Co-ops and Condominiums

In a tax foreclosure proceeding, condominium unit owner appealed from Supreme Court’s grant of the motion of the condominium board for distribution of $225,775.91 in surplus proceeds from the foreclosure sale and from Supreme Court’s grant of unit owner’s former spouse’s motion for distribution of $60,831.51 in surplus proceeds to her. The Appellate Division modified to reduce the award to the Board and to deny the award to the spouse entirely.
Beginning some time in 2012, unit owner became delinquent in paying condominium common charges. The condominium board filed liens against the unit in 2014, 2015, 2017 and 2019 covering unpaid common charges dating back to January 2013, and brought a foreclosure proceeding in 2018 which it discontinued once the tax foreclosure proceeding was commenced. Meanwhile, unit owner’s spouse, who had been a partial owner of the unit, obtained a divorce, and the divorce judgment recited that unit owner would be the sole owner of the unit, while unit owner agreed to pay the spouse $85,000. When unit owner did not pay the full amount, the spouse obtained a money judgment for the balance, but the judgment was not entered until after the foreclosure sale. After the referee paid all taxes and other costs associated with the foreclosure sale, the referee delivered $366,759.64 in surplus proceeds to the court, and Supreme Court made distributions to the condominium board and the ex-spouse. Unit owner appealed.
In modifying, the Appellate Division first rejected unit owner’s claim that the condominium’s liens were time-barred. The court noted that the condominium’s claims were based on its 2019 lien, and the claim was made within six years of the lien’s expiration. The court held that the six-year time period refers not to the date the common charges accrued, but to the duration of the condominium’s lien. The court then rejected unit owner’s claim that the condominium board did not mitigate its damages, pointing to the condominium’s 2018 commencement of a foreclosure action. (The court did not determine whether the condominium had any duty to mitigate). But the court did hold that the condominium could not collect any of the common charges dating before January 2013, because that is the first period covered by the liens the condominium had filed. The court emphasized that in the foreclosure proceeding, the board was entitled only to amounts covered by the liens, not other debts owed by the unit owner.
The court then held that the former spouse was not entitled to share in the surplus proceeds because she had disclaimed her interest in the property during the divorce proceeding, and because her judgment against the unit owner was not entered until after the foreclosure sale. As a result, she was only a general creditor.