Property Managers Are Not Debt Collectors

Closings on apartment sales can be high-cost exercises in high anxiety. Surprises are the last things buyers or sellers want when real estate changes hands. But a surprise is what attorney Richard Klein, a partner at Romer Debbas, got when he sat down recently to finalize an apartment sale in a Manhattan co-op.

The transfer agent representing the co-op’s management presented the buyer, Klein’s client, with a bill for $150 payable to the resident of the adjoining apartment, who claimed there was dust in his vents and apartment stemming from a paint job the seller did months earlier. The neighbor claimed he had to pay for a professional cleaning. This sticking point threatened to hold up the closing. Klein and his client were stunned.

Rather than see the sale collapse, Klein worked around the issue, agreeing to have his client put $150 into escrow for 30 days, pending receipt of proof that the dust in the neighboring apartment did indeed come from the painting of Klein’s client’s apartment. They also demanded to see a dated, paid invoice proving the work had been done.

With the roadblock successfully navigated, the closing went through. However, a larger and more troublesome question arises far beyond waiting to see if the $150 burden of proof will be met in 30 days. “Where does the property manager of the co-op come off holding the closing hostage for monies due not to the co-op, not to the property manager, not to the seller, but for some third-party neighbor?” Klein asks. “We were shocked this was presented in this manner. If it was for a more substantial amount of money, we would’ve handled it differently.”

Ethical issues arise. “There are many questions here,” says Klein. “I don’t know if it was the board of directors telling them to collect these funds at the closing, or if it was the neighbor getting the property manager to do this. Either way, it’s clearly wrong. How does the manager take sides on this issue? There was never any testing done to show dust came from this unit, nor any proof there ever was a problem.”

Steve Greenbaum, director of property management at Charles H. Greenthal/ MGRE, says managers should work to avoid surprises, not create them. “Nothing should come as a shock at the closing, especially an alleged bill from another party,” Greenbaum says. “If we are going to post something on your bill, we send a copy and an explanation well before any closing.”

Greenbaum points out the bill for cleaning the dusty apartment wasn’t presented in advance and according to standard procedure. “Before you close, you need to have a paid maintenance letter showing your maintenance is paid up. If an item isn’t on the paid maintenance letter, you have a very good argument not to pay it.” Transfer agents can’t close in New York unless the co-op account is 100 percent current.

As Klein sees it, a managing agent should never serve as a debt collector for an outside party, and certainly not unannounced as a closing is taking place. At the moment, Klein and his client are waiting to see if the aggrieved neighbor presents the required documentation – or if the dust has settled on this issue.