In today’s economy, banks and courts are processing foreclosures at a historically slow pace, evidenced by the New York Times article predicting that it will take close to 62 years for the foreclosures currently pending in New York State to come to a disposition. Generally, when a unit is being foreclosed upon by a bank for non-payment of mortgage, the chances are very high that the owner has also fallen delinquent on his or her Association dues. With condominium foreclosures multiplying at a rapid pace through the states of New Jersey and New York, condominium associations and residents are bearing the brunt of the harm mainly due to the fact that since the bank’s lien is superior to the Association’s lien, any foreclosure action by the bank or mortgage company is certain to essentially wipe off the Association’s lien against the Unit for unpaid assessments. So, what can the condominium association do to protect its interest during the unpredictably long pending bank foreclosure?
The condominium association has to confront the reality that with a bank foreclosure pending, the chances of recovering on the association’s lien through a sale of the unit is very low. So the Association must develop a strategy, which should consider the following options, to allow the Association to collect on unpaid common assessments from a delinquent unit owner after the commencement of a bank foreclosure action.
First, the association should consider commencing a separate money judgment action against the delinquent unit owner. This operates just like any other private lawsuit and tends to be less expensive than an association foreclosure action. The lawsuit will essentially seek a fixed specified sum and will have no effect on the bank’s foreclosure action. This method of collection is particularly useful where the delinquent owner is employed or has some other significant seizable assets. Once a judgment is obtained, the association can seek to collect on the judgment by executing on the assets of the delinquent unit owner, whether it be a wage garnishment, rent levy, or a bank levy. Even where a search reveals that a unit owner does not have significant assets, a money judgment against the unit owner is still beneficial for the association, particularly in New York where the judgment must be repaid before the unit owner can purchase another home within the state.
A second and more emerging method, especially in New York, is for the Association to move or ask the court to appoint a receiver to collect rent from either delinquent unit owners, or from the delinquent unit owner’s tenants. Where the unit is vacant, the rent receiver is generally granted the power to seek out a tenant and collect proceeds on behalf of the association. In New Jersey, Herrick, Feinstein has been extremely successful obtaining rent receiverships for associations during the pendency of bank foreclosure actions. This has given the association the ability to not only collect on unpaid and back due assessments, but it also helps to preserve the condition and value of the property. The rent receiver option is a win-win, especially where the bank foreclosure is in its early stages. If the unit is vacant, the receiver can rent it. If the unit is already leased, the receiver now intervenes and the tenant must pay rent to the receiver. Either way, the receiver has the right to use the rentals to pay arrears in common charges while the foreclosure is pending giving associations much needed financial relief. As foreclosures continue to backlog in New York, rent receivers are becoming more and more common, and Herrick is moving aggressively with this new legal trend.
Since condominiums remain weaker in the fight against banks with respect to who will collect unpaid fees, it is imperative the association develop a strategy to take aggressive action against delinquent unit owners while the opportunity remains, especially during the bank’s pending foreclosure action.