What is an Aztec Recognition Agreement?

An Aztec Recognition Agreement is a tri-party contract between the buyer of a co-op, his or her bank and the co-op corporation. This Aztech form confirms that all parties understand that the bank will have a lien on the buyer’s stock certificate and shares as well as the buyer’s proprietary lease in exchange for extending a loan to finance the buyer’s purchase of the co-op apartment.

Why Are Recognition Agreements Necessary for Financing?

What Does the Aztec Recognition Agreement Cover?

Who Has a First Lien on the Collateral?

An Aztech Recognition Agreement is necessary if you’re buying a co-op because the language of coops’ proprietary leases can vary regarding the ability to get a loan secured by a shareholder’s stock and lease. Some proprietary leases will allow such a secured loan, others require the prior consent of the co-op corporation and some leases are completely silent on the matter.

As a result, banks will need some sort of understanding with the co-op corporation and the shareholder that their collateral is indeed secured. In decades past, banks used to hammer out custom recognition agreements with co-ops on an individual, deal by deal basis. However, all of that changed once the industry consolidated around a standardized co-op recognition agreement first developed by Aztec Document Systems. That document is today called the Aztech Recognition Agreement, or simply the Aztec form.

The coop Aztec agreement confirms that the shareholder is indeed the owner of the shares and proprietary lease being contemplated as collateral for the loan. More importantly, it confirms that the co-op corporation consents to the bank having a lien on the stock certificate and proprietary lease as collateral for the loan.

The Aztec agreement also protects the bank by preventing the co-op corporation from further encumbering the collateral without the lender’s consent. This means that the co-op corporation agrees not to sublet the apartment, not to approve any further loans, and won’t surrender or cancel the proprietary lease without the bank’s approval.

Interestingly enough, this Aztec form also permits the bank to pay the co-op corporation directly on behalf of a delinquent shareholder. This effectively means that the lender will be guaranteeing the shareholder’s maintenance payments on a going forward basis.

The lender also agrees in the Aztec recognition contract to not transfer the proprietary lease or shares to anyone else without the co-op’s consent. This is an interesting clause which protects the co-op against surprise new residents if a shareholder is foreclosed upon.

The co-op corporation always has a first lien on shares and proprietary leases. This means that in an event of default, the co-op corporation will be paid back first on all sums owed to it, such as late maintenance payments and fees.

After the co-op corporation has been made whole, the net proceeds will go towards the bank to pay off its loan and any associated late fees. Any remaining proceeds after the co-op corporation and the bank have been paid off in full will go towards the shareholder.