Unpaid Common Charges: How to Handle Defaulting Condo Owners

Common charges are a condo’s primary form of income, allowing the building to pay fuel bills, utilities and staff. In small condos with four or five apartments, if one person doesn't pay their common charges, it can be a disastrous burden on the remaining unit-owners. Most often, defaults occur when someone runs into hard times and is unable to keep up. At other times, a unit-owner may have a dispute with the board and wants to put pressure on it by withholding common charges. Either way, promptness in dealing with unpaid common charges is key.

FIRST MOVES  Sometimes just a phone call from the managing agent or an attorney’s letter is enough to correct the problem. If that doesn’t work, one strategy to encourage payment is to withhold amenities such as the use of the pool or certain services provided by the condo. I've also seen condos post a list of defaulters near the mailroom, which creates embarrassment  and a desire to quickly restore their good name and reputation. These measures should all be taken in consultation with the attorney and experienced managing agent, because you don't want to make a mistake and defame anybody or cause another lawsuit.

FILING A LIEN  Where the default lasts for more than 60 days, a lien should be filed with the county clerk identifying the property and showing the amount and dates of the default. Once that happens, it becomes nearly impossible for the unit-owner to sell or lease or refinance the unit without making some settlement or satisfying the debt to the board.

The courts, however, take months and sometimes years to resolve these cases, so it's to the benefit of all to negotiate a solution through mediation, where the parties appear before a neutral third party. If that is unsuccessful, you can proceed to arbitration, where the third party is given the power to render a decision enforceable by the courts. Arbitration and mediation are private, unlike court proceedings, which become a matter of public record which may be problematic for the unit-owner in the future. The City Bar of New York has a condo and co-op dispute resolution program where they'll sit down with the interested parties to try to work out any differences of opinion and questions of liability.

FINANCIAL SQUEEZE  Even when they’re denied the arrears money they’re seeking, condo boards need to know that they have the right to impose attorney's fees, interest and late fees on the unit-owner, which can amount to substantial sums. New York imposes a 9% interest rate on defaults, and when combined with legal fees and court costs, the total can exceed the amount of the principal default in the first place. So that’s a great incentive to resolve the case as amicably and as promptly as possible.