Co-op Boards Grapple with Missed Payments and Legal Action

MISSED PAYMENTS  Missed monthly payments can happen for a number of reasons, so most co-ops allow a five- to ten-day grace period after payments are due. If two months go by and payment is still not received, legal action can begin. This starts with a certified notice being sent to the late payer that gives him or her 14 days to cure the arrears. The 14-day notice is legally required in New York, and basically says "Hey, you were late for the last two months, more than five days. We're at least considering legal action." If the shareholder has a mortgage, the notice should also be sent to their lender.

SLOW BUT STEADY The legal route is not a quick fix. Co-op counsel can initiate a summary proceeding through New York City Housing Court , specifically set up for co-ops and condos. These proceedings can be lengthy, often taking six to eight months before any eviction might occur. The first court appearance is usually adjourned to allow shareholders access to legal counsel, which can extend the process even further. On top of the time, there are attorney fees being paid, which may or may not be recouped.

FASTER ALTERNATIVE  Shareholders who financed the purchase of their apartments signed a recognition agreement. Under this agreement, the lender needs to be informed of the shareholder’s default, and because lenders wish to protect their collateral, they frequently step in to pay the arrears. Notifying the lender can often result in a quicker resolution than waiting for the court process, as lenders typically respond within a few weeks.

However, involving the lender is significant because it can potentially jeopardize the shareholder’s ownership of their apartment if the arrears can’t be resolved. When a lender steps in, they usually place the shareholder in default on their mortgage, which can have serious personal consequences for the shareholder.

EARLY INTERVENTION  Without timely monthly payments, co-ops can struggle. Management companies generally track arrears closely, and boards need to pay attention to these numbers. When shareholders are flagged for arrears, management should informally reach out to the late payer to find out what is going on. Often, a friendly conversation can reveal the underlying issues and may open the door for a mutually beneficial repayment plan. By addressing non-payment issues early, boards can often prevent the need for more severe legal actions. If legal action is necessary, it’s important to understand the time and costs associated with both court proceedings and lender involvement.