As an attorney with 35 years of experience with coops and condominiums in New York City here is what I think coop and condominium boards can do about apartment owners who can’t pay their monthly charges.
The key point is this. In these difficult times, if a coop and condo apartment owner can’t make their monthly payments, it very well might make sense for the coop or condo board to resist the natural urge to sue the apartment owner.
That might sound counterintuitive but here are the reasons.
Most owners of coop or condo apartments have a mortgage on their apartment. If they can’t make their monthly payments to the coop or condominium, they are likely to not pay their mortgage either.
Why then shouldn’t the coop or condo board threaten the apartment owner and sue them as soon as possible?
Because if the board waits, it will most likely get paid in full later without having to pay lawyers or create bad will with the apartment owners.
In a cooperative, the board has a first lien on the apartment for all unpaid maintenance charges and late fees. That means if the mortgage holder forecloses on the apartment, the coop board gets paid first from the proceeds of the foreclosure sale. Therefore, if the coop board doesn’t sue the apartment owner but waits to get paid from the foreclosure sale instead, then it can collect everything it is owed, including late charges, without having to pay any legal fees in the meantime— and without adding to the distress of an already-suffering neighbor. If the apartment owner avoids foreclosure by working out a settlement with the mortgage holder, that can include paying the coop too
In a condominium, the board has a second lien if the apartment owner has a mortgage. That means that if the mortgage is foreclosed then the mortgage holder gets paid first and the board gets paid second. But even then, depending on how much the value of the apartment exceeds the amount of the mortgage, it still might make sense for the condo board to hold off from suing the apartment owner. Instead, the board could save legal fees and wait for the foreclosure sale or a settlement to collect from what’s left after the mortgage holder gets paid.
In both cases, then, not only might it make more financial sense for the coop or condo board to wait when an apartment owner can’t pay but it is also more humane and considerate of the owner’s difficult circumstances.