Monday, June 14, 2010

Upstate judge puts condo common charge arrearage in first position

By:  Kate Cavallaro

In an Orange County, New York, action to foreclose a mortgage on an unoccupied residential condominium unit, Judge Bartlett granted interlocutory relief to the defendant Board of Mangers of the condominium boars (“Board”). The relief sought by the Board was the appointment of a receiver of the unit in question with directions that the receiver rent the unit and apply the proceeds of the rental first to the payment of current common charges and then to the reduction of the mortgage.    Plaintiff, U.S. Bank National Association (“Bank”) opposed the application claiming that the proceeds should first be applied to the mortgage and that any remaining funds should then be applied to common charges and junior liens.  The court notes that CPLR § 6401 permits the appointment of a receiver to an applicant when the applicant has an apparent interest in the property at issue and the property is in danger of being lost, destroyed or materially injured.  Further, the Court notes that as a junior lienor the Board, has an interest in the property and therefore has the necessary standing to apply for a receiver in a foreclosure action.  The point at issue in this matter is whether the cost of the condominium common charges that are accruing while a foreclosure action is pending can be paid without first applying the rents to the reduction of the first mortgage.  The Court states that in determining whether to provide for the payment of condominium common charges from rents while a mortgage foreclosure action is preceding it must consider two factors. First, the “prejudice, if any to be suffered by the holder of the first mortgage, and” secondly, “how to balance that against the harm being suffered by the Board which is being compelled to carry the cost of maintaining the unit during pendency of this action.”  In weighing these considerations the Court concluded that payment of common charges is “consistent with the receiver’s obligation to preserve the premises under RPAPL § 125(2).”  Due to the “inter-relationship a condominium unit has with the common areas of the building and the building structure as a whole” the payment of the common charges help sustain the individual unit and if these charges remain unpaid the market value of the unit would decline.  “By seeking the appointment of a receiver the Board is preserving the asset by maintaining the building in which the unit is located. The consequences of the bank’s position would work an injustice and sanction economic waste.” The Court states that “it is in the interests of all parties that unnecessary unpaid common charges not accrue.”  In granting the Boards application the Court did add that the Board is to settle on an order on notice that would specify the limitations on the receiver’s authority to collect rents and monies. 

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