Before breaking for recess, both houses of the State’s Legislature passed Bill A3470/S7413, which, if signed by the Governor, will impose a new notice requirement, in the least, to be sent to the unit owner or member in arrears prior to commencing a lien foreclosure for unpaid common charges and assessments.  

Many Condominium and HOA Declarations track the current language in the Condominium Act, which states that a lien may be foreclosed “in the same manner as a mortgage foreclosure.”   The Court of Appeals and Appellate Division have deliberated over this provision, which included whether a pre-commencement 90-day notice like the one required by the Bill must be sent to a unit owner or HOA member.  The Court determined those notices unnecessary, mostly because the language in the mortgage foreclosure statute fails to refer expressly to liens and lien foreclosures.  

However, if signed by the Governor, the foreclosure process will require a pre-commencement 90-day notice, and perhaps a host of other notices and procedures likely to slow the process and increase the costs of collection and litigation.  The Bill not only refers to a 90-day notice, but when qualifying the “same manner” language,  goes on to seemingly require that lien foreclosures will have to follow the requirements of RPAPL’s Article 13.   Article 13 governs bank foreclosures, and it includes notice and procedural requirements not currently required of foreclosing Boards.

Compared to RPAPL §1304 – the statute requiring banks to send a 90-day pre-foreclosure notice – the Bill does not require a condominium or HOA lien holder to employ any specific language.  Instead, under the Bill’s current language, a condo or HOA’s 90-day letter will simply have to convey to “the owner that the board intends to file an action for foreclosure to enforce the lien and shall state . . . the specific amount due,” leaving it to the lienor to draft a notice that may or may not hold up to a challenge in court.  Practitioners and Boards are reasonable to ask if these notices should be drafted and served in accordance with RPAPL §1304 since Courts have consistently upheld dismissals of foreclosure actions upon a Bank’s failure to strictly comply with the notice requirement.  

If so, a condo or HOA’s foreclosure action for unpaid assessments could be dismissed due to an error, for example, failing to print the required notice in 14-point font.  The action could also be dismissed for other reasons, including a failure to send separate notices to all owners.  It is worth noting that even if a defendant in a mortgage foreclosure does not raise strict compliance with the §1304 notice requirement in their Answer, the foreclosing Bank’s failure to strictly comply with the notice provision can be raised as a defense anytime during the proceedings until entry of a judgement of foreclosure and sale. It needs to be seen if this defense will also be available to unit owners and members if the Bill is enacted as drafted.   

Article 13 requires not just additional notices, but regulatory filings and settlement mandates.  If the Legislature expects condos and HOAs to follow Article 13 in its entirety, the Courts will likely be left with the task of carving out those directives that are impossible to meet or that conflict with Declaration terms, such as Department of Finance filings, good faith negotiations, and vacant property maintenance.

Unlike a bank’s commitment process, and due to the terms of the Declaration or a lack of funds to exercise a right of first refusal, condos and HOAs generally lack the power to deny a purchase in their association based on a purchaser’s inability to pay common charges or assessments.  The association’s operating funds are limited and contingent on those collected from its members or unit owners.  Ultimately, the new costs resulting from the Bill’s added burdens and lengthier proceedings will likely trickle down to the unit and homeowners.  

The Bill was not delivered to the Governor prior to recess, and it remains unclear if Governor Hochul will request the Bill for further review or signature.    

If you have questions on this or other issues that may impact your coop/condo operations, please contact Beth Gazes at bmg@gdblaw.com or 212-935-3131.