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02 Sep 2016
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Recourse for Non-Payment:

Co-op fees are a well-known fact of New York life and a general cost of living, but what happens when your neighbors don’t pay their fair share?  What recourse do boards have when payments are late or missed for months at a time? How does the process work?

Boards, of course, are not banks, who have armies of clerks on hand to eagerly jump on a missed payment. Boards can ultimately foreclose on a property for a condo or on shares in a co-op.  However, the foreclosure process is far from swift and comes with steep legal costs.  For a condo, the building should first file a lien against the unit/shareholder pursuant to New York Real Property Law Section 339-aa, which provides a vehicle for foreclosure in a manner similar to foreclosing on a mortgage.  Additionally, if there are any pre-existing liens, such as real estate tax liens or from a mortgage.

While in most instances, including a condo, a mortgage-holder is the first to be paid in the event of a foreclosure, this is not the case with co-ops.  In the case of a co-op, the building’s interest is superior to that of the mortgage-holder.  When seeking payment of back-due maintenance fees, a bank can pay the back-due fees to the co-op and preserve its own interest.  Once the fees are paid and the bank’s position is secure, the bank can then institute foreclosure proceedings against the shareholder.  Unlike a traditional foreclosure, this process can be swift. In a few months, the shares can be foreclosed upon.

There are, of course, 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.  While there are situations when a board might choose to allow a delinquent shareholder to pay later—if, say, an owner has been sick but is going back to work and back on full salary—it is best to avoid favoritism and the risk of a discrimination lawsuit that comes with it.
 
 
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