Court Upholds Condominium’s Foreclosure of Unit and Ejectment of Owner for Failure to Pay Common Charges
An appellate court has upheld a Condominium Board’s actions in foreclosing on a unit for protracted failure to pay common charges, as well as the owner’s ejectment from the unit. Heywood Condominium v. Wozencraft, 2017 N.Y. App. Div. LEXIS 255, 2017 N.Y. Slip Op. 257 (1st Dep’t Jan. 12, 2017).
This case involved what the court described as “a rare occurrence – the eviction of a condominium unit owner from his apartment for failure to pay condominium common charges and rent.” At the outset of its opinion, the court observed that compared with cooperatives, condominiums “are far less empowered to deal with difficult condominium owners.” However, “the Condominium Act and the applicable bylaws for the subject condominium authorize a lien for unpaid common charges and permit a lien foreclosure and an action for the appointment of a receiver where appropriate,” which can ultimately result in eviction.
The unit owner in this case ceased paying his common charges and assessments in 2007. The Board of Managers invoked a house rule authorizing the termination of nonessential services, such as doorman services and receipt of deliveries, to a unit owner who is more than 60 days in arrears. In addition, the Board begin assessing late charges, interest, and attorneys’ fees incurred in its efforts to collect the unpaid charges.
In 2011, the Condominium sued the unit owner in State Supreme Court, seeking money damages and other relief. The owner counterclaimed that the Condominium had breached its obligations by failing to provide proper services. After the court denied both parties’ motions for summary judgment in this action, the Condominium recorded a lien for more than $210,000 against the unit in the Office of the City Register, of which approximately $70,000 was for late fees and $63,000 for attorneys’ fees. The Condominium then filed a new lawsuit seeking to foreclose on the unit, obtain money damages and attorneys’ fees, and for the appointment of a receiver. After a hearing, a judicial hearing officer recommended that a receiver be appointed unless the unit owner agreed to pay all common charges going forward, and to pay the amount claimed for past-due common charges into escrow pending resolution of the litigation.
The court upheld this recommendation and appointed a temporary receiver for the unit, who was authorized to collect “the reasonable fair market rent of $6,500” per month from the owner for his ongoing use and occupancy. The receiver was also authorized to institute any necessary legal proceedings, including ejectment proceedings. The unit owner still refused to pay anything. Approximately six months later, the receiver moved for a writ evicting the owner from the unit. The court granted the motion and authorized the owner’s eviction, although the order was stayed pending appellate review.
In its decision, the appellate court held that the Condominium had properly asserted its claim to foreclose on its lien against the unit. The court specifically rejected the unit owner’s contentions that the lien was improper and “fraudulent” because it included attorneys’ fees, late fees, and interest. The Condominium Act (Real Property Law § 339-z) provides that “[t]he board of managers, on behalf of the unit owners, shall have a lien on each unit for the unpaid common charges thereof, together with interest thereon.” Moreover, the By-Laws of this condominium specifically authorize the imposition of interest, late fees, and attorneys’ fees and provide that “all such fees will constitute a lien on the unit.” The court directed that another hearing should be held before a referee to address the unit owners’ disagreements with the specific amounts due.
The appeals court dismissed the Condominium’s cause of action for money damages asserted in its second (2013) action, solely on the ground that the first (2011) action asserting the same claim was still pending, and a party should not be allowed to seek the same money judgment in two actions simultaneously.
Turning to the appointment of the receiver, the appellate court observed that both the Condominium Act (Real Property Law § 339-aa) and the By-Laws “provide for the appointment of a receiver in a lien foreclosure action to collect the reasonable rent.” The receiver’s appointment was justified because “there [was] no evidence that defendant ever attempted to place the common charge arrears in escrow, despite having more than 18 months to do so following confirmation of the [Judicial Hearing Officer’s] Report.” The requirement that the unit owner pay reasonable rent while his unit was in receivership was expressly authorized by the statute, and the rent amount of $6,500 was reasonably calculated based on comparable rentals in the Condominium. The unit owner’s additional arguments, including his contention that the issuance of a writ of assistance to bring about his eviction would be “unconstitutional,” were also rejected.
This case is a reminder that condominiums faced with recalcitrant owners who refuse to pay their common charges and assessments, or who otherwise fail to live up to their obligations, should consult their legal counsel to determine the best legal strategy to protect themselves and their other unit owners. Ganfer Shore Leeds & Zauderer, LLP has represented the Condominium on certain counterclaims not involved in this appeal.