From Arrears to Foreclosure, Collection Strategies That Work

Do you have a roadmap for handling delinquent payments? Caryn Meyer, partner at Cohen, Warren, Meyer & Gitter, has a plan. In this episode, she tackles the entire collection journey, from establishing clear arrears policies to making tough foreclosure decisions. You'll gain strategic insights on setting monetary thresholds, properly communicating policies to residents, and when to escalate to legal action. Plus, learn exactly what factors to analyze and realistic timelines compared to bank foreclosures. With arrears management being crucial to community financial health, these time-tested strategies will help you maintain your building's solvency while navigating sensitive owner situations. Habitat's Carol Ott conducts the interview.

The business of running a building is demanding work that requires making endless decisions — some that can quickly lead your board into a quagmire of legal difficulties. Legal Talk interviews New York's leading co-op/condo attorneys to find solutions, and get some guidance, on these challenges. For more co-op and condo insights, sign up to receive Habitat's free newsletters or become a Habitat subscriber today!

Transcript

[00:00:05] Carol Ott: Welcome to Legal Talk, a conversation about governance issues that New York's co-op and condo boards are tackling today. I'm Carol Ott with Habitat, the New York City magazine for co-op and condo board directors. My guest today is Caryn Meyer, a partner in the law firm of Cohen, Warren, Meyer, and Gitter.

Keeping maintenance and common charges on track is extremely important. When someone gets behind, it's vital for a board to have a clear vision of what should happen next. Caryn, each step has its own timeline and its own potential for success. So what should be the first step in a co-op or condo collection journey?

[00:00:47] Caryn Meyer: The first step, Carol, should be the establishment of an arrears policy, and that policy should be clearly communicated by the board to its shareholders or owners. What I mean by an arrears policy is establishing either a monetary amount or threshold, or number of months of unpaid maintenance or assessments before the collection process is undertaken.

[00:01:16] Carol Ott: And is that something that you would send out to your shareholders or unit owners to let them know? How are they gonna know? 

[00:01:24] Caryn Meyer: Yes. Again, communication being key, especially with arrears and the collection of arrears, my clients routinely will formulate that arrears policy and distribute it not only at perhaps an annual meeting, posting it on their website and a mailing to owners.

[00:01:44] Carol Ott: That would make sure that everybody understands and arrears is top of mind. Is it a typical arrears policy that if somebody doesn't pay after X, then the board does Y or how does that work? 

[00:01:57] Caryn Meyer: Yes. Typically what my clients do is, again, this is going to be community specific, depending upon the amount of the monthly charges, my clients engage in analysis of a monetary threshold. They find that to be more useful versus a number of months because there may be special assessments, there may be other charges that will bring them to a higher amount, faster than a number of months per se. So what they do is establish a monetary amount.

Once that monetary amount or that threshold is reached, it's forwarded to my office for the first step of the collection process. 

[00:02:34] Carol Ott: Which seems like actually a very interesting way of doing it, if a unit owner, for instance, or shareholder, is behind two months and say they own a studio apartment, so they're monetary number is gonna be different than the person that owns the three bedroom apartment, but they're treated the same. 

[00:02:55] Caryn Meyer: Again, depends upon the community. I have a cooperative, again, different amount of maintenance, depending upon the number of shares issued. But they've just, they just have one straight amount for everybody.

So you know , but again, that's community specific. That depends upon the board. In that particular instance, that board had also a special assessment going on, and they wanted to make sure they kept a pretty tight handle on collections. They needed that money coming in. Generally the monetary threshold is used in my condo and HOA communities as opposed to co-ops, which I see more of a number of months.

[00:03:33] Carol Ott: And when the threshold is reached and you say, then they come to your office, what has happened, prior to it coming to your office? 

[00:03:43] Caryn Meyer: Some communities have their managing agent send out a 10 day notice before it's sent to my office. But that's not required. Oftentimes the board would like to reach out first to see if, there's something going on, illness, financial hardships, something of that, that they can try to, work with the owner before they start incurring legal fees.

[00:04:04] Carol Ott: So once it comes to your office, what are your options, basically? What are your collection options? 

[00:04:11] Caryn Meyer: So the first step in any collection process is a 30 day notice to the owner in compliance with the Fair Debt Practices Collection Act. So we send a 30 day notice to the owner. Hopefully that generates a response.

More often than not, I find that does not always generate a response. Assuming that it does generate a response, we correspond with the owner as far as whether they're requesting a repayment over time or there's a dispute as to the amount that we are setting forth as being owed, and, we take care of that aspect.

If there is not a response, then the next step my client would undertake would be the filing of a lien in a condo or an HOA against the home. 

[00:04:56] Carol Ott: What is the timeline for that and what is the outlook for success? 

[00:05:01] Caryn Meyer: After the 30 days has expired, we have the board execute the lien, which is filed against the home.

So from the 30 day notice, that's typically 15 days or so, 15 to 20 days, depending upon how quickly the county can record that deed against the home. And from that point, the lien will serve as the basis of a foreclosure action, but if the board decides not to foreclose, and I'm sure we'll get into that in a moment, the lien serves as security in the event that the home is sold.

Of course, it will appear on title, so having to have satisfied that lien or if a homeowner files for bankruptcy, that again would secure the board's claim for arrears in that bankruptcy. 

[00:05:50] Carol Ott: And you mentioned the word foreclosure, and that's really, that's the ultimate 

loss for the owner and I guess, I don't know if it's a win for the board. Seems like a pretty traumatic thing to do. Under what circumstances would you advise a board to proceed to foreclose? 

[00:06:08] Caryn Meyer: You are correct. A foreclosure can be timely and can be expensive depending upon what steps have to be taken within that foreclosure process.

I encourage and engage in analysis with my clients prior to foreclosing based upon a number of factors. One would be whether there's a pending bank foreclosure. In a condominium or homeowner's association, the first mortgage recorded against the property has priority. So we would never encourage our client if a bank has a judgment of foreclosure in sale to undertake the foreclosure process.

Of course. So we look at whether there's a pending bank foreclosure, if there is, what stage that bank foreclosure is at, whether a referee has been appointed, et cetera. We would also look at if there is a mortgage on the property, whether there is believed to be equity in the unit, so that if we do foreclose, would we be likely to garner interest in third party purchasers at the sale?

We would look at the condition of the home. That being important, if our board does continue or undertake the foreclosure process, if the unit is in good condition, then if the board takes it back in the event there were no third party purchasers, we don't have to worry about rehabilitating a unit on top of the foreclosure process.

So there's a lot of analysis that goes into whether the board should foreclose. 

[00:07:34] Carol Ott: What would be some of the reasons that you would advise a board not to continue with the foreclosure process? 

[00:07:40] Caryn Meyer: Mainly the pendency of an advanced bank foreclosure action. That would be the main reason.

I have many foreclosure actions pending right now where the bank is foreclosing. But if they're early in their foreclosure process, or if they're not prosecuting that foreclosure action diligently, and my analysis is that we would have enough time to complete our foreclosure, I would recommend that. But really the bank foreclosure and what stage it's at is the main reason why I would not foreclose.

[00:08:14] Carol Ott: Is there a cost consideration? So if the bank foreclosed, then that's not on the condo or the HOA, correct? 

[00:08:21] Caryn Meyer: Correct. Correct. So if you have an advanced bank foreclosure action and they're at the last stage and they've obtained a judgment of foreclosure and sale, or they have a pending motion for that, again, the board's primary concern is to have an income producing home again.

So we would let the bank continue its process and be able to recoup the small amount that we can acup from the judgment of foreclosure and sale forward from the bank, and again, have an income producing home again. 

[00:08:49] Carol Ott: Just gimme an idea of time. If the bank is foreclosing, how long is that?

If you are foreclosing, how long is that? All this time, the association isn't getting its common charges or assessment or whatever money it wants, correct? 

[00:09:04] Caryn Meyer: Exactly. So again, if I have a community where the monthly charges are relatively low, we have to engage in analysis of how much money we're going to put into it. Again, the foreclosures are expensive. They can be expensive, and just as you correctly pointed out, the board is not getting anything during that time. Unless we have a tenant in there and they're paying rent directly to the condo or the HOA. Bank foreclosures I have found are notoriously slow.

I have bank foreclosures that still aren't finished from 2020. Probably because of Covid. But I have 21 and 22 bank foreclosures that are nowhere near being completed. I would estimate the board foreclosure, it can depend upon the assigned judge.

It can depend upon whether an answer is interposed on behalf of the owner. And things of that nature that would slow it down. But I find that condo and HOA foreclosures take approximately 12 to 16 months, more towards the 16 months, in that area. Versus a bank for closure that I find take years. Keeping in mind too, that, my clients are not subject to the same regulations that a bank foreclosure is.

[00:10:15] Carol Ott: If a foreclosure process is started, and I know your practice is primarily on Long Island.

So people have cars, presumably they have parking spots. Maybe there's some kind of a pool or some kind of amenity that owners can enjoy. Do your boards typically start to restrict access to those amenities. Can one do that? 

[00:10:37] Caryn Meyer: Yes, depending upon a review of the governing documents. But yes, my clients do suspend access to the recreational facilities. My experience has not been that's generated a great response. My experience is oftentimes that they're not utilizing those facilities to begin with. 

[00:10:55] Carol Ott: And during the whole foreclosure process, the unit owner or HOA owner is still in their apartment?

[00:11:03] Caryn Meyer: Yes. Yes. They can remain in the home until until the foreclosure is completed, even after, if we've completed the foreclosure and a third party purchaser purchases that home. Of course they would be obligated to arrange for the owner vacating, former owner. If the board takes the home back, then we would have to have that former owner vacate.

So even after the foreclosure process is completed, there may be some additional steps that have to be taken. 

[00:11:35] Carol Ott: In your experience for the communities that you counsel, on average, maybe percentage wise, rather than numeral wise, how many foreclosure actions do they seek? Is it rare? Is it common? 

[00:11:49] Caryn Meyer: Foreclosure actions are common. 

[00:11:51] Carol Ott: Have they become more common since Covid or has this been about the same? 

[00:11:56] Caryn Meyer: I think it's more I don't think it's become more common. After Covid, there was a homeowner assistance fund that a lot of owners were able to utilize and access those funds to pay arrears.

COVID obviously stalled a lot of the foreclosure actions after the homeowner assistance fund was exhausted, I have found an uptick in foreclosures because there's not the same availability of resources. 

[00:12:22] Carol Ott: As a takeaway, what would you advise boards in looking at the whole process of collections from arrears to the final big step?

What would be the, one or two main things that you would advise boards to stay financially solvent, basically? 

[00:12:38] Caryn Meyer: I would advise boards to be diligent in reviewing the arrears on a monthly basis, so that you can keep a handle on where they're going. And also encourage them to establish and communicate the arrears policy with their homeowners.

And I would also encourage a preliminary notice before it's sent to legal, if nothing else, to be able to have that final communication with an owner to try to prompt some type of response. Again, they're all living together. The board just wants to be able to operate the community and be in a financially solvent position.

And, everyone really needs to work together to accomplish that. 

[00:13:20] Carol Ott: All right. 

Thank you very much. It's really good advice. Appreciate your time. Great. 

[00:13:25] Caryn Meyer: My pleasure.