I've summarized the consequences before, but what would actually happen if you failed to pay your condo fee? The process is somewhat complicated, though the conclusion is simple. The condo association will get its money, with you incurring a lot of extra expense.
That’s because, under Massachusetts law, the condo association has all of the bargaining power and the legal rights. You’ll be on the hook for the overdue fees, penalties, interest, and legal collection costs. So, if you’ve fallen behind in payments, here’s what you’ll face --
The Steps to Collection.
Once you’ve fallen behind, the late fees and interest start accruing. The exact amount varies greatly condo-by-condo so check your condo documents for details.
Once 60 days has passed, the legal collection activity can start. This begins with a formal notice, usually sent by an attorney. Your mortgage lender will also get a notice. At this point, you’ve likely already incurred legal collection costs.
Typically, the next notice comes 30 days later. This is the final warning before your case heads to court.
After another 30 days, the condo association can file a complaint in court. By this point, you’ve incurred significant legal fees. It’s not unusual for the additional fees (penalties, interest, & legal) to far exceed the original overdue amount by the time you're in court.
The Superlien and Your Mortgage Lender.
Even if you have no equity in your condo unit, the condo association’s claim is secure. That’s because of the state’s “superlien” law. This gives high priority to the association’s claim for all dues for the six months preceding the action, including all of the collection costs and penalties.
Simply put, the lien created by the overdue fees outranks most other liens, including your mortgage. That’s why the association sends letters to your mortgage lender. Their security interest is in jeopardy, and they are therefore owed warning.
In a growing number of cases, the mortgage lender will actually pay the amount owed on your behalf. That puts them in control of the debt and stops the legal fees from accruing in the lawsuit. Of course, the mortgage lender will turn to you for repayment – or worse.
The “Pay First” Rule.
Condo associations are far from perfect. Many are mismanaged. Some engage in unfair behavior. This never limits their ability to collect, however. This is because of the “pay first” rule.
Just like a tax, you are expected to pay the amount demand it and then challenge it afterward. It may seem unfair, but that’s the rule. Failure to pay – even an ultimately overturned fee or assessment – will likely leave you with a large collection cost. This means that intentional withholding out of protest is always a bad idea.
The Ultimate Consequences.
Failure to pay will leave you with a much greater debt than you may first expect. That debt, like most other real estate debts, could be ultimately recovered through foreclosure. Condo associations themselves, after going through a court case, can foreclose. Your mortgage lender can, too. Even if you’ve never missed a condo payment in your life, your mortgage lender can foreclose to protect itself from the superlien.
What you can do.
While the condo association has the better position, there are some actions you can take to minimize the damage.
Deal with overdue payments right away. If you’re falling behind, take action or get help asap. The serious costs begin after 60 days has passed. That gives you two months to make a deal, seek help, or consult an attorney. Ignoring the problem will make the matter much worse.
Enter a repayment plan. Even if you contest the debt, negotiate a repayment plan with the association. By doing so, you’ll stop the additional collection charges. Then, you can take action for your grievances and disputes.
Make some tough choices. If you’re not going to afford the condo fees for the foreseeable future, there are some difficult decisions to make. Just as a sale or short sale helps somebody facing a bank foreclosure, an exit plan may save your equity and your credit.