Show Me the Money Collections, Foreclosure & Evictions

The first of the month rolls around and it’s time to pay the bills that keep your building operational. Repairs might need to be made, staff salaries paid, maintenance done to keep all the common elements running, and supplies reordered. The consistent influx of funds from residents' monthly fees is what makes all of this possible, and keeps a building or HOA functional and solvent from month to month. But sometimes—not often, but sometimes—residents don't hold up their end of the condo-living contract, and fall into arrears. 

Reasons for Nonpayment

“The overwhelming favorite is ‘we don’t have the money,'” says Bruce Cholst, an attorney shareholder with the law firm of Anderson Kill PC in Manhattan. “Or owners will sometimes say they don’t like the decisions the board is making, or don’t agree with how the money is spent, or have problems in their unit that the condo won’t fix, therefore they’re withholding charges, but there’s no legal basis for that. When it comes to a co-op, they assert that the board has responsibilities to make repairs under the proprietary lease and therefore the law gives them the right under the warranty of habitability to withhold maintenance, which is an often sited reason in co-ops.”

Andrew Wagner, another shareholder with Anderson Kill P.C. adds, “As the proprietary lessee in a co-op, you are legally a tenant and therefore the warranty of habitability that applies to all tenants in New York State applies to cooperative shareholders. The difference is that unlike a regular rental tenant, a co-op shareholder is typically responsible for conditions in their own apartments, while the co-op is only obligated to fix condition caused by outside sources. So the warranty of habitability is much more limited in a co-op, but it is a basis to withhold maintenance fees under limited circumstances.”

Pay Up

So outside of the warranty of habitability, while there are very few legal reasons a resident can use as an excuse as to why they did not pay their monthly dues, the board doesn’t have to begin collections right away.  Sandy Adelsberg, a sales and leasing agent from Veritas Property Management, LLC, explains. “Every well run co-op or condo board should have a policy in place of what they think is a reasonable time before initiating collections. But we recommend no more than two months. So if they go into the third month, they go into legal. But they're given notice before; it's not all of a sudden that it appears. You are trying, even the first month, to notify them that they owe, and send it in, and the following month the same.”

Cholst though, notes that acting quickly does have its benefits, particularly in condos. “Certainly in a condo you should do it very quickly, but if you’re filing a lien and commencing a foreclosure on that lien, it just adds up very quickly. The priority is against a condo board in terms of recovering arrears, while in a co-op the board takes priority over the bank. I advise my clients to send a letter after 60 days saying that they’re going to start a lien and initiate foreclosure proceedings if they don’t get paid in 30 days. On day 31, they can  go ahead and file the lien, and give the resident another chance. But the important thing is to adhere to those deadlines because that’s how you keep credibility.”

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