Handling a Unit in Foreclosure - Stark & Stark

Read this article in the digital edition.

BACKSTORY We represent a condominium in New York city that has been suffering with an abandoned, empty unit, still owned by an owner long since gone, and a bank foreclosure filed in 2009 that remains “on hold” and shows no signs of concluding (i.e., ownership transferred to bank) anytime within two years. During a pending bank foreclosure, New York law provides for the appointment of a rent receiver. The rent receiver is empowered to take possession of the empty unit and rent it in turn, with portions of the rent used to pay ongoing, current common charges and any common charge arrears.

Instead of wasting time seeking a money judgment against an owner that had long since fled, we worked with the board to enter an appearance in the bank’s foreclosure (which should have been done from the outset and should almost always be done) and thereafter file papers seeking the court’s creation of a receivership.

The bank and its attorneys, in this instance, followed the general litigation lawyer rule that is: “If my adversary lawyer is in favor of something, I must oppose it.” Unfortunately, attorneys working with banks to process those banks’ foreclosures typically work according to some set program and historical approach, and are thereby unable to understand and/or appreciate anything that seems foreign and/or that is not on their bank foreclosure attorney “cheat sheet.”

Upon the bank’s opposition to our client's application, we contacted bank counsel. We explained the non-monetary benefits that could accrue to a bank while the condominium containing its unit maintains and carries out a rent receivership. We explained how a unit occupied by a responsible tenant, subject to a written and proper lease, would be far more likely to be habitable and marketable once that bank finally got around to completing its foreclosure. We discussed the condition in which many banks find units after those units have sat empty during the long, drawn out, excruciatingly slow foreclosure process (i.e., mold, water damage, unusable appliances).

Once the bank’s lawyer understood that our client’s position was supported by both New York law and the “real world” facts connected with empty condominium units waiting for foreclosures to end, he agreed that it was best to negotiate a resolution to the pending court-filed receivership application. The parties discussed an agreement by which a receiver would find, install, and maintain a tenant, with the receiver obligated to maintain the unit during the tenancy and to share data/documentation with the bank. The condominium expects to generate significant funds during this receivership.

COMMENT This illustrates the strategies and approaches that condominiums can employ when faced with the ever-increasing number of abandoned units, suffering through incredibly slow and delayed bank foreclosures. Far from a curse, such a situation can be an opportunity if handled with care, thoughtfulness, and aggression. Many condominium boards and their attorneys fall into the same bad habits into which bank foreclosure lawyers have fallen – that is, approaching delinquent owners and/or past-due common charges with a lack of creativity, passion, or thoughtfulness, instead relying on a “script” prepared long ago, during a vastly different time and related to a vastly different real estate situation and economy. When faced with a delinquent unit, boards and their attorneys should be creative, and develop a strategy that is based on the actual facts of a particular delinquent unit, and not on what their “script” says. Those boards – and the condominiums they serve – will enjoy a far greater measure of success than they have had.

From the Desk of DJB:

Favorite hobby: running

Favorite movies about lawyers: The Insider and Amistad