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23 Sep 2014
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CONDO AND COOP RULES OF THUMB: WHEN OWNERS FALL BEHIND

Financial difficulty happens and even the best of people can fall behind, but when you live in a condominium, one owner falling behind on common charges can mean less money for maintenance and amenities, and ultimately, trouble meeting building operating expenses.  Eventually, the deficit is borne by the other unit owners via increases in common charges or assessments.

If a unit owner in your building fails to pay their common charges, there are non-judicial collection options, including sending notices, publicly posting names of delinquent unit owners, or banning them from building facilities and suspending amenities.  Or, as the law and most condominium bylaws require that arrears in common charges be paid from the proceeds of the sale or by the buyer, a board of managers could also wait for voluntary sale of the unit to collect the delinquent fees.  Alternatively, a board of managers can opt to file a lien against the unit.  Once a lien is filed, New York Real Property Law Section 339-aa provides a vehicle for a board of managers to foreclose a common charge lien in a manner akin to foreclosing on a mortgage.  Ultimately, if the unit owner does not pay, a board of managers can take title to the unit.

However, before going down the foreclosure road, there are a number of factors to be considered, including: the amount owed, whether there are any pre-existing liens filed against the unit and the fact that, not unlike a mortgage foreclosure, a lien foreclosure can be costly, in terms of money and time.  Yet, even if a foreclosure action is unappealing, there is still benefit to filing a lien.  The lien takes priority over other liens, except for real estate taxes and sums unpaid on a first mortgage of record or on a subordinate mortgage of record held by certain state development agencies.  Additionally, many condominium bylaws provide that the cost of filing a notice of lien, including reasonable attorneys’ fees, is payable by the wayward owner.  Finally, the board can file an action seeking a money judgment for the unpaid common charges, which action is independent of a foreclosure proceeding and can be brought on without waiving the lien.

The most important thing is to act promptly and weigh the costs versus benefits.  If the board of managers has had other issues with this unit owner in the past, perhaps a foreclosure action is in your building’s best interests.  If, however, the board of managers is simply looking to reclaim past due funds, filing a lien and seeking a money judgment may weigh more in your favor.  Even then, compromises can be had in some settings.  Your lawyer can try to negotiate settlement with the offending unit owner before resorting to litigation.  Even if such negotiations fail, the act of trying to resolve the problem before seeking court intervention could help your case later on.

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