Collecting Common Charges Appropriate Legal Methods

Condominium boards and managers are often frustrated by unpaid common charges. Once a unit owner falls more than 60 days behind in his or her common charge payments, it is recommended that this problem be turned over to the condominium association's attorneys to resolve. There are a variety of legal methods a condominium association's attorney can use to attempt to collect arrears, but which method or combination of methods is best for a particular situation will vary.

Regardless of which method or methods are used, the first step in the process is sending a Thirty Day Notice of Debt Collection to the unit owner. There are two benefits of sending a notice of debt collection prepared by an attorney. First, it conveys the seriousness of the common charge arrears to the unit owner and helps to ensure compliance with Federal debt collection laws. Second, it provides the unit owner with a breakdown of the amount he or she owes. This may expedite an amicable resolution to the matter, as sometimes owners do not read their monthly common charge statements and do not realize they are in arrears. Being able to examine an itemized list may also motivate an owner to inquire regarding a particular charge he or she isn't sure about before paying it.

In the event payment is not made within the 30-day period provided under the notice of debt collection, the next step is filing a common charge lien against the unit pursuant to New York Real Property Law Section 339-aa. Common charge liens are security interests similar to mortgages. Like a mortgage, a common charge lien is filed in the property records of the Office of the County Clerk where the unit is located. A properly filed lien provides notice to the world that the common charges are owed, and in most cases will prevent the sale or refinance of a unit until the amount owed by the unit owner is paid. In addition, a common charge lien can be foreclosed like a mortgage. That is, a condominium association can start a foreclosure action that will result in an auction sale of the unit with the auction proceeds being used to pay off the common charge arrears.

Unfortunately, common charge lien foreclosure actions can drag on for years, and the condominium's lien will be subordinate to a first mortgage filed before it. This puts condominium associations in New York at a great disadvantage compared to other states where a certain period of common charges (e.g., six month's worth) will take priority over mortgages on the unit. Therefore, attorneys representing condominium associations in New York should ascertain whether there is a first mortgage against the unit and the value of the unit, and then consult with their clients in order to determine whether a lien foreclosure action makes sense before proceeding.

Even if the condominium association's attorneys evaluate the situation with their client and conclude that a lien foreclosure does not make sense, they should still file a common charge lien against the unit. As well as making the unit unsaleable, filing the lien will make the condominium association a "secured creditor" under Federal Bankruptcy law. As a secured creditor, a condominium association will receive repayment priority if the unit owner files for bankruptcy protection.

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7 Comments

  • If an owner is persistent in arrears can the condo/coop withhold services . . .???
  • Can a Condo Association claim bankruptcy if there are not suffient funds to operate and pay bills?
  • Can a condominium Board force unit owners to pay the full annual sum at the beginning of the fiscal year?
  • If the unit is forced into foreclosure by the bank then auctioned off, can the condo association require the new buyer to pay the outstanding common charges (before transfer of ownership)? Could the bank accept an auction offer less than the amount of all secured liens (including real estate tax and outstanding common charges)?
  • Can I take condo to the small claims court for refusing to pay for the damage car which was damaged in our garage because pipes burst. I own an unit and parking spot where accident happened. Thank you
  • If a unit owner paid all outstanding condo charges before the grace period. But the condo had contacted an attoney to prepare a civil case, can the condo still sue the owner in civil court for legal fees and the amount owed?
  • Does anyone know where I can find a blank "Lease Application Form" to fill out?