Waithe v. Citigroup, Inc., Kings County Supreme Court, Index No. 24434/2012

As most real estate lawyers understand, co-0p owners do not own real estate.  They own stock in a cooperative apartment corporation and an appurtenant proprietary lease.  Therefore a co-op is not technically “mortgaged,” but rather a co-op loan is secured by a lien on the stock and proprietary lease. Typically, the lien is evidenced by the filing of a form UCC-1.  Thus, when a borrower does not pay on its co-op loan, the lender may commence a non-judicial UCC sale.


That was the backdrop to Waithe. In Waithe the co-op owner lost the co-op at a non-judicial foreclosure sale and commenced a special proceeding to reverse the sale.  (The lender was the successful credit-bidder at the sale).  Justice David Schmidt rejected most of the borrower’s claims, but ordered a hearing on a single issue: whether the lender provided the seller with proper notice of the non-judicial sale pursuant to UCC 9-611(f).  The New York legislature added sub-section (f) to UCC 9-611 in response to the foreclosure crisis to protect co-op owners.  The subsection is headed “Additional pre-disposition notice for cooperative interests” and requires the lender to send to the defaulting borrower, an “additional pre-disposition notice” at least 90 days before the sale.  The subsection, however does not specify the methodology pursuant to which the additional pre-disposition notice must be sent.

In an attempt to demonstrate compliance with UCC 9-611(f), the lender submitted an affidavit from a “Business Operations Analyst” stating that she reviewed  certain unspecified records  that  reflected  that the lender had  sent the  90 day notice  to the borrower  by certified  and registered mail.  Justice Schmidt ruled  that the  affidavit was not a sufficient affidavit of service of the actual mailing  and, accordingly,  ordered a hearing  on the issue  of whether the  additional predisposition notice  was actually served.   Justice Schmidt noted that  for real property,  Real Property Actions and Proceedings Law section 1304(2) requires that  pre-foreclosure notices be served by first class mail in addition to certified and registered mail.  First class mailing of the additional predisposition notice is not required to commence a non-judicial foreclosure on a co-op.

The lesson of Waithe is that  foreclosing lenders,  even in non-judicial co-op foreclosures,  should  provide  affidavits of mailing  from the  actual person  depositing  the mailings with the Postal Service  rather than rely upon records  allegedly prepared  by someone else.