Published: Autumn 2012

CNYC thanks M.H. Fryburg, Esq. for the following guest article. Mr. Fryburg is of counsel to the White Plains law firm of Himmelfarb and Sher, LLP).

In the wake of the financial crisis of recent years, many condominium owners have been unable to keep up their payments of mortgages and carrying charges. If the unit owner ceases making both payments, the lien of the bank precedes the lien of the condominium.

Delinquent owners often live on in the condominium without paying any fees, and, when the unit is finally sold, the proceeds are less than what is owed to the bank. In such cases, the condominium will never be made whole for the lost common charges. This situation is aggravated when many banks foreclose their loans but then delay the sale of the units, causing condominiums to lose more months of carrying charges. Mr. Fryburg's firm reports below on its success in forcing banks to pay carrying charges.

Two Westchester condominiums have gotten court orders requiring dilatory foreclosing banks to proceed expeditiously with foreclosure sales, or pay the condominiums the common charges due on the units. These two orders, decided by two different Westchester County Supreme Court justices, have broken new ground in asserting that condominiums are legally entitled to be paid common charges by dilatory first-mortgagee banks that are foreclosing on condominium units.

The fallout from the mortgage foreclosure crisis – when overvalued condominium units were mortgaged by unit owners who couldn't afford to pay the mortgages – is now trickling down and leaving condominiums unable to collect common charges from units that are being foreclosed by banks holding first mortgages. Under the Condominium Act, banks that take first mortgages on condominium units have priority over condominiums that foreclose on condominium liens for unpaid common charges.

The problem is that some banks begin mortgage foreclosure actions against condominium units, but then don't move the cases along. While the mortgage foreclosure cases are pending, the unit owners have no incentive to pay the condominium common charges, and the foreclosing banks aren't legally obligated to pay the common charges while the foreclosure case is pending.

Working to expedite recovery of carrying charges for its clients, Himmelfarb & Sher has won motions, in two different mortgage foreclosure cases, to force dilatory banks to proceed with foreclosure sales.

In one unreported case, the foreclosing bank had obtained a judgment of foreclosure, but then scheduled and cancelled a foreclosure sale eight times. On July 7, 2011, in HSBC BANK USA v. Mendes (Westchester County Supreme Court Index No. 14312/08), Justice Joan Lefkowitz ordered the foreclosing bank, which had obtained a judgment of foreclosure but refused to hold a foreclosure sale of the condominium unit, to sell the unit within 90 days, holding, "A foreclosure proceeding is one in equity and [the condominium] is entitled to have the matter concluded within a reasonable time." The condominium hadn't been paid common charges while the foreclosure case was pending, but the bank couldn't complete the foreclosure sale within the 90 days that Justice Lefkowitz ordered, and is now paying the condominium common charges each month, until a foreclosure sale is held.

In another unreported case in Westchester Supreme Court, JP Morgan Chase Bank v. Malik (Index No. 15079/09), the foreclosing bank, which has a first mortgage on the condominium unit, was ordered by Justice Mary Smith (on June 27, 2012) to proceed expeditiously to obtain a judgment of foreclosure and then hold a foreclosure sale. In that case, Justice Smith ruled, "Delay in this foreclosure sale… being conducted beyond a sixty (60) day period … which delay is solely occasioned by the plaintiff [foreclosing bank] may, upon this Court's receipt of an affidavit from [the condominium] containing averments of plaintiff's delay, result in this Court's issuance of an Order directing that [the foreclosing bank] be held … liable for newly accrued monthly carrying charges owed to" the condominium.

It took two motions in the Malik case to force the foreclosing bank to proceed with the foreclosure action and sale; the bank 's attorneys are now moving forward to sell the unit.

New mortgage foreclosure rules adopted by the New York State Office of Court Administration require attorneys for the foreclosing banks to submit affidavits of regularity, attesting that the mortgage foreclosure rules have been complied with, which is further delaying an already drawn-out mortgage foreclosure process.

The "Great Recession" that began in 2008 and continues today has directly affected condominiums' bottom lines. Unit owners facing foreclosure have no incentive to pay the condominium common charges.

The two cases described above, demonstrate that condominiums can force foreclosing banks to proceed, expeditiously, with foreclosures. Information about other condominium unit foreclosure cases will help discern how widespread the problem of dilatory foreclosing banks is. Please alert CNYC or Mr. Fryburg (by email: mhfryburg@ yahoo.com or phone: 914-629-0855) to other cases where banks have started foreclosures against condominium units and then not followed through with them. By acting together to force dilatory banks to proceed with mortgage foreclosure cases, condominiums can improve their bottom lines.