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Generally speaking, it is not difficult to distinguish between real property and personal property. However, in New York, this distinction is important when it comes to the enforcement of money judgments against an interest in a Cooperative Unit.
New York is unique for a lot of reasons-the cooperative form of ownership of property is one example. An interest in a Cooperative Unit is an interest in personal property. This classification as to the interest in a Cooperative Unit as personality versus realty is important when enforcing a money judgment vs a Cooperative Unit. The method whereby a judgment debtor obtains a lien (money judgment) on property, or a priority in it, differs and differs substantially depending on whether the property is classified as real property or personal property. If the interest is real property, a lien is secured by the mere docketing of the judgment in the office of the county clerk of the county in which the real property is located (CPLR 5203). If the interest is personal property, no lien is obtained on mere docketing. A lien on personal property does not arise until an execution is delivered to the proper sheriff.
In this issue, we will examine enforcing money judgments against an interest in a Cooperative Unit. We will address Federal Tax Liens and New York State Tax Warrants in a later issue. In reviewing this article, it is important to remember that one of the benefits of obtaining title insurance for the sale/purchase and/or loan involving a Cooperative Unit is the added layer of protection it affords in dealing with possible money judgments vs an interest in a Cooperative Unit.
The CPLR defines Garnishee as anyone who has possession of property belonging to the judgment debtor or who owns a debt to the judgment debtor. CPLR 5201(c) does not prescribe who the garnishee is to be in all situations. It merely singles out a few special situations and determines who the garnishee should be in each of them. As to the proper garnishee when the property consists of the judgment debtor’s interest in a cooperative apartment, in State Tax Commission v. Shor, there was some suggestion that the judgment debtor’s certificate of stock in the cooperative cooperation and his proprietary lease were to be treated as “tangibles” representing the ownership, which would require seizure. That would make the one holding those papers the proper garnishee. The court tacitly suggested this by analogy to Banking Law Provisions that require the bank to obtain those papers before lending money for the purchase of the cooperative-so as to keep them as security. One could argue that those papers are not of the readily negotiable type and it appears to be only negotiable paper that the CPLR wishes to make the equivalent of the interest it represents, so as to require seizure. Therefore, when the paper reflects an interest in a corporation, but is not negotiable, the corporation in which the judgment debtor has the interest could be argued to be the proper garnishee. Perhaps that would also be the appropriate rule to follow for shares in a cooperative corporation. The certificate itself and the lease if one were outstanding, would likely be in the possession of the judgment debtor. Surely the judgment creditor should try and obtain these papers from the judgment debtor. Whether or not the judgment creditor obtains these papers, it would also seem appropriate to permit a levy of execution by means of delivery of the execution on the cooperative corporation itself. If that proves a way to put others on notice, especially if a transfer of the interest without the corporation’s permission is not possible, it would be reasonable to consider the corporation the proper garnishee. To take it one step further, the lending institution which is holding the papers as security as a result of lending money to the judgment debtor could also be considered the proper garnishee under this scenario. The bottom line is that this point is not clarified, but the judgment creditor would do well to try and have the sheriff seize the papers by levy of execution.
Under CPLR 5201, the general rule is that any property interest of a judgment debtor, which by law the debtor may assign or transfer, may be sought for application to the judgment. CPLR 5201 recognizes the futility of trying to list specifically all of a person’s possible property interests in an age when “property” takes on so many varied forms-instead CPLR abandons any effort to identify them all and says, instead, that just about any property interest the judgment debtor has may be appropriated and applied to the judgment.
CPLR 5230 deals with the enforcement of money judgments by way of executions. With CPLR 5230 comes the property execution, a paper delivered to the enforcement officer, usually the sheriff, or, in the alternative, a city marshal, directing same to levy against any non-exempt property that can be found belonging to the judgment debtor. It requires the sheriff or enforcement officer to seize the property of the judgment debtor to sell and convert it to money to apply to the judgment. There are 2 categories of Execution: the first is the Property Execution. This can be levied vs personal property or vs real property. The second is the Income Execution.
An execution may be issued at any time during the life of the judgment. The execution may be issued by the clerk of the court or, the more common practice, by the judgment creditor’s lawyer. No leave is needed. It may be directed to the sheriff or enforcement officer of any county, but should be delivered to one in the county where the judgment debtor has property. Every execution must specify the court in which the judgment was entered, the date of its entry, the original amount of the judgment and the sum still due and the names of the judgment debtor and creditor. The execution should also include a note of some kind describing and containing the judgment debtor’s property so that the sheriff or enforcement officer can levy on it. The execution must be returned within 60 days after its issuance or can be extended for one (1) additional 60 day period by the judgment creditor in writing.
The execution can be levied on personal property in 2 ways. If the property is capable of delivery, and is not in possession of one who has a superior right to its possession under a pledge or lease, the sheriff or enforcement officer levies on it by taking it into custody. When this happens, the sheriff serves a copy of the execution on the person from whom the property is taken. This is levy by seizure set forth in CPLR 5232(b). The sheriff’s next duty is to sell the property under CPLR 5233. Execution in this instance is subject to the requirement that it be returned by the sheriff within 60 days after issuance, unless the judgment creditor gives the sheriff an additional 60 days.
If the property is not capable of delivery, the method of levy is for the sheriff to serve a copy of the execution on the garnishee, which is done in the same manner as a summons. This is known as a levy by service and is governed by CPLR 5232(a). When levy is by service instead of seizure, the 60-day limitation on the return does not apply. If the garnishee does not voluntarily hand over the property or money to the sheriff, the judgment creditor must take a further step within 90 days after the levy-the levy being the moment the garnishee was served with a copy of the execution. An outright transfer to the sheriff perfects and concludes the levy now requiring only a sale by the sheriff of the personal property that has come into the sheriff’s possession. The levy must be perfected one way or the other during the 90 day period. If the garnishee has not made a voluntary transfer to the sheriff within that time, the judgment creditor will need to take some affirmative steps before the 90 days expire. Two other steps are available to the creditor, either of which will perfect the levy at least to the extent of satisfying the 90-day requirement. One is for the judgment creditor to commence a special proceeding vs the uncooperative garnishee (CPLR 5225 or 5226) and its mere commencement within 90 days satisfies this requirement. The other alternative is for the judgment creditor to secure an extension of the 90-day period. This can be done by motion and the extension will be for whatever time the court provides. It is not necessarily limited to a 90-day period. During the 90 days or whatever extended period the court allows, the garnishee is required to preserve the levied property allowing no one other than the sheriff at it unless the court directs otherwise. If none of these above-mentioned steps are taken within 90 days, the levy becomes void and its injunctive effect dissolves. Therefore, it is unwise for the judgment creditor to let 90 days pass without seeing to it that some protective step is taken.
The CPLR defines Garnishee as anyone who has possession of property belonging to the judgment debtor or who owns a debt to the judgment debtor. CPLR 5201(c) does not prescribe who the garnishee is to be in all situations. It merely singles out a few special situations and determines who the garnishee should be in each of them. As to the proper garnishee when the property consists of the judgment debtor’s interest in a cooperative apartment, in State Tax Commission v. Shor, there was some suggestion that the judgment debtor’s certificate of stock in the cooperative cooperation and his proprietary lease were to be treated as “tangibles” representing the ownership, which would require seizure. That would make the one holding those papers the proper garnishee. The court tacitly suggested this by analogy to Banking Law Provisions that require the bank to obtain those papers before lending money for the purchase of the cooperative-so as to keep them as security. One could argue that those papers are not of the readily negotiable type and it appears to be only negotiable paper that the CPLR wishes to make the equivalent of the interest it represents, so as to require seizure. Therefore, when the paper reflects an interest in a corporation, but is not negotiable, the corporation in which the judgment debtor has the interest could be argued to be the proper garnishee. Perhaps that would also be the appropriate rule to follow for shares in a cooperative corporation. The certificate itself and the lease if one were outstanding, would likely be in the possession of the judgment debtor. Surely the judgment creditor should try and obtain these papers from the judgment debtor. Whether or not the judgment creditor obtains these papers, it would also seem appropriate to permit a levy of execution by means of delivery of the execution on the cooperative corporation itself. If that proves a way to put others on notice, especially if a transfer of the interest without the corporation’s permission is not possible, it would be reasonable to consider the corporation the proper garnishee. To take it one step further, the lending institution which is holding the papers as security as a result of lending money to the judgment debtor could also be considered the proper garnishee under this scenario. The bottom line is that this point is not clarified, but the judgment creditor would do well to try and have the sheriff seize the papers by levy of execution.
In any case where an execution is served upon a garnishee, notice must be given to the judgment debtor CPLR 5232(c). The requirement is that if a proper notice has not already been served on the judgment debtor, the sheriff must serve it on the debtor along with a copy of the execution. This service, which may be made by the sheriff by either personal delivery or by ordinary first class mail, must be made within 4 days after the sheriff has served the execution on the garnishee.
Each Sheriff is required to keep a record of executions CPLR 5230(d). Of special import to the judgment creditor is the requirement that the sheriff note on its records the date and time of delivery of the execution. The delivery is in many instances the moment the judgment creditor secures a “lien” against the judgment’s personal property. Therefore, the judgment creditor’s attorney should be sure to obtain a receipt from the sheriff clearly evincing the time and date of delivery of the execution. This record is important from a title standpoint in terms of conducting searches for outstanding executions.
With real property, a filing with the county clerk puts the world on notice of the interest being claimed with the filed paper. Liens and priorities in the debtor’s real property are governed by CPLR 5203. They depend on the time of docketing of the judgment. As to personal property, the time of the docketing is not a significant factor in figuring the liens of personal property. CPLR 5202 is concerned with determining the priorities in the judgment debtor’s personal property. With personal property, the key moment for the judgment creditor is the delivery of the execution to the sheriff. CPLR 5202(a) provides that a judgment creditor using an execution gets priority as of the moment he delivers the execution to the sheriff. The provisions do not require that the sheriff to whom delivery is made be the sheriff of the county where the property is located, but the same would be advisable. But assuming that the execution has been delivered to the right sheriff, it gives the judgment creditor a higher right than a later transferee of the judgment with 2 stated exceptions-First, a transfer after the execution is delivered BUT before it is levied gives the transferee a right superior to the judgment creditor’s as long as the transferee is shown to have paid fair consideration for the property. Second, a transfer after levy (but before payment or delivery of the proceeds to the levying creditor) for fair consideration also gives the transferee a right superior to the judgment creditor’s, but in this instance only if it is shown that the transferee has no knowledge of the levy, which is a question of fact in each case. A further distinction between the two exceptions is that the second one applies only when the debt or property is not “capable of delivery.”
When it comes to the rights of judgment creditors among themselves, CPLR 5234 governs. CPLR 5234 is concerned only with lining up judgment and attachment creditors to determine who has first crack at the judgment debtor’s personal property. When 2 or more executions are issued on behalf of different judgment creditors vs the same judgment debtor and are delivered to the same enforcement officer, priority in the proceeds of the execution sale is determined by the order of delivery of the executions. Here again, it is important to note that although the statute does not expressly require that the sheriff used be the sheriff of the county in which the property is located, the “situs” sheriff is the logical choice in any event. When 2 or more executions vs the same judgment debtor have been delivered to different enforcement officers and the property is within the jurisdiction of all of them, the moment of levy rather than the moment of delivery becomes the levy moment for priority. For example, if one execution is delivered to the sheriff, and another to the city’s marshal’s office, the officer who levies first obtains priority for the judgment creditor who delivered the execution to that officer.
Any levied personal property that comes into the sheriff’s possession and which is not itself money (legal tender) must be sold by the sheriff at public auction. The sheriff must give notice of the sale and is authorized to sell the property as a unit, in lots or in such form as in his/her judgment will best attract bidders. If the situation poses urgency, the court can order immediate sale or other disposition, dispensing with the formal auction requirements. From whatever is realized from the sale, the sheriff deducts fees and expenses and any taxes that nay be due, paying the balance to the judgment creditor towards satisfaction of the judgment, what remains, if anything, goes to the judgment debtor.