Eric Goidel, Borah Goldstein Altschuler Nahins & Goidel
When landlords don’t pay for maintenance or common charges, councils usually take them to housing court and threaten eviction. Given the huge backlog of cases resulting from the state’s moratorium on evictions, are there non-judicial alternatives to collecting your money?
There are a number of alternatives. The path of least resistance for many co-ops is to check if shareholders have a loan from a bank. If so, I hope the co-op has a recognition agreement on their records. The recognition agreement is between the bank and the shareholder which essentially stipulates that in the event of a monetary default, the cooperative will notify the bank of the default. The bank, in order to protect its security, is supposed to issue a check to the co-op for arrears, and it is incumbent on the bank to pursue its remedies against the tenant shareholder, including foreclosure.
If the shareholder does not have a loan, what recourse does a board of directors have?
A property lease is a contract, and there is an obligation to pay rent or maintenance to the cooperative. In a condominium, of course, there is no right to request eviction because the owners are in fact the owners of their apartments. But co-op and condominium boards have the right to bring regular recovery action in the city’s civil court or state Supreme Court, which is not associated with eviction. The delimiting factor is usually the amount of money in dispute, so the civil court has jurisdiction up to $ 25,000 and the Supreme Court has jurisdiction over $ 25,000.
How it works? What is the process for boards to follow?
You file a basic complaint alleging arrears and document that you have sent statements to the shareholder or unit owner. The shareholder or unit owner can potentially respond with a counterclaim, but there is usually a waiver of counterclaims in a collection proceeding, and you can get summary judgment.
This can be applied in several ways. If we know someone’s bank account, we can take it. I recommend that buildings with direct deposit of maintenance charges or common charges obtain copies of these checks from banks, as this is a potentially quick route to judgment enforcement.
In addition, New York allows you to garnish up to 10% of a person’s salary, with the employer having to deduct money from the paycheck until judgment is rendered. These judgments come with interest – in New York it’s 9% – so you can actually make more money than if the shareholder or owner of the unit had actually paid for the maintenance or common charges. .
It sounds pretty straightforward. But are there defenses that shareholders or unitholders can use that are more difficult to circumvent?
This does not happen often, but filing for bankruptcy could stop a collection process in its tracks, but only temporarily. There would be a count day. There would be a reorganization where the tenant shareholder or unit owner comes up with a plan with the bankruptcy trustee and some payments will be made to settle the arrears and stay current.
And once bankruptcy proceedings are initiated, you need to start paying on an ongoing basis. So there may be a slight detour, but risking that detour is still better than waiting for the Housing Court, which is even more supported due to the pandemic and the moratorium on evictions.
Are there other options available for boards to get their money?
In cooperatives, there is what I call the nuclear option. In all property leases, there is a section that deals with events of default, and many have a provision that says you can serve a notice of adjustment, usually 10 days. If the money is not paid within that time, you can give five days notice of termination, and once the lease is terminated, you can initiate foreclosure proceedings. It’s still non-judicial. You search for lien, give notice in a newspaper ad to all creditors. You hire a licensed auctioneer and sell the shares to the highest bidder
There is still a problem. You have sold the shares and have the right to issue a new lease of property to a successful buyer, but you still have to evict, which means you end up in housing court and the current eviction moratorium. Even though it’s extended beyond January 15, 2022, the backlog means your case likely won’t be heard until 2023. You’re kicking the box.
So, to recap, councils have judicial and non-judicial options. But is there anything boards can do before going to housing court or civil court?
We recommend opening a dialogue on developing some type of payment schedule where the shareholder or unit owner can settle arrears over a period of time, perhaps even several years. People are often embarrassed, so you want to find common ground that allows them to maintain their dignity. But the bottom line is that there is no one model that fits all cases, for both sides. Every board should consult with a lawyer before deciding which way to go.
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Lender may have sent insufficient foreclosure notices
Around 2013, a shareholder in a Manhattan Housing Development Fund Corp. (HDFC) has fallen behind in its maintenance payments and loan repayments to its lender. The HDFC initiated eviction proceedings and the lender filed for foreclosure action. Despite the money owed, the plaintiff brought an action in November 2015 against the HDFC and the lender, alleging, among other things, 15 causes of action based on harassment, breach of fiduciary duty, breach of contract, abuse of process and other claims. In a 37-page decision, the court concluded that she had not established her claims. However, he did not grant summary judgment to the lender, arguing that there were questions of fact as to the sufficiency of the notices sent to the plaintiff prior to the non-judicial foreclosure.
Arthur v. 1809-15 7th Ave. Hous. Dev. Fund Corp.
April 9, 2021