Effective Arrears Policies Help Co-Ops and Condos Maintain Financial Stability

One of the most crucial aspects of managing a co-op or condo is keeping maintenance fees and common charges on track. If payments slip, it’s important for boards to have a clear process to address arrears. But before that, the crucial first step is establishing a solid arrears policy that clearly outlines what happens when someone falls behind on their payments — and communicating it thoroughly at annual meetings, through mailings, and on the community's website. 

SETTING THE TIMETABLE. The policy should certainly include how much someone needs to owe before the collection process kicks in. For many of my clients, setting a monetary threshold works better than basing it only on the number of months an owner is behind, because it includes important financial factors. For instance, if an owner’s unpaid charges, including special assessments, hit a specific dollar amount, the process of sending the matter to legal and initiating collections can begin. I’ve found this model works more smoothly for everyone involved.

Once the threshold is reached, the first step in the collection process is sending out a 30-day notice to the shareholder or unit-owner. That’s required to give the person time to respond. If they do respond, we’ll first engage with them, whether it’s to work out a repayment plan or address any dispute about the amount owed.

FILING THE LIEN. Most of the time, 30-day notices don’t prompt a response, and we move on to filing a lien. This is the next step in securing the board’s claim for the unpaid charges. After sending the 30-day notice, it typically takes 15 to 20 days for the county to record the lien. The lien serves as a backup, especially if the apartment is sold or if the owner files for bankruptcy. In either case, the lien is a form of protection for boards, ensuring that they maintain a claim to the money owed.

LAST RESORT. Foreclosure is the ultimate remedy, but it’s not something to be taken lightly. It’s time consuming and expensive, and I would only recommend it after carefully analyzing several factors. If there’s already a bank foreclosure pending on the unit — the mortgage bank has first lien on the property— we wouldn’t go down the foreclosure path. But if the unit still has equity after the bank recoups its money and the property is in good condition, foreclosure may make sense. If it’s in disrepair, it may not make sense to foreclose, as it might not be worth the board’s investment to rehab the property. In many cases, the mere idea of foreclosure is often enough to prompt an owner to pay up. 

KEEPING TRACK. It’s vital that boards are vigilant about regularly reviewing arrears, and having a clear policy and communicating it well can help avoid problems down the road. All residents have a shared responsibility to keep their community running smoothly, and for boards that means being proactive when it comes to collecting unpaid fees. In the end, whether a foreclosure happens or not, the goal remains the same— maintaining the financial stability of your building and ensuring that it’s a place everyone can enjoy for years to come.