Strategies to Recover Unpaid Monthly Dues and Maintain Financial Stability

Pursuing unpaid monthly dues can be a challenge, but boards should know there are …

MANY ROUTES TO PAYMENT

The financial health of any co-op or condo community hinges on one crucial factor: residents paying their maintenance and common charges on time. When payments fall behind, the ripple effects can quickly destabilize a building’s entire financial structure. But there are powerful tools at your disposal to manage and recover these arrears — if your board acts swiftly and strategically.

MANAGING ARREARS. Smart boards take a proactive approach by building anticipated payment shortfalls into their budgets. Including a “bad debt expense” line item ensures the building can meet its financial obligations even when some residents fall behind. This is especially crucial in buildings where 5%-20% of units may be in arrears at any given time.

The collection process should begin as soon as a resident falls two months behind — which typically means about 45 days of actual delinquency, accounting for grace periods. While managing agents usually send initial notices, boards should engage qualified legal counsel at this stage rather than waiting or using budget collection mills that may lack effective strategies. 

RECOVERING ARREARS. The specific recovery approaches differ between co-ops and condos due to their distinct legal structures. Co-ops have particularly strong leverage through recognition agreements with lenders, which can compel banks to pay maintenance charges to protect their security interest. Co-ops can also pursue eviction through landlord-tenant proceedings or conduct UCC Article 9 foreclosures — a relatively straightforward process that can auction off shares without court intervention.

Condos, while lacking some co-op advantages, can file liens and pursue foreclosure actions. Though condo boards’ claims are typically subordinate to first mortgages, they can still recover arrears through strategies like renting out foreclosed units or negotiating with second-mortgage holders who want to protect their positions.

Experience shows that about one-third of cases resolve once formal default notices are sent, as residents realize the serious risk of losing their homes. Another third require initiating legal proceedings but settle before completion. The remaining third may require full litigation, though many still settle just before final action.

LEGAL FEES. Recovering unpaid fees involves legal costs, and many governing documents allow boards to recover these expenses. Boards should review their documents to ensure they are entitled to collect not only legal fees, but also interest and late charges on unpaid fees. Amending governing documents to specify that the board can recover “actual” legal fees rather than “reasonable” fees is also important because otherwise courts can reduce the amount the board can recover. In some cases, pursuing unpaid fees can generate significant revenue for the building. 

STAY ALERT. While it’s rare for residents to proactively discuss financial difficulties, boards should stay alert for warning signs like habitual late payments or life events that might impact ability to pay. When setting maintenance increases or assessments, boards must fulfill their fiduciary duty by ensuring adequate funding for building operations, even if it means difficult decisions about raising monthly charges.

The key takeaway is that aggressive, early intervention on arrears protects the entire community’s financial stability. With proper budgeting, swift action and strategic use of available legal tools, boards can effectively manage the challenge of delinquent payments while maintaining essential building operations and services.