What is an Aztech Recognition Agreement and Why Do You Need One?

Confused buyer looking at Aztec form, thinking of the Aztecs from ancient Mexico

Table of Contents:
What is an Aztech Recognition Agreement?
When and how do you sign an Aztech Recognition Agreement?
What are the benefits of Aztech Recognition Agreements?
Sample Aztech Recognition Agreement

What is an Aztech Recognition Agreement?

An "Aztech Recognition Agreement" or "Aztec Form" is an agreement between you, your lender and the co-op and establishes what happens if you stop making maintenance and/or mortgage payments. It is required when financing the purchase of a co-op. While you do sign the Aztec, it’s really just an acknowledgement. It doesn’t ask you to do anything abnormal. 

The Aztec’s requirements are predominantly placed on the co-op but for its benefit. Most importantly, the co-op agrees to -

  1. Not allow any additional debt to be placed on the shares purchased.
  2. Tell the lender if you stop making your maintenance payments.
  3. Allow the lender make maintenance payments if you don't.
  4. Acknowledge the lender’s lien against the shares in the event of a sale.

Co-ops are usually happy to sign an Aztech recognition agreements for a few reasons. First, it’s required by the lender so if the building wants financing, they need to sign the Aztec. It also allows the lender to pay your maintenance if you don’t. The lender wants their collateral as clean as possible so paying a few thousand dollars to avoid tarnishing their six or seven figure asset is a good investment. This effectively gives the co-op a maintenance insurance policy on any financed units. And finally, the lender agrees that the co-op gets paid first in a foreclosure. Only after the co-op is made whole does the lender receive proceeds from a sale.

The name of the form is a bit strange but comes from the company which standardized the document in the 1970s. Prior to its creation, a lender needed to negotiate with each co-op individually which was extremely inefficient.

When and how do you sign an Aztech Recognition Agreement?

Aztech recognition agreements are usually one of the last items outstanding for your co-op application because they’re sent near the end of the loan underwriting. When we say “sent”, we mean it - your lender will physically mail three copies to you. Unlike virtually every other document in 2019, Aztecs still need to be original copies (so don’t lose them!).

The Aztecs will arrive signed by the bank. You'll sign and submit them with your co-op application and then finally a member of the board will also sign, fully executing the agreement.

What are the benefits of Aztech Recognition Agreements?

The biggest benefit of Aztech recognition agreements, by far, is they allow buyers to finance in a co-op. When you buy a co-op, you are technically buying shares in the building and the proprietary lease to live in a specific unit. This is counter to a condo where you buy the actual apartment. In legal terms, co-ops are personal property (the shares and lease) while condos are real property (the actual real estate). Because of this, a mortgage in a co-op is actually collateralized by the shares and proprietary lease.

Every co-op has a different proprietary lease so the rules around using shares as collateral for a mortgage vary. Today’s Aztech recognition agreement smoothed out those differences so buyers can easily finance a co-op purchase. This greatly expands the buyer pool so all apartments in the building are much more valuable, benefitting all shareholders.

Sample Aztech Recognition Agreement

Your lender will send out the Aztech recognition agreement so this is just for informational purposes but you can find a sample here. Please keep in mind this is not necessarily what yours will look like. 

Note: This post is meant to be informational and should not be relied upon as legal advice. Please contact your attorney should you have any legal questions.