Bankruptcy and Default on Common Charges

Mortgage and taxes are senior to common charges, so the building will have to stand in line should it be necessary for the borrower to sell in order to get out from his/her mess. If the bankruptcy is not a liquidation bankruptcy a judge will create a work out plan that prioritizes which debts get paid and over what period of time.

We knew we were subordinated to the mortgage company and taxes are inconsequential in this case (taxes owed are probably less than $100- this is a newer construction in Harlem with a long abatement). We just hope to get the owner out sooner rather than later- so we can get someone that can afford to pay. Based on what I can see in ACRIS- the bank would probably need to approve a short sale. We believe the bank already offered the owner some sort of workout last year- but obviously it isn't working for payment of condo common charges.
We sued the owner- and declaring bankruptcy seems to be the owners response back to us. My concern is that this goes on for years. I don't think we will recoup the past common charges- and we can make do without it, but we can't afford to continue down this path for too long without increasing everyone's common charges massively to offset.

Check the condo's By-Laws, but they're all pretty much the same, and phrased to induce lenders to lend.

It'll be the article on Common Charges, and the Payment section.

A foreclosing First Mortgagee -- or anyone buying at a foreclosure sale -- isn't subject to your lien, so the other owners have to eat it.

At a regular sale, short or not, on the other hand, the lien has to be paid off before title can transfer.

If a judge believes there's sufficient equity to absorb the condo costs he's not going to be very sympathetic to the building. Most judges are on the side of the debtor. A reorg bankruptcy is there for a reason, to allow people who have an income and too much debt a way to get back on their feet. It's not so much a question of whether the condo gets its money but when.

The neighbor works in sales, mostly or entirely commission based- therefore unreliable income. We aren't aware of any other equity- we think the owner is flat broke. We know that the owner's credit card recently sued them.

Is the owner unemployed?

Unless the owner has a guaranteed salary, he will not qualify for Chapter 13 debt reorganization -- it'll be a Chapter 7 liquidation.

This, of course, is another advantage of co-ops over condos: delinquencies on monthly maintenance are second only to taxes, and get a seat AHEAD of the mortgage company.

I'm sorry but home 'ownership' comes with responsibilities. Including being able to handle the unexpected increases in maintenance and taxes.... Maybe if the other 19 of yous can't handle $300 month increase for the benefit of painting your walls lavender.... Maybe renting the next go around. if the last 4 yrs didn't give you chance to see what was coming and you took no action who do you have to blame? The bank, the govt, Rangel? I'm teaching my son that if he keeps messing around with the fishing tackle box too much, he'll get hooked. The other day he got hooked with a size 20 hook. I looked at him, with my 'you know what you did' look. He no longer messes around the fish tackle while I'm putting his line on.

w67thstreet
about 2 years ago
while we are on topic.... when my son was 2 and I was in the tub w/ both kids... I was happily washing my daughter and turned around to see the "snickers" bar incident... it still makes me tear up in laughter when i think about it :)

and the reason that w67th street is greyed out is obvious. Most of the owners can afford a $300/month increase, but there are just enough investors in the building at break even rents (including board members) that it isn't an easy thing to change. I have long advocated raising the common charges- but my view is not very popular.

Gee...and then there is the issue of the Attorney General's office not doing their job enforcing laws on the books- i.e. shoddy construction and the builder being able to get away with it, or even the DOB approving things that were so clearly not to code that even a rookie should have caught it. This issue alone is causing a $20k assessment/per apartment just to fix the bare minimum of the shoddy construction correctly. Then add the issue of a defaulting owner...it's not about a 30% or 40% increase in common charges anymore.

The downside to condos is that they can't impose credit standards to prospective buyers the way coops do. Lipmixgirl you say you have a small condo. Whether you build a reserve or hit the owners later won't make much difference. It sounds like the owner you mention would not have paid this too. It's a choice between giving the building money they invest at zero or letting the 20 people invest it at higher rates and then contribute when needed.

And you never know, having a smaller reserve might force discipline on the board to not spend foolishly.

Since we are a newish condo, we were under the developers budget originally- which had no reserve. When the owners took over from the sponsor, we budgeted for a reserve of about 10% to 15% of our annual budget. Since we are a new building with no initial reserve, and then hit with the double whammie of a defaulting owner (and a second owner that is frequently a couple months late) and a need to make significant repairs to the roof and facade around the same time- it didn't allow us a lot of time to build up a lot of money into the reserve.

The issue with the board was not really about spending, but rather absenteeism. We had one person that was running the building and doing a great job- but eventually stepped down because of the time requirements. After that- the new board was largely absent and did nothing. The managing agent was not doing their job, and the board did nothing either. Now we have a board that is getting us back on track...but the damage has been done. The defaulting owner hasn't paid in nearly 2 years now. My concern is that this could go on and on with no end in sight with a bankruptcy.

NWT- Thanks, there is a section in the by-laws under the common charges that addresses this. It pretty much states in length what you summarized.

NYCMatt- the delinquent owner is employed, but according to the research I have done the salary is only about 25k year- that isn't even enough to pay for the mortgage, let alone any other expenses. Obviously the $$$ to be made is in the commissions- which is just not happening in the economy of the last few years.

This is why no lender should be able to issue a mortgage for less than 20% down.