The Daily Ramble: What Happens If You Do Not Pay Your Maintenance Charge In A Coop?
In the current economy it should come as no surprise that there are coop shareholders that are having difficulty in paying their maintenance charge. Maintenance has risen well above the rate of inflation on the past few years in most buildings, due largely to the increase in fuel prices real estate taxes and insurance. Combined with the current economic realities and it is a recipe for some significant problems for a Cooperative Corporation.
The New York Times recently had a question about this subject, and their answer, albeit accurate, was incomplete. They made the point that the shareholders in the building have to essentially ‘make up” the shortfall of the resident who does not pay. In theory this is correct, even more so in a small building. In reality, unless there are many shareholders delinquent, a couple of late payments will not be that disruptive.
What the Times failed to discuss in its answer is the REAL remedy afforded coops and banks should a shareholder default due to non payment of maintenance. Prior to closing the purchaser signed a form known as an AZTECH or recognition agreement. Simply put the AZTECH recognizes that the lender is responsible for the payment of maintenance and will pay the outstanding balance in event of default.
Like everything in life however, it never is that simple! If there is a forced sale of the property by the bank, the coop will generally not get paid until the closing. Since evictions can be dragged out the corporation may have to wait for a while. But they WILL be made whole. That is the key, little risk.
The seller should always keep in mind that coop loans are full recourse; that means the borrower is personally liable. If you default, the bank is coming after you for any deficiency that may exist after a forced sale. Conversely if you are lucky any overages (after exorbitant fees) are paid to the shareholder.
So the practical reality is if you have a mortgage, the building will always get paid, albeit not immediately. If you have no mortgage and default, expect the coop to come after you for the past due balance, and trust me, they will get their pound of flesh. J
