Q&A: Not In Arrears

Q I own a co-op in Mount Vernon, New York. I was unable to sell the co-op so the board approved a sub-lease. The  maintenance was in arrears by one month plus the current month. I was sent a letter by an attorney to pay the arrears plus the attorney fee. I questioned the attorney's fee. I received an email from the management company indicating that if someone is  more than two months in arrears the account is referred to an attorney. I was not over two months in arrears. Are there laws governing this type of arbitrary behavior?  

 —Miffed in Mount Vernon  

A “There are no laws per se governing when arrears can be sent to collection,” says attorney Richard Walsh of Horing Welikson & Rosen, P.C., in Williston Park. “There are certain restrictions on debt collectors (which includes attorneys who  do a substantial amount of debt collection for clients) under federal law and  regulations governing the content of the communications with debtors (and the  tactics allowed to be used) but they play no role in determining when an  account may be placed for collection.  

 “Co-op boards have great discretion under the business judgment rule to determine  when delinquent maintenance accounts are sent to collection. You should look at  your proprietary lease to see when the co-op is permitted under the proprietary  lease to serve you with a notice to cure based upon unpaid maintenance  (warning-most proprietary leases contain a conditional limitation allowing the  co-op to terminate the lease if the maintenance payments or other charges are  not paid). If the lease allows the co-op to serve you with a notice to cure if  you are one month in arrears, then sending you a demand letter is not improper  (and that is a lot less risky to you than getting a notice to cure).  

 “We generally recommend that co-ops not seek to terminate a proprietary lease for  unpaid maintenance (because this has been held by 2 appellate courts (at least)  to be against the public policy of the courts in New York as infringing on the  statutory warranty of habitability) or other disputed charges or fees unless  there is a judgment for that amount, the time to appeal the judgment has  expired, and there is no stay of enforcement (we also usually wait for the  warrant to be issued). Not all co-ops (or attorneys) agree, though.  

 “If you get any notices from the co-op about unpaid monies, speak to an attorney  immediately (many courthouses also have pro se attorneys available to answer  questions for you). You may have to start your own law suit to prevent the loss of your shares. The  other risk you run is the co-op may notify your lending institution (as  required under most recognition agreements when shareholders finance the  purchase of their co-op apartments) and that maybe a default under your loan  agreement or other security documents (and banks are not reluctant to  foreclose). It is usually better to pay the disputed charges under protest, if  you can, and then sue the co-op in small claims to get a refund or go to court  and seek a toll of any cure period to protect your interests.  

 “As for the co-op asking for its attorney's fees, most (and probably nearly all)  proprietary leases allow the co-op to collect attorney's fees if a shareholder  has defaulted under the proprietary lease, including maintenance defaults. The co-op can still seek to collect the monies but the co-op is limited to  seeking reasonable attorney's fees.  

 “If there is no court order or judgment requiring you to pay the specific  attorney's fees being charged back to you, the co-op still has the right to  bill you and to leave the amount on your account as a claim and to pursue it in  an action or small claims case.”  

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