New York Law Journal
"Priority of Liens—Evolving Rules For Condominiums and Lenders"
Cooperative housing corporations have a first lien on the shares and appurtenant proprietary leases for co-op apartments. As a result, in the event of a foreclosure (whether initiated by the co-op to collect maintenance arrears or the holder of a share loan/mortgage on an apartment), the co-op will receive from the proceeds generated by the sale of the apartment the amount owed to it for unpaid maintenance charges before payment of any portion of the outstanding balance of the loan owed to the apartment owner’s lender. However, a condominium association (HOA), unlike a co-op, does not have a first lien for unpaid common charges on condominium units. Therefore, when a unit owner defaults on the payment of common charges and the mortgage on the unit, the HOA’s lien for common charges is junior to the “first mortgage of record against the premises.”
This column examines the conflicts that often arise in a foreclosure proceeding, as between an HOA seeking to recoup unpaid common charges, and a unit owner’s lender attempting to maximize the amount of and recover its first mortgage of record—all in light of significant recent case law.