If a unit owner has trouble making mortgage payments, can non-payment of condo fees be far behind? In what feels almost like a “tough love” scenario, experts are encouraging condo boards to be proactive about collecting late fees, even though New England communities have not been hit as hard as those in other parts of the country.
David A. Levy, CPA, of Brookline, Massachusetts, advises condo boards to “keep a close eye on ‘aging reports’” that reveal how long it is taking to collect the revenue needed for regular maintenance as well as long-term, capital expenditures. He is personally observing situations where “an association may be on-budget, but receivables are growing… from 30 - 60 days out to 60 - 90 days.” This trend has not been as severe in New England as in other regions, he says. “I’m reading about it [foreclosures] but I’m not seeing it first-hand.” He contends that condominium communities in this area may be more well-established, and notes that, “owners with a lot of equity are not going to default on their mortgages.”
However, Levy points out that associations have no way to know the status of mortgage payments by unit owners, which might serve as a warning bell. “If they’re not paying their mortgage they’re probably not paying their condo fees either,” he states, adding, “While the bank or mortgage company is settling up with the homeowner, [such as] re-writing the note or starting foreclosure, will [either party] pay the condo fees?”
If a condo sale or re-financing of a mortgage is pending, a 6-[d] certificate will be required at the closing, Levy notes. This is essentially a document obtained from the Board of Trustees that states all fees, fines, assessments or other monies due to the association are paid up. This assurance of fee payment only applies when there is a buyer. In the case of a pending foreclosure, the association fees may get lost in the line-up of creditors.
In most states, community associations have no special status when a unit owner stops paying maintenance fees. But in Massachusetts, the state’s condominium statute includes a so-called “super-lien” provision (Chapter 400 of Mass. General Laws 183A), that allows the association to assume the position of first lien-holder on a property about to default.