How to Collect Overdue Maintenance Without Going to Court

If you’re struggling with unit owners who aren't paying maintenance or common charges, you're not alone. Attorney Maria Beltrani, partner at Schwartz Sladkus Reich Greenberg and Atlas, reveals game-changing pre-litigation strategies that can get you paid faster — and for less than going to court.

Discover how to legally redirect subtenant rent payments directly to your board, which can clear arrears in just months. Learn how to file liens and send copies to delinquent owners, plus how suspending amenities creates real pressure without major legal costs.

Beltrani also explains the circumstances under which co-op boards can successfully demand payment from unit owners' mortgage lenders, and why quick action is crucial before arrears become nearly impossible to collect. Whether you're dealing with your first delinquency or chronic non-payers, these proven tactics could save your building thousands in legal fees. 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

[00:00:00] 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 Maria Beltrani, partner at Schwartz Sladkus Reich Greenberg and Atlas.

Monitoring the timeliness of monthly payments by shareholders and unit owners is something that most managing agents do, but at some point, further action needs to be taken. Litigation is one option, but it's costly and time consuming. Maria, you have worked with many boards and suggest that they consider pre-litigation strategies and other options to get this money paid.

What are some of those other options?

[00:00:48] Maria Beltrani: Carol, there are a number of options but before I get into them, I just do wanna mention one that is not an option and that is often thought that it is a viable option and that is notifying the unit owner's lender that the unit owner is in arrears.

In co-ops that works because the co-op lien has priority over mortgage lien. So a lender will pay the arrears, which is great for co-ops, but unfortunately that doesn't usually work in a condominium situation because the lender's mortgage lien, it does have priority. But there are other things that the boards and managing agents can do.

One of those things is if the unit owner is renting his or her apartment, there is the ability to demand that the tenant pay the rent to the board directly, in order to offset what the unit owner owes. 

[00:01:49] Carol Ott: Let me just jump in here and ask you: whether it's in a co-op or a condo, if there's a renter or a subletter, and that person is unlikely to know that the unit owner is behind payment. It's all seems very awkward. Who goes to the renter and says, your, the owner of your apartment is behind in rent, or how does that actually play out? 

[00:02:16] Maria Beltrani: So under the Real Property Law and it's Section 339KK, a board or its managing agent can send the tenant a letter explaining that the board is invoking their right to demand that payment be made directly to the board.

You don't get into how much the unit owner owes or any kinds of disputes with the unit owner. It's pretty much a very simple demand letter that is sent. One of the things that we anticipate is that some tenants will feel that might put in jeopardy their relationship with the unit owner, and they're not so eager to start paying the board simply because the board has demanded it.

So what we do when we send the letter out is we also enclose a copy of the actual law, so that they can see this is not something that's made up. It's not something that's discretionary. There is a law that actually permits this. In addition, we advise them, as does the law, that if they pay directly to the board, they don't owe that money.

They no longer really owe that money to the unit owner. And so if the unit owner were to commence litigation or threaten litigation, we want the tenants to understand that there are protections for them if they actually pay the board as the board has demanded. 

[00:03:46] Carol Ott: And if they pay the board, they're paying the board, the common charge or the maintenance, correct?

[00:03:52] Maria Beltrani: No, actually they're paying their rent, which is why it's such a wonderful remedy because oftentimes the rent is two and three times, and sometimes more than that, than whatever the maintenance or the common charges are. So with one or two months of the tenant cooperating, you might clear up your arrears right away.

[00:04:14] Carol Ott: That's a very good strategy. 

[00:04:16] Maria Beltrani: The other thing pre-litigation that a board should consider doing is absolutely filing a lien for the common charges, because it maintains their priority, it protects them in the event that there's a bankruptcy filing. So it's critical that a lien be filed. But what a lot of people do not do, and what boards should consider doing is sending a copy of that lien to the unit owner so that the unit owner realizes, Hey, action has been taken against my unit. My lender might find out about this. This is probably a default under my loan documents. And I think that when you send it to them, it crystallizes for them the severity of the situation and that they really do need to, even if they can't pay all of it, they need to stop being so silent and they need to reach out to the board, explain their situation, and try to work something out. 

[00:05:14] Carol Ott: Before either of these remedies are done or started, how late do you think the unit owner or shareholder has to be? Maybe they missed one month's maintenance or common charges. 

[00:05:26] Maria Beltrani: Right. So typically the bylaws will instruct the boards as to at what point in time they need to do something about the arrears. And they have a fiduciary obligation, so they need to look at that part of the bylaws.

And oftentimes it's more like 60 or 90 days in the bylaws. And so usually, if that's what we're talking about, a month, anyone can miss for whatever reason. But when it's two or three months, that signals that there may be a problem and that some action needs to be taken. 

And one of the other pre-litigation remedies that we have considered and discussed with our boards, and many boards follow this, is the suspension of non-essential services.

So a lot of boards ask us what does that really mean? And what that means is for any unit owner and their tenant, the board will no longer provide what I'll call amenity services. So for example, if you have a roof deck or a playroom or a gym or a pool or something like that, usually the way the policies work is that the unit owner in arrears and their tenants will not be permitted to avail themselves of those things while the unit owner is in arrears. And while if the unit owner is actually renting the apartment, it might not be inconvenient for the unit owner, it's gonna be very inconvenient for the tenant, who is paying a market rent for his apartment and all of a sudden she can't use certain things that she's paying for. 

[00:07:08] Carol Ott: Practically though, how does that work? Because somebody, a staff member, do they get a letter saying, you can't use the pool anymore? 

[00:07:17] Maria Beltrani: So what ordinarily happens is first a protocol has to be established. So the board has to vote on this, that this is a policy that they want to establish. Then notice of the policy has to be given to all unit owners, not just unit owners in arrears. The written policy should state what services are going to be withheld and what services would not be. For example, we do not interrupt the distribution of mail or deliveries from pharmacies, for example, anything like that. You can't cut off electric or even cable because a lot of times landlines are tied into that.

So we make clear in the policy as an initial matter what it's going to involve, and then when the board wants to invoke the right, what they do is they send a letter to both the unit owner and the tenants explaining that because the unit owner is in arrears, these amenities, certain amenities are not gonna be provided. And the letter will specify what amenities those are.

But the boards have to be careful that if they're gonna have this kind of policy, then they need to apply it uniformly. And that's not to say that there isn't a situation where a unit owner can come to the board and, say, look, I have a specific situation. I just lost my job, or I've been hospitalized, or what have you.

And the board can't, in its business judgment, decide, okay, this is a situation where we are not going to apply the policy. But for everyone else, if they don't have a reason and they haven't come to the board, then it should be applied uniformly. Just to protect the board from any claims that the board is picking and choosing among their unit owners and how to invoke their policies.

[00:09:12] Carol Ott: And when you say come to the board, do you mean actually reach out to a board director or are you reaching out to the managing agent, who will then reach out to the board? 

[00:09:23] Maria Beltrani: Typically the unit owner would contact the managing agent because it's usually the managing agent who's already sent, two or three demand letters trying to get payment.

So that's who they would be dealing with. And then of course, the managing agent goes back to the board, gets a decision and then comes back to the unit owner. Sometimes in small buildings, I do see that there's a lot more ability to reach out to a board member directly, but that's not really the norm.

[00:09:54] Carol Ott: Okay. And I'm curious about, particularly in the co-op, reaching out to their lender. Is that effective? 

[00:10:03] Maria Beltrani: It can be quite effective. It depends on the lender. And it depends on the situation at hand. For example, most of the lenders will try to protect their security interests, so they will make the payment.

But there are some lenders that aren't really familiar with the process and they get these letters asking for money and they're not really sure why. So it's not that they won't comply, but sometimes it takes longer for them to comply because they have to go through their legal department. 

[00:10:36] Carol Ott: And that is a question. If the board wanted to try that avenue, if the unit owner has a mortgage with Chase, you're not just gonna send a letter to Chase, there's gotta be a person or a department or a something. Would the board go to their council to take care of this, or how does that happen? 

[00:10:56] Maria Beltrani: So typically the boards, yes, they will come to their counsel, and in the co-op cases, usually a recognition agreement that spells out where the lender is to be notified.

In the condo situation, the recognition agreement doesn't exist, so sometimes it takes us a little bit to dig and find the right office of the lender to send it to. And, that can take a little bit of time, but ultimately we do succeed. And especially in the co-op scenario, yes.

The lenders will pay in order to protect their security interest. For sure. 

[00:11:34] Carol Ott: And let me just ask you if the board used these variety of techniques, which you've just outlined. They still haven't been successful in getting the arrears paid. How long should they continue with these pre-litigation ideas before I guess moving to litigation, which now costs money?

[00:11:57] Maria Beltrani: I would say no more than six months. No more than six months, for a number of reasons. One, again, the board has a fiduciary duty to try to collect these arrears and not let them get out of hand. Secondly, anything more than six months, might be a substantial drain to the condominium itself, depending on how large a condominium it is.

But also, there's the issue of arrears becoming stale at one point and even though the law might allow you to go ahead and sue for it, the longer you let it go, the harder it will be to get it back. 

[00:12:38] Carol Ott: And you had mentioned at the beginning about a lien and how does that compare to some kind of collection action that one might do? What is the difference there and which would you recommend? 

[00:12:51] Maria Beltrani: I recommend whenever there are arrears to file a lien, which is a relatively simple process. An attorney has to research who the owner is, just to be sure, because a lot of times the name the managing agent has on their records may not actually be the name on the deed.

So we make sure who the owner is, or owners. And it's essentially a three page document that explains basically who the parties are. The board, the name of the condominium, the block and lot for the unit, the amount that's owed, and we attach a schedule of the arrears to the lien and then that gets filed with the city register's office.

So that's a pretty simple process to do and something that really is. Something that's recommended whenever there is a default. But what the filing of the lien allows you to do is it allows you, if all else fails and you find yourself having to think about litigation, it allows you in a lien foreclosure action to apply for a receiver. And a receiver is something that we have found to be very beneficial because receivers can collect rent from tenants. Tenants that maybe didn't want to respond to your demand. Receivers can evict tenants that aren't paying. Receivers can even evict owners that are not paying. And the amount of money that's collected by the receiver is then turned over to the board to pay off the arrears of the unit owner.

So even though filing and commencing a lien foreclosure action may seem like it's going to be a very long process, I don't wanna say it isn't, 'cause in New York, pretty much all litigation is a long process, but you will see results fairly quickly with the receivership. 

[00:14:50] Carol Ott: And in your world. What does fairly quickly mean?

[00:14:53] Maria Beltrani: It depends on when you file the motion. It requires you to file a motion to have the appointment of a receiver. And then once it's prepared and filed, and that should take no more than a couple of weeks, it's all up to the court. It depends on how long that particular judge takes to decide cases.

Sometimes we get them decided in a couple of months. Sometimes it takes a little longer, sometimes even as little as three or four weeks. But the point is that you don't have to wait until the end of the litigation to get your money. You will start getting it during the litigation. Which not only gets the board the results that they're looking for as quickly as possible, but also as inexpensively as possible, because you're not necessarily continuing the lien foreclosure to its conclusion. If the receiver, for example, can collect rents and pay the board's lien in six months time, you won't have to wait the whole, two or three years that it might take to litigate.

[00:16:02] Carol Ott: Whoa. Are there any other pre-litigation strategies? 

[00:16:07] Maria Beltrani: Apart from sometimes really reaching out to unit owners, and by that I mean trying to find out why the person is not paying. And sometimes that's easier said than done. And especially for managing agents that manage thousands of apartments.

But oftentimes understanding why the problem exists will help you find a resolution that much quicker. 

[00:16:34] Carol Ott: I have a question. It's the managing agent who is really sort of on the front line to monitor the arrears and to go after collecting them at the beginning. Is there a platform for doing this?

Is there a system for doing this? If a board is looking for a new management company, is this a question that they should be asking? How are arrears monitored? And then pursued? Or is it just something that is automatically done in the management industry? 

[00:17:04] Maria Beltrani: I do believe that there are a number of differences in the way that managing agents will handle these types of things. But I think when a board is looking for a new company, what it needs to do is sit down with its new managing agent and tell them how they want it done. In other words, I wanna see an aging report, every 30 days, for example, so that the board understands who's in arrears and we want you managing agent to send out a demand letter by the 15th of the month, if the payment hasn't come in. Or whatever it is that the board thinks works for their condominium. I think it's important to really communicate with the property managers so that the board is getting what they're paying for, and what they expect, and so that they are no misunderstandings about how arrears are going to be handled. And more than anything else, I think holding managing agents accountable and explaining to them what you want and what you expect will reduce the number of arrear situations that you have in a building. 

[00:18:12] Carol Ott: In your experience, I'm just curious, is there a percentage in general that co-ops and condos have arrears? Is it in general, 3% of their owners are in arrears?

Is there something that a board can judge itself by in terms of how many arrears their particular building is carrying as opposed to the world at large? Do you have any sense of that? 

[00:18:38] Maria Beltrani: You know, that's a hard question to answer because I think it depends on the type of apartment building that we're talking about, and it also depends on where it's located. For example, in the outer boroughs, in Brooklyn and the Bronx, the condos have a lot more cases of arrears than they do in Manhattan, for example, or even Queens. So it's really hard to say. I think the board just simply has to figure that it shouldn't be more than a few apartments at a time, ever.

[00:19:15] Carol Ott: And finally are, do you have any words of advice to boards when they consider what kinds of policies they should have and how it should be overseen?

[00:19:25] Maria Beltrani: A lot of condominiums have considered this issue, and one of the things that they can consider doing is having a policy of fining people. But I find quite frankly, that if someone isn't paying you, more often than not, it's because they cannot. So adding more to the arrears isn't necessarily the best way of dealing with it. I think the best way of dealing with it is to be prompt and to address it before it gets out of hand.

[00:19:59] Carol Ott: Okay. Well that sounds very good advice. And thank you so much for joining us today. 

[00:20:05] Maria Beltrani: You're very welcome, Carol. It was my pleasure.