The Gambit

Governor Andrew Cuomo and state Attorney General Eric Schneiderman are playing a rough game of political football in Albany these days. There’s a bit more than $613 million riding on the outcome. And there are untold thousands of New Yorkers who are hoping that the ball bounces their way.

Among them is Joan Quinn and her 306-unit condominium in Long Island. For if it doesn’t get help, Quinn’s condo – and many others like it still suffering from the mortgage crisis – could be staring at the end of the road.

At stake is the money Cuomo and Schneiderman are tussling over: the state’s share of the $13 billion settlement between the federal government and JPMorgan Chase last year. The largest penalty ever levied on an American company, it was punishment for the bank’s failure to disclose the perils of buying its risky mortgages from 2005 to 2008. This has been a major source of the devastating – and ongoing – mortgage crisis.

The settlement spelled out that at least 85 percent of the money is to be used to prevent future foreclosures, aid those still suffering from the mortgage crisis, and prevent fraud and deceptive lending practices. Each state’s attorney general has “sole discretion” to withdraw money from this escrow account. In New York, the first $163 million became available last November 1, and an additional $150 million will become available each year for the next three years.

Cuomo immediately announced that he wanted to put some of the money into the state’s general fund to help pay for $2 billion in election-year tax cuts, including cuts to estate taxes and corporate income taxes. Schneiderman countered that the state is required to use the money to alleviate the hangover from the mortgage crisis. It was the kickoff in what promises to be a bruising game.

When the political dispute erupted, Quinn jumped right in. A board member at Windbrooke Homes Condominiums in Central Islip, she fired off letters to both Cuomo and Schneiderman. Her letter reads in part: “Our general fund is nearly depleted and we are barely solvent at this point. Please, Governor, consider the distress of condo owners who are innocent victims of the fallout, trickle-down effects of the mortgage crisis.... We need your help in directing some aid that will make it possible for us to keep our homes and remain in New York.” Quinn and the board see the need for legislation that would limit the time banks can sit on vacant properties, especially co-ops and condos, before foreclosing.

In January, Cuomo and Schneiderman announced a compromise. They would split the first $163 million installment 50-50, and all the money would go toward its intended purpose – relief for homeowners still suffering from the mortgage crisis. But the future of the state’s remaining $450 million share of the JPMorgan Chase settlement is still up in the air.

And that makes it the worst kind of political football: it’s big, it’s valuable, and no one knows which way it will bounce when it lands.

Not Whole and in a Hole

Quinn began serving on the board of directors shortly after moving into Windbrooke Homes 30 years ago. For years, she says, the 25 buildings sprinkled across 13 leafy acres – two-story townhouses, two-story garden-type units, one-story ranches – were a picture of no-frills, working-class stability. The budget was religiously balanced; common charges and taxes were reliably low. People paid their bills and looked after their homes.

Then, in the early years of this millennium, the economy began to turn into a gigantic, gas-filled bubble. As real estate values soared, JPMorgan Chase and many other lenders made dubious mortgage loans to anyone who could sign on the dotted line – and, it’s safe to say in hindsight, more than a few who could not. Windbrooke Homes, like so many properties across the country, began to change for the worse.

“At that time, everyone seemed able to get a mortgage,” recalls Quinn, who retired 15 years ago after working in the Commack public school system. “We got an influx of people who probably did not qualify for mortgages. As property values increased before the crash, people were taking equity out, spending money, buying cars. Suddenly, they were carrying a heavy load. After the crash, they stopped paying their mortgages and in 2009, we started seeing an increase in arrears on common charges.”

Today, those delinquent charges have pushed Windbrooke Homes into a deep hole. There are now 55 unit-owners who have stopped paying common charges – some haven’t paid a penny in years – and the board is being forced to increase common charges on the other unit-owners. While declining to pinpoint how much is owed, Quinn did say this much: even as the board pays its attorney up to $20,000 a month to chase the missing money, the total arrears climb by $10,000 every month.

The bad news doesn’t stop there. The state ordered the complex to upgrade its sewage treatment plant and rebuild its swimming pool, which forced the board to take out a $2 million loan in 2010 and impose a 15-year assessment. Then in 2012, faulty work by a Keyspan technician led to a gas explosion that destroyed a building and left 10 Windbrooke families homeless and one person dead. But the board had to fight for building code variances to replace the building to the original footprint at an affordable cost. Sometimes breaks have a way of ganging up on a property.

Even worse, Windbrooke Homes now has about a dozen empty units – so-called “abandominiums” or “zombie condos” – because their owners owed more than the units were worth. There are some 15,000 such empty homes statewide, and New York leads the nation in the time it takes to foreclose on them: almost three years, according to RealtyTrac, a company that monitors distressed properties.

At Windbrooke Homes, the problems that come with abandoned properties have been on vivid display at least twice. In one case, people broke the locks and tried to squat in an empty unit, but prompt action by the police got them out. In another case, people moved in armed with a bogus lease, and it cost the board more than $3,000 and six months to root them out.

Laura Hernandez, the board vice president, lives near one of these zombie units. It has stood empty since the early days of the mortgage crisis. “It’s shocking what was owed on some of those mortgages compared to what the unit was worth,” she says.

One reason why these units have remained empty is that the mortgage lender for a condo holds the first lien on the property. (In a co-op, the corporation holds the first lien – a much more desirable position.) If the bank forecloses on a condo, it’s responsible for all unpaid common charges. But if the bank sells the unit without foreclosing, the buyer has to pay common charges only from the date of sale forward. Therefore, banks have little incentive to foreclose on condominiums.

“The banks are dragging their feet on foreclosing or doing a short sale,” says Hernandez, a health care aide. “Maybe they’re riding it out until the market picks up. And that’s not fair.”

Until last summer, the board had instructed its lawyer to seek a money judgment against every unit-owner whose common charges were in arrears. This legal tool allows the condo to seize other assets in order to recoup unpaid common charges. The strategy has not proved fruitful, however, because you can’t seize something that doesn’t exist.

(While a money judgment can be awarded by any court, some lawyers advise boards to pursue it through small claims court. There are advantages and disadvantages to this strategy. Resolution tends to be speedy and administrative and legal costs are low, but most jurisdictions impose a $5,000 limit on judgments awarded in small claims court. Stephen Lasser, a lawyer with Barton, says condo boards should “be aggressive in pursuing a money judgment in small claims court before the arrears get too big.” If the board wins, the marshals will go after the delinquents and get the money back if possible. But the problem, says Arthur Weinstein, an attorney in private practice, is locating the person and/or the assets: both may be missing in action.)

A New Approach

Instead, Caryn Meyer, a lawyer with Windbrooke’s longtime firm of Cohen & Warren, explains the condo’s current strategy: foreclosing on abandoned units as well as units where the occupants have stopped paying common charges. The condo files a lien against the unit and forecloses on the lien; this lien supersedes all others except for a lien held by the bank, and tax liens. The condo can file a lien for many reasons, but it is necessary to have one in order to proceed with a foreclosure. “The filing of a lien secures the debt owed to the condominium in the event of a bankruptcy filing,” says Meyer. “The lien is also a matter of record in the event an owner attempts to sell a unit without paying the common charge arrears.” If the bank forecloses on a unit and generates surplus money on the sale of the unit, the condo’s lien gives it first shot at the distribution of those funds.

If the condo moves forward with a foreclosure action, the end result is the public sale of that unit. If a third party buys the unit, he or she is required to close on it within 30 days. At that point, the condo would be paid all arrears. If the condo takes the unit back instead, it can rent out the unit to recoup the arrears.

In cases where the board has begun foreclosure proceedings on a non-paying unit-owner who continues to live in the unit, the threat of foreclosure has provided some leverage. “It inspires unit-owners to start paying common charges and to make arrangements to pay back what they owe in arrears,” says Meyer. “It’s going to take a little time.”

According to Quinn, the condo association has begun foreclosure proceedings on 20 units.

Calling for Change

As the clock continues to tick, the fate of Windbrooke Homes – and countless other residential developments across the state – will rest largely on how that game of political football plays out. If ever there was a time for a grassroots groundswell, this surely is it. “We definitely plan to pursue this with the politicians in Albany,” says Hernandez.

Alvin Wasserman, the director of asset management at Fairfield Properties, believes the time is ripe for some needed changes. “All the people who have been keeping up with their payments are the ones who are suffering,” says Wasserman, whose firm has managed Windbrooke Homes since the 1980s. “There’s a real need to revise the laws on who’s in the first position to collect any value that’s left in a condo, and there’s a need to expedite foreclosure proceedings. There has to be an equitable solution, and it has to come from the legislature and the attorney general.”

There is already one encouraging sign, in addition to the compromise between Cuomo and Schneiderman that funneled the first $163 million of the JPMorgan Chase settlement into housing relief instead of tax relief. In February, Schneiderman proposed legislation that would hold banks responsible for homes they own as soon as they’re abandoned. It would require them to register such buildings in a central database and pay for their upkeep until they are sold.

But that’s a Band-Aid on a problem requiring major surgery. And $450 million can pay for a lot of surgery. But how to get the money? “We should form a coalition with other condos experiencing the same situation,” says Quinn. “Sometimes, one voice in the wilderness is all it takes to get things started.”

“We need help,” adds Hernandez. “We need a bailout, too.”

==HABITAT SIDEBAR==

Chasing the money

Joan Quinn has lived at Windbrooke Homes Condominiums for 30 years and has been on the board of managers for 28 – as president, vice president, secretary, and, currently, treasurer. The condo’s severe financial problems have resulted in many issues, but two key ones are dealing with the banks and getting delinquent owners to pay common charges.

One difficulty in collecting is that the condo board sometimes can’t make an appeal to the holder of the unit-owner’s mortgage – because in many cases it doesn’t know who or what that is. “When you buy a condominium, you get some papers to fill out saying that you have purchased this,” Quinn says. “But nowhere on it does it say who your mortgage bank was. We have no way of knowing.” (As of mid-April, Quinn said that the forms had been changed to require this information.)

Tracking down who holds the mortgage has led to what Quinn feels is an unnecessary legal expense, anywhere from $16,000 to $20,000 a month. She points to a report on one unit that reads: “Foreclosure, summons and complaint was forwarded to the title company for filing. The unit owner entered a payment agreement whereby she is required to pay the total sum of $419 a month including the common charges.”

Quinn is openly skeptical about the value of such arrangements. “Her common charges are $300 approximately, so she’s only paying $119 to pay off arrears of $8,563.” And she pays erratically, to boot – when she pays at all. Consequently, the board has said to the condo’s attorney: “Stop extending the agreements. They’re just stringing you along.”

The board has tried various collection strategies for those in arrears who still live there. “Some of them, where we have threatened foreclosure after being strung along with these payment agreements, have suddenly come up with some money. But it’s not going to be steady. They’re just going to string us along some more.

“Many times the unit-owners continue paying the mortgage, but they stop paying us. We are the lesser of the two evils. And they seem to know that our hands are tied.”

Indeed, there is little that the board can do. “The only thing we can punish them with is [telling them], ‘You can’t use the pool, and you can’t park here.’ Well, not using the pool is no big deal. Who cares? It’s ten weeks out of the year. They don’t care about that; they’re working people anyway. But the parking is a big deal. Now we can tow cars out. Some years back, about five years back, we were doing that. But what a hassle! It worked. There’s nowhere else they can park.”

Then the board got tougher by putting boots on car wheels, making it impossible for the owner to use the vehicle. Even that wasn’t enough. “One guy had his car flat-bedded out of here to some [outfit] that cut off the boot,” recalls Quinn. “So we got nowhere with that, with the towing or the booting, even though it’s legal. And we tell people in the first letter that goes out to them when they’re not paying their common charges: you are facing the probability of losing your parking privileges and your pool. But it doesn’t do any good because they don’t ever see the cars being towed out of here.”