LAW LESSONS, PART 3, P.2

It worked. The building ended up collecting about $130,000 in rent, which covered a portion of the lost maintenance. It also covered legal fees. "It's not like the building is flush with cash because of the money we've collected," says Lawson. "But it's better than nothing."

The principals of AGA Capital pleaded guilty to fraud charges in federal court in October 2008. Since then, one of the 10 apartments has been sold, banks have foreclosed on three others (and will begin paying maintenance), and foreclosure proceedings are under way on the other six.

It Could Happen to You

"This was fraud," says Shore, "but with the current economic slowdown, I believe you're going to see more and more people foreclosing on condos and just walking away. It's already happening in other parts of the country."

Lawson agrees. "There was a significant increase in foreclosures even before the subprime crisis," she says. "So, I do think we're going to see more people having trouble making maintenance payments. My recommendation is for condo boards to be on top of those who are paying slower or who are unable to pay — on a monthly basis — and then make changes almost immediately. Levy a special assessment or take a portion of the reserve fund in order to keep the building sound. Quick, decisive discussion and action are vital."

At Shore's suggestion, the board is now debating whether the condo should act more like a co-op in the future. Specifically, it is considering a more rigorous application procedure, requiring board approval of new apartment buyers, and demanding a security deposit. "We feel very victimized," Lawson says. "Clearly, a top priority for 2009 is making sure this doesn't happen again."

Adapted from Habitat February 2009. For the complete article and more, join our Archive >>