Any transfer of ownership of a cooperative unit will require the cooperative corporation to cancel the old stock certificate and issue a new one. Many see this step as a simple clerical task, and often it is the managing agents that keep the stock book and perform this mechanical task for the cooperative corporation. The act of canceling the certificate caries great legal significance and has the potential to cause liability for the cooperative corporation. If the managing agent does this job for the cooperative corporation, then it is acting as transfer agent, and in that role has the same risk of liability as does the cooperative corporation.

Under the Uniform Commercial Code (UCC), one way for a lender to perfect its security interest in personal property, including stock certificates, is to file a financing statement. While filing usually constitutes notice to the world, stock certificates have a different rule. In order to preserve their negotiability, filing against stock certificates is not notice except to those persons who actually see the filing. Stock certificates issued by a cooperative corporation have their own special rule. Because of changes made in New York law when Revised Article 9 of the UCC took effect on July 1, 2001, when a lender files a financing statement with a cooperative addendum, then, as a matter of law, the entire world, including the cooperative corporation and any transfer agent, is deemed to have knowledge of the secured party's rights against those cooperative shares.

A transfer of a stock certificate made by a corporation with knowledge that a lender has a security interest in the shares represented by the stock certificate has the potential of creating liability for the corporation. There are three circumstances in which the imputed knowledge created by Revised Article 9 may create liability for a cooperative corporation when it transfers ownership of the cooperative unit from the seller to the buyer. These situations arise from unrecognized loans, recognized but forgotten loans, and unauthorized termination statements.

Some cooperative corporations do not permit unit owners to obtain any financing secured by the cooperative unit. Unit owners who do not have the cooperative's approval for a loan sometimes obtain financing without informing the corporation or its managing agent. These are called unrecognized loans. To protect itself, a lender will file a financing statement with a cooperative addendum. Once having done so, the cooperative corporation and its transfer agent will, as a matter of law, be deemed to have knowledge of the cooperative loan, even though neither in fact has actual knowledge of that loan. Fortunately for cooperative corporations and their transfer agents, knowledge of the lender's lien, although a necessary part of the case needed to impose liability on them for a wrongful transfer, is not all that is needed to create liability. Section 8-403 of the UCC states that the person wishing to block the transfer of ownership of shares must make a demand on the corporation not to complete the transfer, and then back that demand with either a court order or an indemnity bond. Unless the person wishing to block the transfer takes those steps, the corporation, even though it is deemed to have knowledge of the lien, is free to complete the transfer without liability.

A recognized but forgotten loan can also create liability for the cooperative corporation and its transfer agent. If the cooperative corporation has previously approved and therefore recognized the loan, then in almost every case the cooperative corporation has signed one of the commonly used forms of recognition agreement. One provision that appears in every recognition agreement says, in effect, that the cooperative corporation will not transfer ownership of the shares without first notifying the lender and giving the lender time to respond. The recognition agreement might well be understood as the equivalent of a demand under Section 8-403 as discussed above. It does not matter whether or not the agreement is equivalent to a demand because the cooperative corporation has by contract agreed to proceed in the same manner as if it had received a Section 8-403 demand.

The third situation in which a cooperative corporation or its transfer agent may have liability can occur if the cooperative corporation is the victim of a fraud perpetrated by the owner of a cooperative unit. If the unit owner files an unauthorized UCC termination statement, it will create a false public record making it appear that the outstanding loan had been paid off. The unit owner then convinces the cooperative corporation or the transfer agent to issue a new stock certificate replacing the "lost" certificate that the lender has in its possession. Using the new certificate as evidence of ownership, the cooperative unit owner then sells the unit. The unauthorized termination statement is ineffective as a termination statement, and the lender's security interest is still a valid lien against the unit. Because it wrongfully canceled the stock certificate, the cooperative corporation or its transfer agent may be liable to the lender for subsequent damages. The transfer agent and the cooperative corporation can protect themselves from liability by requiring evidence in addition to the termination statement verifying that the loan has actually been paid off. Something as simple as a telephone call to the lender may provide all the verification needed.