Common Charges During Foreclosure

Bankers Trust v. PAL

This case involves the priority of liens on a foreclosed condominium unit. Who gets paid first: the lending institution or the condo association? In its decision, the appellate Division wrote: “It is clear that the Legislature intended to subordinate liens for unpaid common charges to a first mortgage, and it would be inconsistent with that intent to treat a first mortgage foreclosure as a ‘sale or conveyance’ within the meaning of Section 339-z” of the Real Property Law.

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"Before this case, courts generally allowed condominiums to collect use and occupancy charges from an occupant during a foreclosure process. Now, as a result of Bankers Trust v. Pal, they can’t, and this means that a condominium might not receive common charges for the four or five years of the foreclosure process. The law needs to be amended, and condo boards should mobilize to get this done – before the next recession, which invariably will occur."

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