Strategies for Resolving Monthly Payment Issues without Going to Court

Resolving monthly payment issues without going to court is possible …

WHEN PRELITIGATION STRATEGIES ARE USED

Most managing agents monitor the timeliness of monthly payments by shareholders and unit-owners, but when nonpayments occur it is important to be prompt and address the situation before it gets out of hand. Boards face a delicate balancing act between maintaining building finances and managing relationships with residents. While taking the delinquent payer to court is always an option, there are several effective prelitigation strategies to consider before taking legal action.

REDIRECTED RENT.  If a unit-owner or shareholder is renting out an apartment, the board has a legal right by statute to send a letter to the tenant demanding that rent be paid to the co-op or condo directly in order to offset the common charges or maintenance owed. To implement this strategy successfully, boards should provide tenants with a copy of the relevant law (New York State Real Property Law Section 339-KK) along with their demand letter. This helps tenants understand their legal obligations and protects them from potential conflicts with unit-owners or shareholders. The law explicitly shields tenants from double payment liability — once they pay the board, they cannot be held responsible for the same payment to the unit-owner or shareholder.

One reason this is such an effective strategy is that the monthly rent is often two or three times the amount of the maintenance or common charges. So with one or two months of the tenant cooperating, a board might be able to clear up the arrears right away.

FILING A LIEN. In a condominium, boards should consider filing a lien for the unpaid common charges because in the event of a bankruptcy filing the condo will have maintained its priority in that proceeding. Send a copy of the lien to the unit-owner, since that often crystallizes the severity of the situation and encourages them to work with the board to meet their obligations. Most owners recognize that a lien could trigger loan default provisions and affect their credit standing, which frequently motivates them to address their arrears or at least open communication channels with the board.

For co-ops specifically, notifying the shareholder’s lender about arrears can be particularly effective since co-op liens take priority over mortgage liens. While this strategy generally doesn’t work for condos due to different lien priority rules, co-op lenders will often pay the arrears to protect their security interest.

LIMITING AMENITIES. Boards can also consider suspending nonessential services and amenity access for delinquent owners and their tenants. This might include restricting access to facilities like gyms, pools or roof decks. However, this strategy requires careful implementation. Boards must first establish and communicate a clear written policy to all unit-owners, not just those in arrears. The policy should specify which services will be suspended (amenities) and which will be maintained (essential services like mail delivery and utilities). Consistency in policy application is crucial to avoid discrimination claims, though boards can exercise business judgment in cases of genuine hardship.

TIMING. Timing is crucial when implementing these strategies. While a single missed payment might not warrant action, boards should typically begin considering these measures after 60-90 days of delinquency, depending on their bylaws. If prelitigation efforts prove unsuccessful after six months, boards should seriously consider legal action to prevent the arrears from becoming stale and harder to collect.

FINES. While some boards consider implementing fines for late payments, this approach often proves counterproductive. If an owner isn’t paying due to financial difficulties, adding penalties only compounds the problem. The most effective approach is addressing arrears promptly and systematically before they become unmanageable.