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PRIORITY IN COMMON CHARGE LIENS

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Priority in Common Charge Liens

Oct 05, 2018

Lisa R. Radetsky, Partner, Phillips Nizer

Section 339-z of the Condominium Act deals with liens for common charges. In New York State, a lender that holds a first mortgage loan on a residential condominium unit is first in line to collect when the unit-owner fails to pay common charges. Meaning if there is a foreclosure, and the foreclosure’s proceeds are either insufficient to pay off the loan or just barely enough to pay off the loan, the condominium will take nothing. So for that reason, condo boards have an interest in doing everything they can to make sure their unit-owners stay current in the payment of common charges.

 

Priority in Common Charge Liens 

The board of a condominium, on behalf of the unit-owners, shall have a lien on each unit for any unpaid common charges. The declaration of an exclusive non-residential condominium may provide that the lien for common charges will be superior to any mortgage liens of record. (Real Property Law, Sec. 339-z)

 

Now under the law, bylaws have to give you tools to do that, such as the ability to collect late charges and attorney's fees. If you come to our firm to be represented, we would review your bylaws and make sure that they have the safeguards to give your unit-owners incentive to stay current in the payment of their common charges so they don't incur these late charges and attorney’s fees.

 

If somebody becomes delinquent or three or four months, we would advise them to file a common-charge lien. This is a proceeding where you don't go to court, but you have the right to take the amounts that you are entitled to under your bylaws. That is why your bylaws should allow you to collect late fees and attorney's fees in delinquencies. The cost of filing a lien is minimal, and if your bylaws are written correctly, you will be able to tack the attorney's fees on to that lien.

 

If somebody continues in arrears, the board is going to have to make a choice. The law allows you to start a foreclosure proceeding on that common-charge lien. However, because the bank is ahead of your common-charge lien, you can start the foreclosure but the board will either have to be in the position to repay the mortgage or have some sort of negotiation or means at the end to actually realize on the unit.

 

In many other states, the bank is superior only for the first six months of common charges, and then the bank becomes liable for them. Unfortunately, condominiums in New York are in a difficult position. If a unit-owner is in real financial trouble and their mortgage is foreclosed and the bank is either slow in prosecuting the foreclosure or the unit-owner disputes the foreclosure, then the process can go on for a long time.

 

After the foreclosure starts, the unit-owner will stop paying the common charges, which increases the arrears. behind. Bylaws generally provide that, after the foreclosure, the condominium takes whatever excess proceeds are available to it, and the unit-owner is personally responsible for any balance due. Unfortunately, the individuals who end up in this kind of financial trouble also are not able to satisfy that amount, and they’re often judgment-proof. So again, the board loses.

 

Boards to examine their bylaws, make sure they have all possible remedies available to them, and be diligent in staying on top of their unit-owners to make sure all common-charge payements are current.

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