The Meter is Running
The Habitat Article Archive includes the full text of all of our
magazine articles dating back to 2002. You can view 3 articles per
month for free. (Repeat views of the same article don’t count
against your monthly limit.)
To read more, purchase a print subscription or a daily or yearly All-Access Pass
and get unlimited access to the Archive. Prices start at 1.95.
You've reached your free article limit for this month.
To read this article and gain unlimited access to the Habitat Article
Archive, which includes the full text of all our magazine articles
dating back to 2002, purchase an All-Access Pass.
Condo boards might look to small claims court to collect small amounts of arrears.
AUTHORStephen M. Lasser, Managing Partner, Lasser Law Group
PAGE #p. 36
Small claims court could be a helpful solution to boards looking to collect only a small amount of arrears from shareholders
The issue of arrears in condominiums is important because heavy arrears might make it harder for potential purchasers or existing unit-owners to refinance the mortgages on their units. Heavy arrears might also prevent a condo from taking out a line of credit or a loan to start a capital project. All those issues could also make units harder to sell, which could result in a decrease in sales prices.
You can’t evict a condo unit-owner who doesn’t pay common charges. You also can’t just shut off services. There is also no way to report a delinquency in common charges to one of the credit reporting bureaus. If a person doesn’t pay the common charges, it’s not going to affect his or her credit adversely unless the board sues and there’s actually a judgment against him or her.
When a unit-owner falls into arrears, a board has legal remedies – such as filing a lawsuit – and non-legal remedies. I’ve seen boards create lists of unit-owners in arrears and post them in common areas. We typically suggest that you don’t actually include the name or a specific amount, just the unit-number. Hopefully, this will be a community-wide deterrent: people won’t want to be on that list, so they’ll pay. You can also restrict some amenities, such as receiving packages, or limit access to a pool or a health club.
Another potential way to collect common charges without actually filing a lawsuit is by taking advantage of a statute, 339-KK of the Real Property Law. This allows a condo board to serve a notice for common charges directly on a sublessor. He or she is obligated to pay rent directly to the condominium, rather than to the absentee unit-owner. If you come to the point where a person is in arrears for more than 60 days of common charges – and you’ve tried some of the remedies mentioned – you need to sue the person for breach of contract. An alternative is to take a statutory remedy. You file a lien against the unit, then you foreclose on it as if you’re a lender foreclosing on a mortgage, which will enable you to ultimately take back the unit at a foreclosure sale.
With a breach of contract, one way to collect is to file a case with the small claims court. When you file, there’s a $5,000 jurisdiction limit, meaning you can’t collect more than that. The upside of getting a judgment against one person in small claims court is that even if he or she wants to sell a unit, or the unit would be lost in a lender foreclosure, the unit-owner would still be obligated to pay the debt after he or she lost home ownership; the judgment will stay in place and will show up on his or her credit report for 20 years.
With a lien foreclosure, you are starting a lawsuit against the unit and the person, and the source of payment will be the unit. The drawbacks of a lien foreclosure action are that it could take a couple of years and the legal fees are expensive. If a bank is also foreclosing for non-payment of the mortgage, ultimately that will wipe out whatever interest the condominium would have obtained in the unit through its own foreclosure.
The most important thing for boards is to have their management companies send out notices to unit-owners who are more than 30 days in arrears. If the person does not respond after 60 days, you should have your attorney send a letter. If he or she still doesn’t respond, then it’s time to consider some non-legal recourse against the owner, and probably it’s also time to start a lawsuit. The longer you wait, the worse it will get.