A New Tool in the Condo Collection Kit

At a luxury Chelsea condominium called the Heywood, the condo board used an ingenious strategy to collect from a unit-owner who owed $100,000 in unpaid common charges, late fees, and interest. After filing a foreclosure proceeding, the board got the courts to appoint a receiver, who had the power to set and collect rent from the unit-owner. When he failed to pay the rent, the receiver was able to move to evict, and the courts upheld the move.

The strategy provides a roadmap for other condo boards, in the words of the Heywood’s attorney, Steven Sladkus a partner at Schwartz Sladkus Reich Greenberg Atlas: “File the common charge lien, move to foreclose, seek a receiver to collect the rent, and if they don’t pay the rent, eject.”

If a condo’s governing documents don’t contain the authority to have a receiver appointed, there are other ways to evict a non-paying resident. Instead of waiting for the bank or other lender to foreclose, the board can move to foreclose before them. “It does take banks significantly longer than a condo association to foreclose, which is why I’ve always taken the position you want to be as aggressive as possible,” says attorney Marc Schneider, senior partner of Schneider Buchel.

The condo’s attorney should file a common-charge lien, authorized under the New York State Condominium Act. It allows for foreclosure on a condo apartment – and a subsequent foreclosure sale – when common charges go unpaid.

While filing a lien isn’t expensive, some boards are reluctant to take this step. Since mortgage-holders and tax-collectors have priority over the lien of a condo board, which is third in line to collect, many boards think that filing is a waste of time because after the unit is sold at foreclosure, there may be no money from the sale left over for the condo.

But that’s not necessarily so. Even if a lender has filed a lien, it takes longer for the lender to collect because of legal and regulatory requirements – as well as defenses that a homeowner can raise – that are inapplicable to boards. While it can take more than a year for a condo association’s common-charge lien to reach foreclosure, it can take a lender several years, in which time, the board can take action.

“Aggressiveness by the condo association gives you options: once you foreclose, you can rent the unit,” Schneider notes. “Or you can cut a deal with the mortgage-holder to possibly buy out their position. In some instances, you can find a buyer for the unit and negotiate with the lender so that the bank and the association get paid what they’re owed, or close to it. A private sale will yield more than a foreclosure sale by the lender. So it often makes sense for the lender to reach a deal.”