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Helping a board collect condo arrears before the money is claimed by the bank.
AUTHORElliott Meisel, Brill & Meisel
Contacting an attorney to help collect common charges can help avoid bank foreclosure and losing all revenue from an unoccupied unit.
Brill & Meisel
Elliott Meisel, Partner
We represent a condominium on the Upper East Side of Manhattan. One of its units was unoccupied, for which no common charges had been paid for more than a year, and the unit was mortgaged for more than its market value. Since the first mortgagee has a first lien on the unit ahead of the condominium (something the condo community should strongly lobby to repeal), if we were to foreclose the condominium lien for the outstanding common charges, after protracted and expensive legal proceedings the lender would receive all of the foreclosure proceeds. That would leave no reimbursement for the condominium of either its arrears or its legal fees. However, since the bank was not foreclosing (and refused to do so, even after we offered to foreclose the condominium’s lien and turn over all proceeds in excess of a specified sum to it), not taking any action would allow the unpaid common charges to continue indefinitely with no hope of recovery. We recommended that the board enter the apartment with witnesses, document its condition, store any contents, get the apartment in shape to rent, and lease it for a six-month term that then would continue month to month. Though we explained how we had done this successfully several times before – even generating substantial profits for other condominiums before the bank finally got around to foreclosing – the board declined to do so.
Our proposal would have generated a rental of about five times the monthly common charges and allowed the condominium to recover its outstanding arrears with virtually no legal proceedings. The proposal was neither illegal nor fraught with unreasonable risk, since the tenant could not be deprived of his rights (as a foreclosure takes more than six months); the absent owner would have to pay the arrears, rental costs, legal fees, and other expenses upon which the condominium would vacate the tenant and return possession; and the bank had its first lien on foreclosure proceeds but not revenues that the condominium collected in the interim. After several more years, the bank finally did foreclose, and the condominium was forever deprived of more than five years of common charges. Sometimes asking forgiveness, if necessary, is better than asking permission.