Problems with Condominium Delinquencies

When one of the condominiums at Stanton Gardens a 150-unit complex in Winchester, fell victim to foreclosure last month, its owner left behind more than an unpaid mortgage. He also owed the condo association $8,000 in fees and legal expenses.

The association, which has sued the man and his lender to collect the overdue balance, believes it eventually will get its money. But until it does, the complex has delayed small repairs, such as fixing broken doorbells, to focus on bigger issues, like landscaping.

The foreclosure crisis sweeping the country is affecting more than the people losing their homes; it is also ensnaring their neighbors. When condo owners facing foreclosure stop paying their fees for shared costs such as maintenance and insurance, condo associations struggle to pay bills. And sometimes other condo owners are forced to pay higher fees to cover their neighbors’ debts.

In large complexes, unpaid fees may have minimal impact because reserve funds can make up for the shortfall or because the overdue amount is divided among so many units. But in small complexes, such as two- and three-family homes converted into condos, one unit’s unpaid bills can take a toll on other owners’ wallets.

But these condo owners have recourse: Unlike during the last real estate slump of the early 1990s, when some condo associations were ruined financially by unpaid fees, Some states such as Massachusetts now make it easier for condos to recover delinquencies. That has helped reduce the number of condo owners becoming saddled with the debts of a neighbor.

The “super lien” law, adopted in 1992, enables condo associations to collect at least six months worth of unpaid fees per unit in the event of a foreclosure. By giving condo associations a so-called priority lien on financially distressed units, it also places them in line ahead of lenders to collect outstanding debts.

Before the law was passed, a condo association could secure a lien on a delinquent unit, but if a bank foreclosed, the bank would receive its money before the association did when the property was subsequently sold. That often meant the association never received any money at all.

Typically, when a homeowner falls behind on condo fees by at least 60 days, the condo association or its lawyer sends a reminder letter to the owner and lender. At that point, many owners work out payment plans or the lender steps in and pays the delinquent amount. If the situation isn’t resolved after a second letter, the association will sue both the owner and lender. That lawsuit gives the association “priority lien” status.

Then, when the unit is sold by the owner or at a foreclosure, the delinquent fees are paid to the association from the sale proceeds.

If condo associations don’t begin debt-collection efforts promptly, they risk getting stuck with the overdue fees. When that happens, they may have to levy special assessments, increase condo fees, dip into reserve funds, or use operating budget emergency money.

The effect of a unit owner not paying condominium fees is to create a large burden on innocent unit owners. No one in a single-family home is obligated to pay his neighbors’ debts and condo owners should not have to pay their neighbors’ debts either.