Empty Units in Foreclosure: A Lawyer Says Rent 'em Out — It's Legal!
Dec. 25, 2012 — We represent a condominium on the Upper East Side of Manhattan. One of its units was unoccupied, with no common charges paid for more than a year and a mortgage that was for more than its market value.
The first mortgagee — the lender — has a first lien on the unit ahead of the condominium (unlike with co-ops, and something the condo community should strongly lobby to repeal). So, if we were to foreclose the condominium lien for the outstanding common charges, the result would be that after protracted and expensive legal proceedings the lender would receive all of the foreclosure proceeds. That would leave no reimbursement for the condominium of either its arrears or its legal fees.
However, since the bank was not foreclosing (and refused to do so, even after we offered to foreclose the condominium's lien and turn over all proceeds in excess of a specified sum to it), not taking any action would allow the unpaid common charges to continue indefinitely with no hope of recovery.
We recommended that the board enter the apartment with witnesses, document its condition, store any contents, get the apartment in shape to rent and lease it for a six-month term that then would continue month to month. Yet though we explained how we had done this successfully several times before — even generating substantial profits for other condominiums before the bank finally got around to foreclosing – the board declined to do so.
Legal Lesson
Our proposal would have generated a rental of about five times the monthly common charges and allowed the condominium to recover its outstanding arrears with virtually no legal proceedings. The proposal was neither illegal nor fraught with unreasonable risk, since:
- the tenant could not be deprived of his rights (as a foreclosure takes more than six months);
- the absent owner would have to pay the arrears, rental costs, legal fees and other expenses upon which the condominium would vacate the tenant and return possession; and
- the bank had its first lien on foreclosure proceeds but not revenues that the condominium collected in the interim.
After several more years, the bank finally did foreclose, and the condominium was forever deprived of more than five years of common charges. Sometimes asking forgiveness, if necessary, is better than asking permission.
Elliott Meisel is a partner at Brill & Meisel.
Photo by Carol Ott
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