Condo Fee Defaults Surge in Manhattan

A precipitous rise in the number of condominium owners who are defaulting on their common payments, an important indicator of future foreclosures, is being reported.

Much has been said about Manhattan's perceived real estate invincibility in the aftermath of the subprime meltdown, but lawyers representing dozens of condominium boards in some of the city's wealthiest neighborhoods say they are seeing these default cases increase as much as 25% this year.

"There has been a very substantial increase of cases involving condominiums," a lawyer who is the president of the Council of New York Cooperatives and Condominiums, Marc Luxemburg, said.

Monthly common charges, which include general upkeep costs for the common area of a building and often reach into the thousands of dollars, can be the first indicator of foreclosures because homeowners stop paying them if they are having trouble with their mortgages.

During the last housing downturn in the early 1990s, there was a similar increase in defaults preceding numerous foreclosures, Mr. Luxemburg said.

"This could be an indication that something larger is going on," a partner at Breier Deutschmeister Urban & Fromme, Lisa Urban, said. Last year at this time, she had one such case of a default on common charges; now, she has seven.

A partner at the firm Belkin Burden Wenig & Goldman, Aaron Shmulewitz, said he has seen a 25% increase since the beginning of the year.

Buildings where condo liens are being processed include a nine-story apartment building at 2 South End Ave. in Battery Park City; a 12-story building at 114 E. 13th St. in Greenwich Village; a 27-story building at 420 E. 58th St. on Sutton Place; a 32-story building at 40 E. 94th St. on the Upper East Side, and a seven-story building at 205 E. 22nd St. near Gramercy Park. Calls to many of the managing agents that represent these buildings were not returned.

When a condo owner stops paying the building's common charges, the condo board files a lien to begin foreclosure proceedings. Liens are rare, as condo boards often end up negotiating with the owner out of court. Recently, however, condo boards are having a tougher time resolving such issues.

Mr. Luxemburg said that defaults on common charges have become so numerous that he is planning to discuss the problem at length at his organization's Annual Housing Conference next Sunday.

A senior management executive at Lawrence Properties, which represents 420 E. 58th St., Fred Balic, said that negligent tenants tend to let common charges accrue for months and sometimes years unless a lien is filed.

While most foreclosures are now in marginal neighborhoods, it may be just a matter of time before wealthier neighborhoods get hit.

In the third quarter, foreclosures in Queens rose 69% over last year to 2,702, according to real estate firm RealtyTrac. The Bronx saw filings surge by 43%, to 1,011, while in Brooklyn they were up 31%, to 2,498. In Manhattan, there was a 14% increase in foreclosures, to 402.

"Sometimes these things trickle down to people you don't think would be affected," the president of a foreclosures publication, Profiles Publications Inc., Jessica Davis, said. "Increases in defaults on common charges would be an early indicator of worse things to come. We haven't seen the end of this yet."