all the information necessary to collect from the proper debtor beforehand.
Reviewing the stock certificate and proprietary lease
Once all relevant records are gathered, the Coop Board should begin by evaluating the stock certificate and proprietary lease and identifying who is named as the official shareholder. If there are multiple names listed on the stock and lease, you may be able to collect from the remaining shareholder(s).
The Board should consult with their attorney to determine how to proceed based on the parties’ relationship to the shareholder. For example, a spouse listed on a stock certificate issued in 1996 or later is entitled to a transfer of all shares connected to the apartment, while a friend who is listed on the stock certificate may not be.
Bringing a petition in Surrogates Court
If there is only one person listed on both the stock certificate and lease, and no one has come forward to represent the Estate, the Board will likely have to move forward with bringing a petition in Surrogates Court.
To collect the shareholder’s outstanding debt, someone must be officially appointed by the Surrogates Court to administer the Estate. Letters Testamentary or Letters of Administration must be issued in Surrogates Court to an individual for him/her to have the legal authority to manage, control, sell, and access the decedent’s assets. This process can be a lengthy one, but it helps expedite the proper transfer of stock – and ensure that the Co-op gets paid in full before the Estate can distribute the property. (Transfer to another does not relieve debt, and all outstanding debt must be satisfied before the transfer (NY BSC Ch. 4, Art. 6, Sect. 629)).
Smith, Buss, and Jacobs LLP maintains a full-service default department to streamline collection of arrears. If your Co-op Board needs guidance or assistance with collecting arrears as the result of an Estate Default, we are here to help.