how do small condos protect against bankrupt owners?

The condo can sue the delinquent owner, or put a lien on the unit. If the unit is foreclosed on the building has rights of first refusal. The fact that the condo has few or many units doesn't really change the tools that are available.

i believe that their are different rules regarding condo and co-ops. in a condo the remaining unit owners split the unpaid maintenance fees accross the other paying units, also i don't believe foreclosing on the units is an easy process. different rules apply to co-ops, i'm not sure of the exact process.

Bankrupt owners are the bane of any form of collective ownership. Condos can obtain a lien, but the bank always comes first at settlement/sale. This means that the remaining owners/board need to obtain a money judgement against the debtor (often in the form of garnishing wages) so the condo association is paid before the bank takes it's hit. The only way to really avoid this type of problem in NYC is to buy your own townhouse. Co-ops get paid their share prior to the bank at closing, so much less of an issue.

This is basically a condo issue as most coops had stricter guidelines with regards to owner sweat(equity). I'd be worried about units purchased in 2005,2006 & 2007. The banks are in no mood to lend aggressively and that won't change for some time. And if the owner strategically defaults, you can always go after personal assets.

"The condo can sue the delinquent owner, or put a lien on the unit. If the unit is foreclosed on the building has rights of first refusal. The fact that the condo has few or many units doesn't really change the tools that are available."

Wow, for such a short post, how many things can you mislead on? Firstly, the condo lien always comes AFTER the FIRST mortgage. Secondly, most Condo Offering Plans have a carve out in the Right of First Refusal for foreclosures. And while the fact that having fewer units doesn't change the tools, it changes the risk tremendously. When a Condo unit gets foreclosed on, generally the Common Charge Arrears gets wiped out (unless it goes for more than the first mortgage lien). In a 200 unit building, if it took 18 months to foreclose after 6 months of non-payment, the 2 years of common charges are about 1% of the annual budget. In a 4 unit condo under the same situation, the Condo gets wiped out of 1/2 of their annual budget. Big difference.

Also, for a Condo to foreclose on a Lien fo unpaid Common Charges, they have to go through a State Supreme Court action just like any other Real property foreclosure. A Coop does a non-judicial sale, which takes 3 weeks (the only fly in that ointment is that some coop attorneys believe that based on what language is on the back of the stock certificate, the Coop must first go to L&T and evict the non-paying shareholder before holding a sale of the shares).

don't know if you are a cash buyer but many banks will not lend to such a small building. you should check with your bank.

30 year..... FYI
http://www.cooperator.com/articles/921/1/When-Owners-Fall-Behind/Page1.html

Breach of Contract for Money Judgments

A simple way to attempt collection of common charge arrears is by suing the delinquent unit owner for breach of contract due to his or her failure to pay common charges pursuant to the by-laws of his or her condominium. Assuming the unit owner has no valid defense or fails to raise a defense to his or her lack of payment, the board of managers will be awarded a money judgment, which will be docketed against the unit owner in the county clerk's office.

AND to protect itself the building can decide to buy the unit.

30 year, more background...

http://www.washingtonpost.com/wp-dyn/content/article/2009/02/12/AR2009021204268_pf.html

Condo Board Can Foreclose for Delinquent Fees

By Benny L. Kass
Saturday, February 14, 2009; F04

Q: I am three months behind on my condominium association payments. Can the association foreclose on my unit? My mortgage payments are up to date. I called my mortgage company, which told me the association could not foreclose. Last month, I wrote a letter to the board of the association asking for a payment plan, but have not yet received a response. I know I owe the money, but I was sick for a time. I plan to pay the back fees with my tax refund.

A: Your mortgage company was wrong. Most condominium documents -- and laws -- permit the board of directors to institute foreclosure proceedings if you are delinquent on your condo fees.

You should read your condo documents carefully. There is a section in the bylaws, usually called "Compliance and Default," that spells out all the remedies that a condominium association can take when a unit owner violates the terms and conditions of the legal documents.

The language typically reads like this: "Failure to comply with any of the terms of the Act, the Condominium Instruments or the Rules and Regulations shall be grounds for relief which may include, without limiting the same, an action to recover any sums due for money damages, injunctive relief, fines, sanctions, foreclosure or power of sale of the lien for payment of all assessments, any other relief provided for in these Bylaws, the Act, the Rules or any combination thereof, and any other relief afforded by a court of competent jurisdiction, all of which relief may be sought by the Association, the Board of Directors, the Managing Agent, or, if appropriate, by an aggrieved Unit Owner and shall not constitute an election of remedies."

Simply stated, this means that if a unit owner has not paid his or her condominium fees, the board of directors of the association can sue for damages, file a lien on your unit or foreclose.

In practical terms, foreclosure is not always the best remedy -- and it might not even recoup the money for the association.

Even before the association begins the process, the delinquent unit owner's lender must be given written notice of the intent to foreclose. The lender -- in its sole discretion -- may pay the condo delinquency and add this amount to the outstanding balance on the mortgage.

Should your lender opt not to make these payments, the association has to decide whether it really makes sense to move ahead. There are upfront costs for a foreclosure, such as advertising, auction and legal fees. These usually add up to several thousand dollars, even before the foreclosure sale.

And the sale itself might not be easy. There is an outstanding mortgage that would have to be paid off -- or at least addressed -- by the successful bidder. If there is little or no equity in the property, which is often the case these days, this means there are likely to be few if any bidders. A home with a mortgage that exceeds the market value is no bargain, and foreclosure bidders are seeking bargains.

So what if there are no bidders? In that case, the association has two options: It can buy the unit at the foreclosure sale, or it can cancel the sale and absorb all the costs. If it buys the unit, it becomes the property owner, and will be burdened with expenses.

First, the mortgage will have to be paid off. Then, the association will have to deal with the current owners of the unit, and either evict them or arrange a temporary lease.

Next, now that the association owns the unit, it will have to pay the real estate tax. Additionally, it has to pay the monthly assessment just like any other unit owner, which could mean that everyone's assessment may have to be increased.

And the association has to keep in mind that under these circumstances, it still will not have collected the delinquent assessments, nor will future condominium fees be coming in for the unit.

In the ideal world, the association could sell the unit and the new owner would start paying the fees. The hemorrhaging would stop.

But as President Obama said earlier this week, "this is not your ordinary, run-of-the mill recession." There is no guarantee that the association would be able to sell the unit quickly in today's market.

Additionally, should the unit be placed on the market for sale, this would compete with -- and alienate -- other owners who are trying to sell their units.

For all these reasons, associations should consider foreclosure only as a last resort.

I am surprised that your board has not responded to your request for a payment plan. A typical plan works like this: You agree that by a certain date, you will resume your monthly payments. You will also add a percentage of your outstanding balance in an amount agreed to by the board. If you honor the agreement, you will eventually catch up. However, if you default on the agreement, then the board can pursue you in court or institute foreclosure proceedings.

I suggest that you talk to the board president and make sure that the board understands that such a plan could be a win-win. The longer they wait, the harder it will be for everyone.

The laws in different parts of the region vary, so you should consult your own lawyer for specific advice.

One other suggestion. Talk with the accounting department at your workplace. You might want to increase your deductions so that you get more take-home pay, instead of waiting for that tax refund each year.

Benny L. Kass is a Washington lawyer. For a free copy of the booklet "A Guide to Settlement on Your New Home," send a self-addressed, stamped envelope to Benny L. Kass, Suite 1100, 1050 17th St. NW, Washington, D.C. 20036. Readers may also send questions to him at that address or contact him through his Web site, http://www.kmklawyers.com.

Riversider, if you'd actually read your cut-and-pastes you'd see that 30yrs' summary said it all and didn't require any of your "FYI" and "background".

The condo is well and truly f*cked. Last in line for any money to be gotten, with no hope of anybody but the other owners paying the arrears and the vast legal expenses.

E.g., check out eCourts for Elizabeth Hazan as defendant and tell us how that condo will ever see a nickel.

the original was correct..

HEY REDBAITER

pleeeeze go back to the glenn beck/hannity blog--

or just take the time time read all that you're posting--that way youd have little or no time to continue to post

or just start with the anti-socialist beck hannity birther death panel ayn rand lets bail out the lanmdlords crap again

Of course it was "correct." Nobody said it wasn't. The issue is what's effective, what works, not what's technically possible. The fact is that if some over-leveraged crackpot wants to get into a condo association, its choices are to either (a) let them and hope for the best, or (b) buy the place itself.

good point, the remedies are less than perfect.

with you its either blather or lying. never a good point.

I don't understand why CC is a stalker, but I don't need to know, since we have an ignore button. Somebody let me know if he starts acting normal again so I can take him off ignore.

hes (cc) a credible contributor here

ignore me too, pls--permanently if possible--in fact you should just ignore all but yourself and redbaiter

ok, you too can be ignored, no problemo! I have no problem with CC except I don't want to read 100 worthless posts of his per day because he has some issue with some other poster.

you have an issue with cc

you comment

many have issues with redbaiter's proliferation of sewage

we comment

your comment are better, say you

Thanks for the support modern. Apparently these two have received divine revelation and are acting on it.

RS, don't get carried away now, I am not taking sides, I do know I don't want to see 1,000 more posts consisting solely of "liar".

Unless you are a broker... ;-)

I would think smaller condos buildings are better off with higher reserves than larger condo buildings so that in the event of a foreclosure, the impact of the delay or lack of common charge collection is minimized.

I don't agree, In a small building the percentage interests are bigger for each unit. One delinquent owner has a greater impact in the small building.

I agree, which is why you want to have higher reserves per unit than average.

We have an offer out on a condo unit in a medium sized building.

To pay for an ongoing lawsuit against the developer, the condo unit has been assessed $12,000 payable in 6 monthly installments of $2000 each. The taxes are abated and the CCs are only about $600/month for this unit. The seller is willing to pay this special assessment, which is not on the advertisement, by the way.

I have never heard of such a large assessment on an approx $1.5 mill apt., and I have several concerns. One is, what if some owners cannot afford the special assessment?

A lien isn't going to generate the money in the short term, and foreclosure won't happen. Also, they claim this is the last assessment for legal fees, but what guarantee is there that another assessment of similar size won't be on the horizon?

Spouse loves the place but I'm seeing walking shoes.

You know the answer: no guarantees.

$12k is NOT a lot for a $1.5mm place, however, "price" isn't the best indicator of valuing an assessment. I'd rather hear what the square footage is. Considering this market is entirely out of control a $1.5mm apartment -- condo nonetheless, is probably what 800sf max? If that's the case, $12k is ok, considering the proportionate amount is split among fewer owners. I don't think the assessment is what you should be worrying about frankly, that is, unless, you and the misses, are 25 years old and are purchasing your first home (condo, $1.5mm -- can't imagine it being larger than 1bdrm) so the inevitable upgrade will come sooner than later and there isn't a chance at all, hell will freeze over tomorrow, that you're going to get more than $2k a sf for the place upon resale even 16 months from now. If you're, retired or an empty nester or something, go for it. Also keep in mind that banks don't take lightly to "developer lawsuits" so that could impact the rate you will receive, if they approve the building at all. If cash, well, then, 95% of what I just said doesn't matter.

You are correct that you should be thinking that this is not the last assessment.

Frankly a $12k assessment on a $1.5 million apartment is not a lot though if I were in your shoes, I would want to know much more about the lawsuit and the underlying issues. Since the seller is willing to pay the $12k, your only concern is how much more needs to be raised to address the problems in the building. If it's another $10-20k, it's still cheap all in, but will it be worth the headaches and uncertainty?

Frankly, I would also be concerned about the low common charges and the sunsetting tax abatement- and how that not only affects your ability to afford the apartment as well as others...but also the value of the home with respect to these changes.

Excellent advice and thoughts all, thank you very much!

This kind of reminds me of the situation that Aboutready had in her new building in Williamsburg.

Flute, I am going through this with a unit I have back home. As others said 12,000 on a unit of that value is really not that high. For example in my building they are stretching the assessment out over 18 months, so seems less but is much higher. But as suggested you need to know what the underlying issues are. Lawsuits in new buildings are not that unusual, but you really need to know what is going on. You could for example have a massive hole in your reserve fund that you are hoping to fill through the litigation that owners will fill out of pocket if you lose. Your board may also be personally (emotionally) invested in a siaution that is dragging on and making dumb decisions that you are being asked to pay for.

Good luck!

Excellent point, if assessment stretched out it sounds much less ;)

NWT wow that case is still ongoing. jeez what a nightmare