Understanding the Aztech Recognition Agreement in NYC Real Estate

Aspiring apartment owners considering buying a co-op in New York City have to deal with several hurdles those purchasing a condo will not face. Apart from a down payment and closing costs, buyers need a co-op board’s approval before getting keys to the unit. But there is an additional step co-op buyers have to handle.

Aztech Document Systems developed the Aztech Recognition Agreement to mollify banks' fears about enforcing their collateral while retaining the rights of a co-op to approve shareholders if a bank tried to foreclose on a shareholder.

Buyers purchasing a co-op in NYC must get an Aztech Recognition Agreement. Also known as an Aztech Form, it is required by lenders before they sign off on your mortgage. To help educate buyers about the process, the team at defines what you need to know about Aztech Recognition Agreements in NYC.

When you invest in a co-op, you buy shares in the co-op corporation that owns the entire building.

Shareholders have a proprietary lease on a specific unit in the building, as well as take on the role of a co-owner in the broader co-operative entity via shares. Together, the shareholders make collective decisions on key matters, such as maintenance, renovations, house rules, and community events via the co-op’s board. Co-op boards play a crucial role in the decision-making process, ensuring that the interests of all shareholders are represented and that the property is well-maintained.

The shareholder aspect is important as the co-op shares serve as collateral for lenders, not the real property like a condo.

Introduced in the 1970s by Aztech Document Systems Company, these agreements standardize the financing and legal processes of buying a co-op.

Before Aztechs, banks and lenders would negotiate individually with each co-op board and create custom documents about financing conditions and legal considerations for the purchase application. Today, the Aztech agreement, often referred to as the aztec form, acknowledges that the buyer is a shareholder and occupant of the apartment under a proprietary lease.

The agreement also outlines the mutually agreed legal process if a borrower stops paying the mortgage payment or making maintenance payments to the co-op.

The co op's approval is crucial in the agreement process, as it grants consent for various financial and ownership matters, such as extension of loans, encumbrances of collateral, subletting, termination or surrendering of the lease, and transfer of proprietary lease or shares.

That is why lenders will not let you close a transaction without the form. The agreement outlines that the bank/lender provides capital to a shareholder in exchange for a lien on the proprietary lease and shares as collateral. This stops the co-op from taking on other encumbrances, such as additional loans, termination of the lease, or surrendering a lease without the lender’s consent.

Beyond giving guidance to lenders, Aztech agreements protect the co-op in the event of a default. This protection is crucial if a co-op accidentally forgets to notify the lender of a default, as the agreement ensures the lender is still informed and can take necessary actions.

If a borrower becomes delinquent on maintenance payments, sometimes the lender agrees to make payments on behalf of the borrower to have the collateral free of issues. This effectively makes the bank a guarantor of a shareholder's maintenance payments, allowing banks to monitor the timeliness of these payments and directly pay the co-op on behalf of a delinquent shareholder. Creating a maintenance insurance policy on financed units gives peace of mind to the co-op board.

But, in the event of a foreclosure, proceeds go to the co-op to cover losses. Only after that does the lender get any proceeds from the transaction.

There are four major tenets of an Aztech agreement, each designed to create a sense of trust for all parties involved in the transaction.

First, the agreement prohibits you or the co-op board from placing any additional debt on shares of a co-op. Next, the co-op must inform the lender if a shareholder has not paid their monthly maintenance fees. Lastly, the agreement acknowledges the lender’s lien on the shares in case a property gets sold or is foreclosed on, ensuring the co-op recognizes the bank's lien.

The third rule is that the lender or bank can cover maintenance payments for a time if the shareholder does not. The lender would rather have collateral free of bad payment history.

The co-op's attorney may agree to minor variations in the agreement but is responsible for protecting the co-op from liability in case of default or oversight in notifying the lender.

The Aztech recognition agreement is typically signed at the end of the co op purchase process, highlighting its importance in securing financing and ensuring a smooth transaction.

This paperwork is one of the last items your lender will send you for the co-op application during the loan underwriting process. Buyers will receive three documents in the mail, as Aztech agreements must have physical copies signed.

Co op converters play a crucial role in this process by ensuring that the agreement protects the lender and the co-op, and establishes clear rights and responsibilities regarding the shareholder's loan, shares, and lease.

When you receive the agreements, the lender will have already signed them. So once you sign and submit your co-op application, an authorized board member will finalize the agreement with their signature, setting you up to own a share of the co-op.