Condo Boards Take a Stand on Delinquencies
By JULIE SATOW
Published: June 22, 2012
A SUCCESSFUL condominium depends, in large part, on owners’ paying their monthly fees promptly and in full. Delinquencies can mean less money for maintenance and amenities — and draw the ill will of fellow residents. While the sheer size of larger buildings can often blunt their impact on the budget, small buildings with a high number of delinquencies can be toxic for buyers and a millstone for sellers.
Jesse Krasnow, a board member of the Ansonia at 2109 Broadway, says foreclosure often isn’t much help in recouping money from delinquent owners.
Now, with New York’s economy seemingly recovering, condominium boards are growing more aggressive in cracking down on delinquent owners, according to brokers, lawyers and board members.
Some are publicly shaming deadbeats by posting their names on hallway bulletin boards or barring them from facilities like health clubs and concierge services. Others are reflexively filing liens against owners who are more than 60 days in arrears. And boards are writing requirements into their bylaws to provide additional protections.
According to data from PropertyShark, in the first quarter of 2011 through the first quarter of 2012, condo boards inManhattan started 111 foreclosure proceedings against owners for common-charge delinquencies, the most since January 2007, when the company first began tracking the information. The median lien amount in the first quarter of this year was more than $16,500, also the highest figure since 2007.
Alexandro Padrés has sat on the board of his building, 184 Thompson Street in Greenwich Village, for five years. Since it was converted to condominiums in 2007, the building has battled owners who fell behind with their monthly common charges and has even navigated the labyrinthine process of a bank foreclosure.
“We have had a lot of experience with this,” said Mr. Padrés, 38, a corporate lawyer who became president of the board in 2010, “and we are adopting a zero-tolerance policy. You can’t have situations where an owner is delinquent for six or seven months and just says that they forgot to pay, even though they were being sent monthly notifications. It just isn’t believable.”
To ensure payment, the building uses a number of strategies, including a 10-day grace period, after which a letter is sent to the owner. If there is no response, the property manager sends a second letter and refers the matter to the building’s lawyer. If there is still no response, the building files a lien against the unit.
Boards are becoming more proactive for a number of reasons: an improving real estate market means there is a greater likelihood that delinquent owners can sell their units for enough to repay the condominium; a proactive approach fits with condominiums’ increasing stringency on buyers’ financials; and finally, after enduring the downturn for several years, boards are growing impatient with owners who are in arrears.
“When the market was soft and there were serious problems,” said Stuart M. Saft, a chairman of the New York real estate practice at the law firm Holland & Knight, “no one wanted to go through the foreclosure process because it was expensive, time-consuming, and at the end, they might not be able to sell the apartment.”
Most buildings would still rather file a lien, a relatively quick and inexpensive process. When a lien is placed on an apartment, it makes it difficult for the owner to sell, since the buyer will want the lien satisfied before closing. Also, banks are often unwilling to refinance a mortgage or provide a new loan to the owner until the lien is removed.
At the same time, condominiums have begun employing other, nonlitigious tactics to persuade the delinquent owner to pay up. This can include barring the owner — or the owner’s tenant, if the unit is being rented — from using nonessential services in the building like the health club or the pool. Doormen may be required to stop accepting packages and deliveries. Some buildings even resort to public humiliation by posting names in common areas.
“A number of our buildings, especially those with high-level amenities, are now passing house rules that revoke the privileges of owners or their tenants who are in default for more than 60 or 90 days,” said Dan Wurtzel, the president of Cooper Square Realty, which manages more than 500 buildings in New York City.
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