Collecting Past Due Condominium Fees
Condominium fees, which in “legalese" are known as common area maintenance fees, are the lifeblood of ay condominium’s operations. In an uncertain economy where many condominium unit owners find themselves jobless, underemployed, or simply making less of an income than in better times, condo fees are often one of the first line-items in one’s personal “budget" not to be paid.
Fortunately for condominium managers and trustees, the law governing late and delinquent condo fees is set up so that fees may be recovered through the assistance of attorneys, without a devastating impact on a condominium’s budget.
However, as will be pointed out below, trustees need to do their part to facilitate the efficient recovery of past due fees.
The essential foundations of the law governing past due condo fees are the following:
The trustees have what is known as a “lien" against the unit for unpaid fees. This lien must be paid if the unit is to be sold through anything other than a foreclosure. The lien includes attorney’s fees if such fees have had to be paid.
The law goes beyond giving the trustees a lien for unpaid fees; it gives them a “superlien" that actually comes ahead of the first mortgage. However, that superlien is limited to: (a) regularly budgeted amounts assessed against the unit during the six months preceding initiation of a lawsuit for the back fees; and (b) attorney’s fees and expenses.
So how does the superlien work in practice?
Most serious late condo fee situations occur where the unit owner is so far behind on his/her mortgage that the lender is contemplating foreclosure or has started foreclosure proceedings. In this situation the lender takes the initiative to try to resolve the delinquency before it gets too far out of hand; after all, it knows that attorney’s fees in a condo fee collection case—which can add up over time—come ahead of the first mortgage.
Many condo managers and unit owners believe that the only items that are subject to the superlien (other than attorney’s fees) are the last six months of fees prior to the filing of the lawsuit. However, the law actually provides trustees with the right to recover even more than these amounts. The hitch here is that the amounts must be a part of the condominium’s budget. So, for example, if the condominium’s budget provided for $10,000 for roof repairs, and a delinquent unit owner had a 10 percent interest in the common areas, the unit owner’s share of repairs ($1,000.00) would also be subject to the superlien, as long as it had been payable as of the date any collection lawsuit was filed. The statute does specifically exclude “special assessments" from the superlien; however, I’ve found in practice that if an expense was mentioned in the most recent budget, most lenders do not consider it a special assessment and will in fact pay it along with the six months of accrued monthly fees.
What do trustees/managers need to do to preserve the right to a superlien?
As trustees, there are certain things that need to be done in order to preserve the right to the “superlien". Some of these—such as prior notification of the delinquency to both the unit owner and the holder of the first mortgage on the unit—can be handled by the trustees’ attorney. Other tasks, however, fall squarely on the trustees or management company’s shoulders. These include the following:
Staying on top of delinquencies, and referring to counsel delinquencies of as little as one month.
Preparing annual budgets carefully so that monthly condo fees are actually recalculated to include capital items in the budget.