When you purchase a cooperative apartment with financing, your lender will record a UCC-1 Financing Statement against the cooperative shares and proprietary lease issued by the cooperative apartment cooperation for your apartment. The share certificate and proprietary lease will then be held by the lender as collateral for the loan until such time as the loan is paid off.
The UCC-1 lien is used to by the lender to secure the collateral (the share certificate and proprietary lease) for the loan made for the apartment. By being recorded against the apartment, the UCC-1 serves to put the public on notice of the lien and prevent an owner from selling their apartment without first paying off the loan. The UCC-1 is like a mortgage; however, mortgages may only be recorded against real property and as cooperative apartments are considered personal and not real property, a mortgage is not applicable.
It is important to run a cooperative apartment lien search when purchasing the apartment so that any existing UCC-1 Financing Statements are revealed and can be disposed of prior to closing. When your loan is paid off, your lender will return the collateral share certificate and proprietary lease to the borrower and provide a UCC-3 Termination Statement for recording which formally terminates the original UCC-1 lien.
There are many complexities to the Uniform Commercial Code and we encourage you to carefully review all UCCs when involved in a cooperative apartment transaction.