Monday, March 14, 2011

Condo Liens Go Ahead of the Mortgage - Sometimes

In these economic times, Condo owners need to not only take care of their own finances but need to remember they are in an Association where they need their neighbors to pay their home owner's association (HOA) fees on time as well.

If a condo owner doesn't pay his HOA fees, the Association still has to pay its monthly bills and for necessary capital projects.  If someone is not paying, the rest of the Association has to pick up the slack until that unit owner has been brought current.  If a unit owner is more than just a slow payer but goes into default, the Association may have to hire a lawyer to properly notice and file a condo lien against the unit to collect unpaid dues. 

In NJ, Condo Associations can file a lien against an individual condo owner for HOA fees that would go before the bank for up to 6 months in dues.  Under NJSA 46:8B-21(b). The definition is in the paragraph following sub-paragraph (6). Special assessments, fines, collection costs and other charges are not included in the 6 month priority. So, if you have fines for let's say not taking an air conditioner out during the winter months or for putting furniture out on the curb, when the owner should have had those items carted, the Association cannot put a lien in place before the mortgage for these type of fines. 

Many of the banks, mostly the major banks, are woefully behind in their foreclosure proceedings.  As a result many unit owners in default are accruing well beyond 6 months of regular HOA fees.  The banks benefit from this loophole that allow them to delay transferring these properties into their REO departments because

A) they would have to write down the loss and in the private sector (perhaps also the public) delay bad news as long as possible so that earnings this year, the stock price this year remains as high as possible and therefore one's bonus and job is better off.  

B)  They know that until the market turns around, they would become accountable for these and other costs.  Yes, many of the banks have been delaying the foreclosure process to avoid accountability of being on the hook for maintenance fees and maintenance in general - in the burbs there are huge issues with stagnant water from pools, uncut grass and even unattended leaks and other maintenance issues that the banks don't want to address. 

I came across a unit that is 7 months in arrears as of the writing of this article.  An offer has just been accepted and the bank is saying it will take them another 6 months to conduct the closing for no other reason but they are overwhelmed with volume.  This means that Association is going to get stuck with at least 7 months of unpaid and un-recoverable regular HOA fees. 

On top of the unpaid regular HOA fees, this state statute also limits that amount we can collect in fines.  The unit in question, did not comply with a resolution to update the unit's windows.  The building has a universal, un-sub-metered heating system.  As such, the Association pays for the heat.

By having obsolete windows, the unit is costing more than its fair share of heating expenses.  To encourage unit owners to replace their windows by the window resolution deadline, the Association imposed a $1,000 fine for missing the deadline after which a $150/month in extra charge for any month between Oct and March where the unit owner was not in compliance with the window resolution.  This is to offset the ongoing extra heating costs.

Also, by having obsolete windows it makes it difficult to keep a comfortable temperature for all.  If one unit out of 16 served has obsolete windows, the building has to jack up the heat to ensure that it meets the 70 degree minimum (Hoboken has an Ordinance that requires we maintain 70 degrees not the state requirement of 67 degrees - another thing that has to change since that when in in the 80's - the decade of excess and cheap fuel costs).  To keep 70 degrees in the non compliant unit, the others have differed by 12 - 15 degrees ie 82 to 85 degrees.  Not only uncomfortable, these others sometimes leave their windows open in the middle of the winter to make it tolerable costing the Association even more. 

In other states, HOA and fees are considered a mechanics lien and go before even the property taxes.  The rationale is that maintenance maintains the property value, therefore the assessed value and hence the ability to collect the most in tax.  The same rationale applies to why a condo lien for HOA dues and fines should be allowed to go ahead of the mortgage.

Why are we limiting this to 6 months?  How can we continue to limit it while the banks drag their feet to their benefit?  I think this is an example of how a special interest group - banks - unduly influenced our law makers to put a law on the books that served the interest alone even though it doesn't make sense for the whole. Condo owners everywhere, write your state legislators and have the law changed!
To put condo lien in place to get at least the 6 months of regular HOA fees, you have to file a condo lien BEFORE the bank files it's first foreclosure filing with the bank.  As such, you need to watch receivables closely.   Whether the Board President, Board Member or just an owner in the building, at your next Board member ask the property manager to bring an "aged trial balance" by unit of who is paid up and who isn't.  If a unit owner is behind by 30 days, send a proper notice letting them know the Association will file a lien at the 60 day mark.

The unit owner has to be properly noticed with at least 30 days to true up his/her balance.  Make sure you have the appropriate language in  your letter.  File the lien immediately as you hit day 30 after the notice was sent.

If the Association has lots of monies owed, you can file foreclosure documents yourself and then you can charge those behind the condo lien for "reasonable costs".  It's expensive to go through foreclosure proceedings so it may not be worth it, but if you did begin the foreclosure proceedings, the bank may take notice and pay what is owed, perhaps all of the dues and fines for fear of getting less out of the sale than if they managed the foreclosure proceedings.

As usual, foreclosure is messy.  Consult an attorney.  I have a great one that I use with my Association.  Give me a call if you would like a reference or have a question.....

Provided by Donna Antonucci
Prudential Castle Point Realty

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