The Governor recently signed Bill A3470/S7413, requiring that condominium Boards provide a pre-commencement 90-day notice to unit owners against whom a lien foreclosure will be commenced. This new mandate was effectuated by amending §339-aa of the Condominium Act. The legislation also adds that such foreclosures shall be brought “pursuant to article thirteen of the real property actions and proceedings law.” As a result, the amended law may demand a host of other notices and procedures which will slow the process and increase the costs of collection and litigation. 

Article 13 of the Real Property Actions and Proceedings Law governs bank foreclosures, and it includes notice and procedural requirements not currently required of foreclosing Boards.

Section 1304 of that Article maintains its own 90-day notice requirement instructing banks to send notices containing statutory language in specific font size. The new provision of §339-aa, however, does not require a condo Board to employ any specific language. Instead, under the law’s new language, a Board’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 §1304 notice requirement. 

If so, a condo’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 under this new law. 

Article 13 requires not just additional notices, but regulatory filings and settlement mandates. If the Legislature expects condominiums 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.

The legislation also creates a new Article 20-A within the Real Property Actions and Proceedings Law. This new law mimics the language added to §339-aa and applies it the Boards of homeowner associations -- but without any reference to Article 13. HOA lien foreclosures are generally litigated under the same decisional law controlling condominium foreclosures. The omitted reference to Article 13 in the new 20-A will likely lead to new questions of law.

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 new laws’ added burdens and lengthier proceedings will likely trickle down to the unit and home owners. 

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.