Collecting Arrears: Getting Maintenance and Common Charges from Dawdlers

At the Clinton Hill Cooperatives complex of 12 medium-rise elevator buildings in Brooklyn, board members in the 1990s found it hard to keep track of collections from the 1,200 units. After the budget plunged into the red, the board finally fired its management company and hired Mark Greenberg Real Estate. When he got there, says Steve Greenbaum, director of management, the board was "hundreds of thousands of dollars" in debt.

The new agent took a tough line immediately. "We sent out a very strong letter that said, ‘We're here, your maintenance is due, we need to have your cooperation.'" With shareholders who were two months or more in arrears, Greenbaum promptly turned over those cases to an attorney, who sent a "notice to cure" — effectively, giving those shareholders three days to comply. For those who didn't, the co-op took them to landlord-tenant court. It took some doing, but finally, says Greenbaum, the balance sheet moved into the black.

At the Seward Park Houses co-op (at left) on Manhattan's Lower East Side, treasurer Stan Friedland says the board traditionally on its management company to handle arrears. But the management company's increasingly lazy approach put the co-op deeper and deeper into the red. The budget finally approached a crisis point — and in 2000, a slate of reformers, including Friedland, was elected to the board. They replaced the management company and sent letters warning late shareholders that the board was going to take legal action. Gradually, the procrastinators got in the habit of timely payments.

Friedland's advice to boards that may be tempted to leave arrears collection to management: Don’t. Agrees Marc J. Luxemburg, a partner in the law firm Snow Becker Krauss. "The board has to stay on top of collection. You have to read the collections report regularly. As soon as somebody falls behind, you get on top of the situation. Late fees may be useful for keeping everybody on track, but they really don't deter people who are chronic or serious offenders."

Zero Hour

Except in extraordinary cases — such as an apartment-owner losing a job or suffering a death in the family — the board should expect prompt payment every month. Likewise, a board should be reasonable when a shareholder wants to work out a payment schedule. But it's the resident's responsibility to approach the board, Greenbaum notes, not the other way around.

My suggestion for buildings is that they have zero tolerance for arrears,” says Greenbaum. While some co-op boards may favor a "go slow" approach, most managing agents maintain it's best to be firm up front. "Boards have to be really, really diligent in putting systems in place and taking immediate action when someone is in arrears," says attorney Steve Anderson of Anderson & Ochs. "If the board doesn't take it seriously, why should [apartment-owners]?"

When co-op shareholders miss a month's rent, the steps to take are:

✔ Direct your management company to write a letter to the shareholder, warning that he or she is in violation of the proprietary lease. Typically, say attorneys, you allow the offender 10 to 20 days to cure the problem.

✔ If he or she is late again the next month, a second notice goes out from the co-op's attorney, stating that the shareholder is in violation of the proprietary lease and the board is about to start termination proceedings. "Ninety percent of the people, when you serve them notice through the attorney, will pay you right away," says Greenbaum.

✔ For that remaining stubborn 10 percent, the co-op should be prepared to go to landlord-tenant court.

With condos, when unit-owners delay paying their monthly common charges, the board of managers, say attorneys, should:

✔ Be prepared to put a lien on the property. Send a warning letter as done above, and then if the issue isn't cured in 10-20 days, file a lien.

✔ Once a lien is put on the property, the board has the choice of starting foreclosure proceedings. For foreclosure practices and pitfalls, see "Apartment Foreclosures: How to Deal with Them — and Make Deals," Habitat March 2008.

If the shareholder or unit-owner has a mortgage, also send a letter to the lending institution.

The 2,585-unit Amalgamated Warbasse Houses co-op (at right) in Coney Island uses one additional tactic: Denying privileges. When shareholders miss a monthly payment, the board sends letters about the consequences, pointing out that late-payers can lose their parking spaces, their right to vote in board elections, and access to using community spaces such as party rooms. They also can't transfer or sell their apartments. (See the "not in good standing" addendum to the AWH rules and regs.)

While these methods may strike some as strong-arm tactics, mishandled maintenance collection is the surest way to sink a co-op's or condo's finances — because without this regularly scheduled cash-flow to pay the bills, these are pretty much same legal tactics that creditors will use against the co-op or condo as a whole.

Adapted from Habitat April 2007. For the complete article and more, join our Archive >>