New York's Cooperative and Condominium Community
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Stephen Lasser on RPL Sec. 339-AA
Condo boards have three weapons at their disposal when trying to collect unpaid common charges. It’s important to choose wisely.
Unpaid common charges is an issue every condominium board faces at some point. And the solutions to this problem are not as straightforward as you might think. For example, in a co-op or a rental building, the board or the owners can evict the person if he or she doesn’t pay the monthly maintenance or rent. But you can’t do that in a condominium because the condominium unit-owner owns the apartment, and therefore there’s no landlord/tenant relationship. And you can’t cut off the service as you can with a credit card or utility. You have to allow the person access to the apartment, although you might be able to restrict some amenities.
It’s important that condo boards address this issue of unpaid common charges because boards have a fiduciary duty to their unit-owners, a large part of which is managing the building’s finances. Obviously, if someone’s not paying the common charges, that’s going to affect the building’s finances. So, as a board, you have to figure out what you’re going to do to collect. Doing nothing is not an option. When picking a remedy, you need to think about the time involved, the cost involved, and the outcome.
Section 339-aa of the Real Property Law is titled “Lien for common charges; duration; foreclosure.” It’s a companion statute to Section 339-z, which I consider as the shield in that it sets forth that a condominium board has a lien for common charges. I view 339-aa as the sword.
There are three remedies, sort of like a sword rack, and you have three weapons of choice. You have foreclosure, you can also simultaneously pursue a money judgment, or you can ask a court to appoint a rent receiver to collect rent from the occupant of the unit. If it’s vacant, the rent receiver can put a tenant in place to pay rent in lieu of common charges.
I always recommend that boards pursue a money judgment and foreclosure in the same lawsuit. It doesn’t cost extra to do that, so you might as well pursue both at the same time. And while you’re pursuing foreclosure, the option of seeking a rent receiver is also available. It’s like a subsection of the foreclosure action.
How you decide which one to do will depend on the circumstances. If there’s a large first mortgage balance on the unit and the lender is foreclosing, then it’s not going to make sense for you to pursue a foreclosure action because the lender’s lien is going to have priority over yours. But the foreclosure action could be attractive if there is no bank foreclosure or if there’s not a large balance on the mortgage. If you complete the foreclosure action, you’d be able to sell the unit and then recoup the condominium’s unpaid common charges. You’d also get rid of the unit-owner who hasn’t been paying common charges.
The option of pursuing a money judgment means you pursue a claim against the individual personally. You can go after personal assets, such as a bank account. And pursuing a money judgment is actually faster and less expensive. However, the person might not have personal assets. So it depends on the circumstances.
The third option is a rent receiver, a court-appointed individual who rents out the unit and is responsible for maintaining the unit while the foreclosure is proceeding.
Choose the remedy that’s going to be the most cost-effective to fulfill your fiduciary obligation to the condominium unit-owners.
Stephen Lasser is a managing partner at the Lasser Law Group.
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