Common area fees are an important source of income for condominiums and are required by condominiums to cover operating costs, maintain common areas, and pay salaries to employees.
“If an apartment owner does not pay a common service fee, the building reserve may be depleted, which may result in a higher common service fee or assessed value for the owner paying the obligations,” it said. Woods Lonergan PLLC is a litigation attorney representing condominium and co-op boards and other companies and entities.
Woods recommends that the board take aggressive action when condo owners default on common-service fees.
“A responsive board lets residents know that the board will continue to diligently and vigorously pursue payments when there is a delinquency of this kind,” he says.
Failure by owners to keep up with payments can result in significant penalties and ultimately result in the unit owner losing their home, says attorney Lauren Tobin. Woods Lonergan PLLC specializes in representing condominium and co-op boards, as well as buyers and sellers.
The specific steps taken by the board are determined by the building bylaws. The board should refer to them for information on late notices, debt collection, late fees, and interest.
“Because actions by condominium boards are governed by bylaws, actions taken to collect late fees should be consistent with governing documents,” Tobin says.
impose late fees and issue collection notices
Typically, the first step is to issue a late notice or debt collection notice to the defaulting owner, informing them that a late fee will be assessed for non-payment of common charges.
Late fees typically range from $50 to $100. The debt collection notice must list the amount owed, including a breakdown of late fees, valuations, parking fees, common charges, and other charges. Tobin says this is important because it helps unit owners understand their statements and understand that they are overdue.
“I’ve seen situations where the automatic payment of common fees doesn’t work. Payments have been bounced by the bank or management companies have changed. The owner of the unit thinks they are paying. But it wasn’t,” says Tobin. By advising the owner of the unit, you can correct simple mistakes and solve this problem.
Notice may offer an amicable solution, she said. I have.
Submit Common Charge Lien
If the notice of collection has been ignored, the next step is to file a general billing lien against the condo unit.
Publicly filed liens serve two important functions. This is a means by which the board can later seize the unit if the lien has not been paid in a timely manner, allowing the owner to sell the apartment without first paying the debt owed to the condo. Or prevent refinancing.
The bank will not approve the buyer’s loan if the apartment has a lien.
“If the unit owner understands what a lien is, it is the first step in initiating a foreclosure action. ,” says Tobin.
Late fees, interest and other costs may also be included as part of the lien if provided in the Bylaws. This means you can add expenses incurred by the board to the total amount owed by the condo owner.
This may include legal fees incurred in the process of collecting debts. This can reach thousands of dollars. There are also costs of record that the Board may include in its lien under the Bylaws.
“This means that these additional amounts will be reimbursed to the board either directly by the condo owner or in a foreclosure lawsuit,” Woods said.
receive rent from condominium tenants
In situations where the condominium is rented out to tenants, the board has the legal right to receive rent payments directly from the apartment occupants in the event of default by the condominium owner.
“Board management should notify tenants and condo owners that future rent payments must be made directly to the condo due to general charger defaults. The payment satisfies the tenant’s obligation to pay rent under the lease,” says Tobin.
This can continue until the owner pays the common fee. This road is not open to the board if the owner of the unit lives there and is not rented out.
Common Charge Lien Foreclosure
The next step is to sell the condo owner’s apartment and start a foreclosure lawsuit in court to recover the funds. Obtaining the advice of an attorney with expertise in this area can be helpful when starting this type of lawsuit.
In most cases, the first mortgage is preferred before paying a lien on common charges to the condo. Additionally, “in many cases, failure to pay a common service fee constitutes failure to meet the mortgage agreement with the bank,” says Tobin.
So, in some cases, the question is whether the bank or the board initiates the foreclosure. Because condo liens are subordinated to bank mortgages, it may be beneficial for the board to oversee bank foreclosures if the amount owed to the lender is substantial.
pursue financial judgments
Another option is to direct your condo’s attorney to sue for a monetary judgment.
“Depending on how much you’re in arrears on common fees, it could be civil court or small claims court instead of a foreclosure action,” Woods says.
This is less common. Because if the condo owner doesn’t have the money to pay the common charges, the money judgment is less important and the condo board can’t get the money owed.
“The cost of pursuing a monetary judgment will depend on whether the condo owner challenges it in court.” We could spend over $5,000,” says Woods.
James F. Woods A partner of Woods Lonergan PLLC, Lauren K. Tobin is an associate attorney at Woods Lonergan PLLC. Woods Lonergan PLLC represents New York City cooperatives, condominium boards, managers, buyers, sellers, commercial landlords and tenants. Click here to submit questions about this column. For 15 minutes of free legal advice, call 212-684-2500 or send an email.