How Boards Deal with Late Payments

The Trick to Curing Arrears

By Greg Olear
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Monthly charges, including common charges, emergency repairs, lawsuits, assessments, maintenance fees, dues and so forth, are a big part of owning a co-op or condo in New York City. When an owner is late, or misses monthly payments entirely, it affects the whole building and can adversely impact the entire community. There is less revenue that month, so savings may have to be raided. Property managers have to spend time better invested elsewhere dealing with the problem. Legal fees mount. And so on.

In the case of arrears, the difference between a co-op and a condo is vast, for reasons that are covered below. In short, co-ops are more insulated from potential financial harm than condos, whose ownership affiliations are tied to real property and personal mortgages.

What recourse do boards have when said payments are late or missed for months at a time? How does the process work? And how does it differ from co-op to condo? Let's take a look.

What is Arrears?

The word arrear is similar in sound and spelling to rear, as in one's hind quarters. And indeed, both words share the same Middle English root: arrere, meaning behind. To be in arrears—the word is always used colloquially in the plural—is a snazzy, legalese way of saying to be behind in one's payments.

While no one presumably wishes to be in arrears, the vicissitudes of life, livelihood and the economy ensure that some delinquency is inevitable. Statistically, about two percent of units are in arrears at any given time. Why does this happen?

"They lost their job," says Steve Osman, chief executive officer of Metropolitan Pacific Properties in Astoria. "Or there's been a separation. Those are the most common reasons."

Late payments can be the result of laziness, inattention to detail, apathy, or, sometimes, an inefficient mail carrier. In some cases—usually with shareholders unfamiliar with local law—maintenance is withheld in protest, to "punish" the board for some shortcoming, real or perceived, just as tenants will withhold rent if, say, the heat hasn't been fixed for the entire month of February. Protest withholding doesn't last long.

"You can't self-escrow," says Osman. "It doesn't hold up in court."

More often that not, delinquent payments are the result of an intentional calculus. The mortgage gets paid before the maintenance, the thinking goes, because the consequences for withholding the former are more dire. While this is, on the surface, true, not paying the maintenance can, over time, have the exact same end result—especially in a cooperative building, where the retribution for missing payments can be swift and painful.

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"We're not overly concerned with arrears [in cooperative buildings], because the co-op has the ability to control the transfer of shares," explains Marc Taub, CPA, and a partner with ERE, an accounting firm in Manhattan. "Condos are a lot more complicated."

Boards, of course, are not banks, who have armies of clerks on hand to pounce on a missed payment with alacrity. While they do ultimately have the power to foreclose on a property if the situation worsens, that eventuality is far from immediate, and comes with attendant legal costs. For the communities involved, collecting arrears can be a real pain in the you-know-what.

Timeline: Co-op

If you purchase a co-op apartment, you are not buying the real estate per se, but rather shares in the cooperative itself—enough shares to finance the apartment in which you live. Because you are bound by the proprietary lease, you are, in effect, both owner and tenant.

Because of this ownership structure, cooperatives enjoy more protection than do condos from financial havoc caused by shareholders being in arrears. Just as it is harder for missed payments to damage the co-op's bottom line for too long—cooperatives tend to have more money on hand for rainy days, and have the means to cut their losses more quickly—it is easier for co-op boards to foreclose upon delinquent properties.

"Co-ops can take back shares if a shareholder is in arrears," says Taub.

The process works like this: after the deadline has passed—30 or 60 days later, usually—the delinquent party receives an if-you-don't-pay-we'll-call-the-attorney letter.

"Typically, the managing agent sends a letter of admonition," says Stephen O'Connell, a partner at Hartman & Craven, a law firm in Manhattan. "They try to work it out outside of legal counsel. If there is no response, or an inadequate response—typically, there's no response—they give it to counsel."

"After 60 days, we put them on legal," says Osman, "unless there's some huge reason we shouldn't."

If the delinquent party pays up, the problem is solved. If not, and the shareholder has a mortgage, the bank gets involved. In this case, O'Connell says, mortgages are a blessing.

"Boards are leery about financing units," he says, "but the reality is, it's good to have a lender on these apartments."

For most properties, the mortgage holder is first on the foreclosure line. Not so with co-ops.

"The interest of the co-op is superior to that of the lender," O'Connell explains. If the shares are foreclosed upon by the board, "the lender is left with a note."

The positive application of this is as follows: rather than have the board foreclose on the shares—and lose the collateral—a bank will generally pony up the price of the maintenance fees, to preserve its own self-interest, while at the same time instituting foreclosure procedures of its own.

"With some cajoling," O'Connell says, a bank "will send a check for the missed payments, plus the attorney fees."

The process can be swift. In a few months, the shares can be foreclosed upon. And with a foreclosure in hand, a new owner can easily evict a delinquent ex-shareholder.

From a shareholder perspective, it's important to respond to those letters from the attorney. Osman recalls the sad case of a co-op owner in Brooklyn who was a recluse.

"He had no mortgage, he didn't answer the notices, he didn't show up in court, and his apartment was foreclosed on," he says.

While this is a rare occurrence, it isn't that rare. "I've seen people lose apartments for very stupid reasons," Osman says. "They don't answer the letter, they don't realize that it goes to the Supreme Court, it doesn't go to Housing Court, and they lose their apartment."

Timeline: Condo

The process for a condo is more complicated, because of the more conventional organizational structure. Because lenders have the first lien on condos, banks won't cover lost maintenance payments. If the delinquent party is also not paying his or her mortgage, this is not a problem—the bank will handle the foreclosure—but if the owner is paying their mortgage but not maintenance, it can take longer to straighten things out.

The laws are more sympathetic to owners who are losing their homes if the homes in question are condos. "People can be protected by bankruptcy," says Taub.

The first part of the equation—the letter-sending and the lawyer-calling—is the same for co-ops and condos. If the payments remain withheld, however, the process is different.

"You file a notice of lien," says O'Connell. "It's a filing. It's not a big deal. Now the owner can't sell without satisfying that. It preserves the rights of the condo."

If need be, the condo can foreclose on that lien.

Some Important Tips to Remember

Most owners want to pay their maintenance fees on time, and only miss them when there is financial hardship. In a sense, it's cut and dried—there's not much action the board can take. But here are some tips on handling arrears:

1. Don't allow arrears to get out of hand.

While it is not pleasant to take legal action against a neighbor, especially one who is in dire financial straits, the board must act in a professional manner.

"Boards have to be diligent," says Taub. "Act sooner, rather than later. Don't let people get too far in arrears."

Osman concurs. "You can't let people go on and on," he says.

2. Be consistent.

"There should be a consistent policy," says Osman. "Sixty days and they go on legal. Don't make deals individually."

Strict application of the rules has positive effects.

"It gets around the building," Osman says. "Don't get on arrears."

3. Be wary of side deals.

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.

"Boards shouldn't pick and choose who goes to legal and who doesn't," Osman says. "If you want to make a payment plan, do it in court, so we don't have a discrimination lawsuit."

Greg Olear is a freelance writer, editor and stay-at-home dad living in Highland, New York.

Comments

Kim

Can you let me know what form to use to file a lien on the individual's property who refused to pay maintance fees? I live in Houston, Tx. Thanks, Kim

Rich

The owner of the shares of my rent stabilized apartment; has defaulted on his maintenance. What can I expect to happen next? I have been a tenant; in this building for 29 years. Will ownership return to the building management company? Will my lease renewal (current lease ends on July 31. still be offered as required by law? Please advice.

DORIS HERMAN

I LIVE IN FLORIDA IN A CONDO.MAINTAINANCE IS NOT BEING PAID ON SOME OF THE APARTMENTS DUE TO THE FACT THAT THE BANKS ARE DRAGGING THE FEET ON FORECLOSING. SINCE THE TENANTS IN THE CONDO ARE BEARING THE BURDEN, WHY CAN'T THE ASSOCIATION RENT THE APAPRTMENT SINCE WE ARE FOOTING THE EXPENSES? WHAT CAN THE CONSEQUENCES BE AND WOULDN'T THAT PUT PRESSURE ON THE BANK ONCE WE WENT TO COURT?

joann

I own a condo in south jersey;an owner is in arrears of $1300 and now is in chapter 7.Can we still put a lien on it. If not what can we do about it. There are only 14 units and we do not have a property management company. we take care of things to save money.or do we have to hire a lawyer

Laura

In a NYC co op foreclosure with no mortgage the apt was sold at auction. I thought the court papers said the buyer had to pay the additional $ within 30 days. It will be almost five months since the auction and no $ is forthcoming. Do the foreclosed parties have any options?

an unknown user

What if a Board Member is late on their Assn dues?? Aren't they remiss on their fiduciary responsibilities?

an unknown user

I have been dealing with a co-op Board that appears to have denied a transfer of shares to me in a bad faith manner. The proprietary lease states that the Board will transfer shares to a spouse or a "financially responsible member" of a deceased shareholder's family. I inherited the shares to the apt. (that my mother and I had been living in for a long time prior to the purchase) by will bequest. The apt. went from rent-stabilized to co-op and the mortgage started in the same month that my mother died and I inherited the shares. I am also the Executor of the Estate of my mother, so I am both beneficial owner of the shares and the Executor. The shares are still in my mother's name, not in the name of the Estate (or in my name). I applied to have the shares transferred into my name when I had what I thought was an acceptable net worth of @$140,000 in 2005 (three years after I inherited the apt.). I provided every document and financial statement that the closing coordinator of the management co. told me to. A number of months later I received a letter from that closing coordinator that the request for the transfer had been denied, with no further explanation. The Board accepted maintenance and assessment payments from me directly (not from the Estate checking account) from January 2002 until October 2009, when I could no longer cover the maintenance. I recently mailed part of the overdue amount. . Because of financial losses in the market and because I have a disability that prevents me from working fulltime, I am unable to afford both the mortgage and maintenance. Because of this, I had my attorney request a transfer of the shares a few months ago so that I could access part of the equity of over $400,000 to cover some of my expenses and to do minor work in the apt. so that I can sell it as soon as possible at a price acceptable to the Board. Six weeks later, the Building Manager responded with a letter that my original application had been denied because it was "incomplete" and that I should reapply for the shares. He excepted business references from the application, as the closing coordinator also had. Both he and the Board are obviously aware that I am facing serious fiinancial problems and that I wouldn't meet financial requirements at this time and yet they are effectively blockiing my ability to obtain a refi with a home equity loan, which several mortgage brokers have assured me I could obtain with my good credit score, so I am in a catch 22 situation. Without doing around $10,000 of work on the apt it could be difficult to sell even though it is a highly desirable apt. in this building. Other less desirable apts. have sold here recently. Do you have any suggestions for how to handle this situation (I cannot afford to litigate the matter and legal aid groups can't take it on because of the very substantial equity in the apt.)? Keep in mind that an officer of the Board lives beneath me and has had a long-standing enmity toward my mother and myself over petty matters, in particular over the issue of watering my large terrace. Also, another officer is creating an odor nuisance on my floor with way too many cats in her studio apt.,which has disturbed both me and especially the residents surrounding her apt. which has resulted in many letters being sent by them to the Management and the Board, to no avail.

sunshine

To Who It May Concern: I need help desperately, if anyone can assist me in this matter as far as my 'co-owner" of a co-op trying to evict me (with all rent paid to landlord), but due to me not paying their mortgage statement. I own 22 shares of a co-op, that is shared with another person who also owns 22 shares. I am not on the mortgage, because the bank told me that my credit score would increase the monthly payments, due to the fact that my credit was not good. I have paid my maintenance fees and have not been late and for the past three years I was contributing 50% of the mortgage fees, and paying it directly to the bank. the problem occurred, when I discovered that I could not collect on the tax return, due to the fact that my name was not on the mortgage. I want to know, can I be evicted from the second person who pays the entire mortgage, but only owns 22% of shares for the co-op? Also the person with the other 22% shares has never moved into the co-op since we purchased the property in 2006. We split the matineance cost 50/50 due to the fact that we both own 22% shares each, but in regards to the mortgage, that is only in their name, I stopped paying 50% due to not receivng any benefits with tax right offs or the other person honoring to give me a percentage of return on the co-op property. Neither one of us have anything in writing, stating that I have to pay their mortgage. However they recently wrote a letter of extortion telling me to move out by February 23, 2009 due to non payment of their mortgage. They are threatening to have me sign over my shares to them and reimburse them for payments since July 2009 to present date due to the portion of the mortgage. I need your help desperately!

Joan Birmingham

Becoming a Board Member for a condominium association is strictly on a voluntary basis. In accordance with the by-law no member is to be compensated in any way. Case in hand a Board Member was hired as an Office Manager and is now a paid employee for the association. This person wants to remain as a Board Member and get paid for being the Office Manager. When the Board have their monthly or special meeings sometimes there are issues relative to employee. She refuses to excuse herself from these meeting. This will be setting a precident for any other board members that want to be hired for any future employement that might be available and still remain a board member. Is this not a confilict of interest?

Condo nightmare 101

I owe my condo association over $15,000 in monthly dues and "special assessments". (Unemployed now for 18 months...dues has doubled in 5 years....and its NOT enough.) We have been levied 5 "special" assessments as well during this time (No reserves for the golf and county club facilities that are falling apart and the condo reserves are 25% funded). We have lost over half the golf memberships since Dec 2004...so the ONLY source of OTHER funds is the homeowner when the kitty runs dry. Management will still need more money this fiscal year to cover the deficit budget that homeowners bought into last April. Presently, we show a deficit that will trend to 3 times what was forecast....and no increase in revenue. (No legal budget either) Attempts to negotiate a payment plan over the last 3 years have been fruitless...the "Management" turned down 3 reasonable payment plan offers. When they started suing homeowners and kept refusing my offers, I told them to tell me when it was over...if they can prove they are correct in court...then we can talk. Last fall the HOA tried to collect from two other homeowners by Summary Judgment...and the HOA lost the Summary Judgment motion because the Judge felt there WERE issues with authority and our documentation! While the HOA attempted to file liens against others who owe money...and had to remove the liens because of AUTHORITY issues with our poorly conceived governing documents...they DID NOT file a lien against me. The HOA has chosen to go after me in civil court for these fees?! I am waiting to hear back from my bank about the Obama "Making Home Affordable" program and will enter bankruptcy soon. So I am not sure what they are doing here...other than being stupid. My problem? The governing documents we have are useless (poorly written, altered without proper process, some documents not notarized or recorded, some missing signatures, the association is NOT incorporated and NOTHING "connects the f%$!ing dots"!)....if fact, the association may not have AUTHORITY to collect as a result! How does this happen? Foul play? A shell game? Greed? A disregard for the truth and what is proper and correct? BTW...I joined the Finance Committee, got on the Division Management committee and attend most of the Trustee meetings. I am often SHOUTED at by Trustees to SHUT UP!!! They do not want to answer my questions and hope that being rude and unkind will deter my constant line of valid inquiry into where the money is going and why they continue to make poor choices. What a nightmare......... At what point can they be proven to be doing things NOT in the best interest of homeowners?

condo owner

can property management company refused to accept and return my condo fees if I were two months in arrears on the 15th? Should I be responsibile for subsequent late fees (18 mths) when they refused to resolved the issue at the of discovery or a reasonable time? I refused to pay extra fees, so the condo association sued to foreclose and I contested these charges in court and waiting on trial date, etc. Is it legal for the association attorney demanand payment from my mortgage company while the matter is in court and without copying me on this communication? Should the mortgage company pay the attorney without first confirming debt with me? what are my legal recourse?

Ed Handibode

I was told there is an article in here from attorney Marc Schneider. I cannot locate it.

focus girl

HOA's SHOULD BE GOVERNED DIFFERENTLY. One should not have to have a screen name CONDO NIGHTMARE 101. GO TO NEIGHBORS FROM HELL WEBSITE. HE'S GREAT.

M.S.

Re: Joan Birmingham While this person is being paid from the buildings funds, if this person is a member of the board of directors, you CANNOT ask them or make them leave the meeting. However, they cannot make any kind of fight in regards to her "finance" situation when the issue comes up. He/She can participate in all other aspects of the meeting, but when the issue of her being paid as an Office Manager (or whatever) comes up, they cannot speak for themselves. Unfortunately, there cannot be any kind of conflict of interest inserted with a coop board, trust me, we've had people try to do it with us ( lol ). Personally, she is subject to the clause where the other board members can remove her, as what is being done is in violation of the prop lease. Any Officer can be removed with or without cause - by the board, and a board member can be removed with or without cause by the shareholders. When in doubt, read read read your Prop Lease and by-laws. And if you have to - you are a shareholder with vested interest in the building. Take it to an arbitrator :) Hope this helps!

P.K

I own a co-op in nyc, which i am trying to sell the co-op. Submitted all paper work for the management to review to approve. The management company will not answer our calls to find out the status of the if the board approve the buyer. It has been over a month that papers were submitted. If the buyer walks away from the deal, can the management company be sued? Thank You

GT

I live in Florida and live in a condo which I have a mortgage. I have been out of work for 9 months and have not paid my HOA fees for five months. I received a letter from a law firm stating that I must pay in full, if not the Association can foreclose on its lien, and that I am responsible for all fees. They stated that if I don't pay a foreclosure action will be filed. Can I contact them and advise them that I can pay for two months only and make a payment plan. Can you give me some advise? Can they kick me out of my condo. I am not delinquent on my mortgage. Please advise, I only have a few days to contact them. Need your response. Thank you

jd doral

Hi and thanks for the help. I fell behind on my HOA payments when my daughter and her family lost their jobs, and their home, and I found myself supporting them for almost 3 yrs. I live in a condo with an HOA, and they have put a lien on my home, behind my 1st & second mortgages. We are paying current monthly HOA fees, but we have only been able to pay some of the arrears. Apparently not enough, because now I have been served to go to court on Dec 6. Finally, we are all working, but what can I expect from that court appearance? Can they cause a foreclosure (being 3rd in line), even if I am current on my 1st and 2nd?

an unknown user

Is it the hoa's responsibility to offer the unit owner who is behind on his hoa dues a dispute resolution, or vice versa.

BARBARA

CAN A CO-OP CHARGE A LATE FEE EVERY MONTH IF A 1/4 OF YOUR MAINTENENACE IS NOT PAID BECAUSE THE AMOUNT IS IN DISPUTE?

Karina

Hi I live in fl and I own a condo, where I have a received a letter from an attorney for a law suit for not paying my association fee, when the fees where deducted from my bank by electronic check and I have proffs except from one month I paid cash and don't have a receipt , they are charging me all kinds of fees, what should I do?

Condo distress

We live in a NYC condo and have fallen on hard times over the last few years so have been behind by a few to several months. Recently being two months behind, the condo board had management deactivated our key cards thus denying entry into the building. We have to buzz the doorman to be allowed in. When I contacted the building manager she said the condo board decided to take an aggressive approach to owners in arrears. We have owned our unit for over ten years and very good in paying until job issues created a hardship. Is this legal to deactivate keys of buildings where they are needed to enter the building to gain access to our unit?

Paid maintenance fees & still got judgement

I am in the process of selling my townhouse and purchasing a house and discovered in March 2012 that I have a judgement on my property from 2007 not paying my HOH fees. However, I did pay but it was just late. I have been contacting the board and the President of the Board to give me a letter stating there were paid/satisfied and to remove it off all three credit reports. They say it was a prior Board who did it and they are researching it. It's now May I will be closing soon and it's still not done. What recourse do I have now? What is their time line to correct this situation? I also found out because its on my credit reports my new mortgage is going to charge me additional $100/mo for 30 years. At first I just wanted to get things cleared up but now that it's May and they still haven't corrected it and it's going to cost me more money can I sue them for causing this misfortune on me for the increase?

Ja Jonsen

filed bankrupcty and gave condo back to the bank, but they have not taken possession yet, condo assoc. is coming after me for common dues, I refused to pay even though my name is still on title deeds, I gave up ownership via civil courts, what are my rights

Frenchie

Our NY Co-op currently has a $ 500 (approx) monthly assessment per apartment since last Nov. until next October. Unfortunately this assement will be extended for a few more months. (to be determined). Now they want to add another assessment of $ 500 for a period of 3 months to cover boiler conversions so that we are compliant with the law. A lot of us are already maxed out paying almost $ 2500 in maintenance and assessment and now we will be facing $ 3000 a month What is our recourse if any?

Ann

Question: Is the Condo Association required to give you a late payment notice before they send you to a lawyer to start collecting (and add their fee)?

Olivebrook

Who get to keep the late charge fee from assessment? The management company or in our HOA operating account? Our HOA in California.

Colorado Renter

I am renting a Townhome in Co. landlord is going to let it foreclose he said I should look for a new place to live, to stay as long as i need until I find a new home. I am a single mother with a high school child she has asthma. He is current as of last month -September-. His October mortage is not paid. I found out he is behind 4 months on HOA. How long can we stay until someone kicks us out? When does the bank actually start foreclosure and how long does it take? Can the HOA kick us out because he is past on the HOA dues? I have paid my rent FAITHFULLY every month and have kept the Unit in amazing condition! I am worried and stressed !! Also once a foreclosure notice is put on the door or SOMEONE? notifies me how long to me and my daughter have until we get kicked out? I work fulltime and have been trying to find a new place to live. Any help is greatly appreciated!

A. G. Hosey

My condo assocition had my tenents vehicle removed for non-payment of association fees. Is that legal & what is my recourse?

Linda

I missed one $600.00 maintenance payment last year. No letters were received even tho the assn said they sent them. They are now saying I have to pay over $3,000.00 immediately or they will foreclose. Never rec'd any paperwork and did not realize the missed payment. All other payments have been made made on time since the missed payment. What do I do??

an unknown user

Can the Homeowner in an HOA legally rent the home to anyone without notifying the Board of Directors?

Mike G

I have a question: If I had an agreement to pay off arrears owed to my condo association are they not supposed to provide me documentation of the due or remaining debt? I asked for final amount left to be paid in full and it does not match my totals. When I ask for documentation or substantiation they give me a run around telling me to ask the lawyer who drafted teh payment agreement and the lawyer send me back to the managment company that I make the payments to for the association.

maddie maxx

I would like to know how do you deal with shareholders that are in arrears in a Mitchell-lama coo-op bldg. where there is no mortgage on their part just maintenance fees please we need all the help we can get thanks.

Carol

I live in a co-op in NYC and was on disability for a year from a serious illness. My disability benefits were paid on the second Wednesday of the month, which falls on the 14th at the latest. It is the same for social security recipients. This makes it very difficult to pay co-op charges, usually due between the 1st and 10th. All co-ops should consider making an adjustment for this, especially those with many seniors. It is the right thing to do.


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