The majority of co-op and condo residents pay their monthly maintenance fees on time and in full with no problem. The recent recession, however, changed the picture drastically for residents who found themselves laid off, under-employed, or with reduced work hours and could not afford to keep up with the payments. Even absent a major national economic upheaval, other life changes—such as an illness, divorce, or death of a loved one—can also cause unit owners to fall behind.
Albert M. Kushnirov, CPA and president of Greenberg & Brennan, CPAs, PC in New York City says that co-ops handle arrears a little differently. “When it comes to collection, a co-op comes before a bank. So a co-op can push for the sale of an apartment and collect any arrears first; the balance would then be applied to pay the mortgage.”
What’s interesting is that every few years the main reasons for being delinquent on maintenance fees seem to change,” says Ralph C. Ruocco, Esq. an attorney with Florida-based Glazer & Associates, P.A. “Recently, I have seen unit owners on fixed incomes struggling to pay monthly assessments that are naturally increasing due to the increase in the cost of living.”
Ruocco says that some unit owners who do not pay fall into arrears because they're already past the point of foreclosure proceedings and are simply in a waiting game. “They're upside-down on their mortgages and are simply living out their final months in the community assessment-free,” he says. “While it varies in severity, if you show me a random community of over 50 units, odds are that their receivables are in the thousands of dollars—and more likely the tens of thousands.”
The Domino Effect
When in tough financial straits, most condo owners will pay their mortgage first, believing that their condo building or homeowners association does not have the ability to foreclose on their home. Actually, says Ruocco, “They could not be more misguided. In fact, if you have to make a choice between paying your mortgage or your association fees, you should pay your association. Association foreclosures are much faster, and definitely have fewer defenses available. Essentially, if you hold title and you do not pay your assessments, you can lose your home.”