Q&A: Shareholders in Arrears

Q I am a condo board member and we are dealing with a shareholder who is consistently behind in his arrears. We are considering filing a lien against the delinquent owner and foreclosing. Is this our best course of action?

—Concerned Board Member

A “Since you say that the delinquent owner is a ‘shareholder,’ I am assuming that this involves a cooperative,” says attorney J. David Ramsey, of the Woodbridge-based law firm of Greenbaum Rowe Smith & Davis, LLP. “If so, you have a number of alternatives available to you. The cooperative presumably has an occupancy agreement (or lease) with the shareholder. Currently, in New Jersey, an interest in a cooperative apartment is considered a personal property interest, not a real property interest. As such you would not file a lien.

“You have two courses to pursue. One would be to pursue a personal money judgment against the delinquent shareholder. Once the judgment is obtained your attorney may garnish the delinquent shareholders wages, seek the identity of any bank accounts or other assets, and execute upon them. If your occupancy agreement and bylaws are well-written, any costs incurred in the collection of delinquent fees should be added to the judgment and be collectible against the delinquent shareholder.

“Alternatively, or following obtaining a money judgment, your cooperative may pursue an action in court to force the surrender of the delinquent shareholder’s stock and obtain possession of the apartment. In legal terms this is called an ‘ejectment’ action. Even if removed from the apartment, if the cooperative has obtained a judgment, it can still collect on the judgment.

“One further issue to be aware of is whether the cooperative has executed an agreement with an institution that provided a loan to the delinquent shareholder. This agreement is known as a ‘Recognition Agreement.’ It requires the cooperative to notify the lender of any defaults under the occupancy agreement or lease, and give the lender an opportunity to cure the default.”

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