Vigilence is the Price of Security: Using All Collection Tools Available to Condominium Associations

New Hampshire affords condominium associations several tools to collect delinquent special and monthly fee assessments from unit owners. This article summarizes an association’s statutory remedies, which must be carefully implemented in order to effectively collect fees from a delinquent owner.

New Hampshire law was amended in 2010 to allow condominium associations to gain a limited six month “super priority” lien over first mortgage lenders. This was an important development: prior to the change in the law, defaulting unit owners with mortgages were relatively safe from drastic collection efforts (such as a sheriff’s sale to enforce a condominium lien) as the condominium lien was subordinate to the first mortgage. Any sheriff’s sale to enforce a condominium lien would therefore sell a unit still subject to the first mortgage, and thus not usually lead to any payment toward the fee arrearage.

The amendments to the Condominium Act allow condominium associations to gain a lien for six months of fees and attendant attorney’s fees with priority over the first mortgage, provided proper procedures are observed. This often leads to a mortgage lender paying the arrearage in order to maintain its priority secured status. In order to properly exercise this remedy, however, the condominium association needs to strictly adhere to the procedures in the statute, and vigilantly exercise these procedures whenever an arrearage exists: otherwise, the association risks challenges to the priority status of the lien, and/or the lien will not secure all of the arrearage.

A condominium may also terminate common privileges and services normally supplied by the association. This can take several forms: if parking, water or electricity is provided by the association, the association may be able to exercise significant leverage by terminating a unit owner’s privileges to use those common areas or services. It is imperative, however, that an association strictly follows the notice procedures set forth in the statute, or otherwise risk liability associated with the termination of services, or an allegation of unfair debt collection practices.

Following the notice procedure, an association can also direct a delinquent unit owner’s tenant to pay rent directly to the association to satisfy the arrearage. In addition to having strict notice procedures, however, the statute requires that an association ratify and assume the association’s power to reach and apply a tenant’s rent: that is, while some collection remedies are available notwithstanding the terms of the condominium declaration bylaws, the rent application statute requires an affirmative vote to adopt this power.

Given the complicated nature of exercising these remedies, condominium associations are encouraged to engage counsel early in the delinquency. Indeed, caselaw issued by the New Hampshire Supreme Court as recently as late 2016 underscores the complicated interrelationship between these remedies, and emphasizes the need to exercise a condominium’s collection techniques correctly, and in a timely manner. Our experience is that banks will pay condominium fee arrearages and association attorney’s fees on behalf of the unit owner/borrower so long as the appropriate procedures are observed. Since attorney’s fees are often paid by mortgagees, it is normally cost-effective to engage counsel to implement the sometimes complicated statutory tools at a condominium’s disposal.