A Guide to Aztech Recognition Agreements (aka Aztec Forms)

The PropertyClub Team
Mar 25th 2020
Shareholders who have purchased a cooperative apartment (“co-op”) in New York City have probably heard of the Aztech Recognition Agreement (or “Aztec form”). It is a form/agreement that is required by the lender/bank to finalize a loan for a co-op. However, most co-op owners do not understand the agreement. Below, we will explain the legalities of an Aztech agreement.  

An “Aztech Recognition Agreement” or “Aztec Form” is a trilateral legal agreement between the shareholder, the lender, and the co-op cooperation. The name of the form originates from the company that standardized the agreement in the 1970s. Prior to the creation of a standard form, banks/lenders had to negotiate with each co-op individually. 

The agreement acknowledges that the shareholder is the owner of the shares and the occupant of the apartment pursuant to the proprietary lease. In the agreement, the co-op corporation consents to the fact that the bank/lender is lending the shareholder money in exchange for a lien on the shareholder’s lease and shares as collateral. The agreement prevents the co-op board and cooperation from consenting to any other encumbrances on the co-op without the bank/lender’s approval. This means that the co-op cannot consent to any additional loans, termination, or surrendering of the proprietary lease without the lender’s consent.

The agreement details what the legal process is if the shareholder stops making his/her monthly maintenance payments and/or mortgage payments. An Aztech is typically required when you purchase and finance a cooperative apartment (co-op). 

The Aztech agreement establishes that the lender/bank has the first priority lien or superior lien on the buyer’s shares of a cooperative apartment. The proprietary lease is collateral for the loan.  

Lastly, the Aztech Recognition Agreement contains an indemnification clause, which requires the bank/lender to indemnify the co-op if the shareholder makes any claim against the co-op for its action pursuant to an Aztech agreement. 

In a typical Aztech agreement, the co-op agrees to the following: 

  1. Prohibit any additional debt to be secured by the shares in the apartment.
  2. Agree to notify the lender if the shareholder stops making his/her monthly maintenance payment 
  3. Agree that the bank/lender can make maintenance payments if the shareholder doesn’t. 
  4. Acknowledge the lender’s lien against the shares in the apartment in the event that the property is foreclosed or is sold.  

The bank/lender typically requires the agreement to be signed if the shareholder needs financing. Next, since the agreement allows banks/lenders to pay the maintenance fee if the shareholder doesn’t, this is beneficial for the co-op. Essentially, this acts as an insurance policy for the maintenance because lenders want to ensure that their collateral (the co-op shares) are clear as possible. On the other hand, if a shareholder is in default on their monthly maintenance payment, sending a copy of the notice to cure to the shareholder’s bank/lender is usually all it takes for the shareholder to become current with their maintenance payments. Many shareholders are afraid to default on their loans. 

Last but not least, the bank/lender agrees that the co-op gets paid first in a foreclosure. As such, in the event of a sale or foreclosure, the co-op is made whole first, then the lender can receive any remaining proceeds. 

In rare circumstances, the banks will ask the co-op to agree to a modified version of the Aztech agreement. In that event, the co-op’s lawyer may agree to minor changes, but the lawyer probably won’t agree to eliminate any provision that protects the co-op should it forget to notify the bank/lender of a shareholder’s default.

Due to the fact that the majority of Aztech conditions, for the most part, benefit Co-op corporations, they are typically happy to sign Aztech recognition agreements

How do you complete an Aztech Recognition Agreement?

Aztech recognition agreements are typically one of the last items needed to complete your co-op application and sent towards the end of your loan underwiring process. Even though it’s 2020, Aztech agreements need original copies. So, your lender will mail you three originals of the form for you to fill out. The bank will have already signed the agreement. After you sign the agreement, you will submit the form with your co-op application. Thereafter, a member of the co-op board will sign the agreement.  

What are the benefits of Aztech Recognition Agreements?

The obvious benefit for buyers signing an Aztech Recognition Agreement is that it allows buyers to obtain financing for their co-op. 

A mortgage in a co-op is actually collateralized by the shares and proprietary lease.

Every co-op has its own customized proprietary lease, so the rules surrounding the use of shares as collateral for a mortgage vary. However, the current Aztech recognition forms have made it easy for buyers to finance a co-op purchase, easily.