Cooperatives & Condominiums

Condominium's Failure to File Notice of Lien Precludes Sharing in Surplus Proceeds

Mortgage Electronic Registration Systems, Inc. v. Levin

NYLJ 6/26/09, p. 43, col. 3

AppDiv, Second Dept.

(memorandum opinion)

In a mortgage foreclosure action, unit owner/mortgagor appealed from Supreme Court's denial of his motion to reject that part of a referee's report recommending that surplus moneys be distributed to the condominium association. The Appellate Division reversed, holding that the condominium's failure to file a verified notice of lien deprived the condominium of a basis to obtain surplus proceeds.

Unit owner defaulted both on his first mortgage and on his common charges. After the foreclosure sale, the condominium sought $16,031.65 from the surplus proceeds generated by the sale. The referee recommended payment of the money, and Supreme Court, over unit owner's objections, confirmed that recommendation. Unit owner appealed.

In reversing, the Appellate Division conceded that RPL section 339-z establishes a statutory lien for unpaid common charges in favor of the board of a condominium. But the court relied upon RPL section 339-aa, which provides that such a lien does not become effective until a verified notice of the lien is filed in the office of the appropriate recording officer. Because the condominium in this case never filed such a lien, the court concluded that the condominium had no basis for claiming a share of the surplus proceeds.

Association Exceeded Its Authority in Enacting
Leasing Restrictions

Strathmore Ridge Homeowners Association v. Mendicino

NYLJ 6/30/09, p. 41, col. 6

AppDiv, Second Dept.

(memorandum opinion)

In an action by a homeowners association for a declaration that leases executed by homeowners were void for failing to comply with leasing restrictions, the association appealed from Supreme Court's dismissal of the complaint and denial of its motion to dismiss a counterclaim asserted by the homeowners seeking a declaration that the leases are valid. The Appellate Division modified to declare that the subject leases are valid because the board had exceeded its authority in enacting the leasing restrictions.

The homeowners association had enacted amendments to its bylaws restricting the right of unit owners to lease their units. When unit owners executed leases in violation of the restrictions, the association brought this action for a declaration that the leases were invalid. The unit owners counterclaimed to have the bylaw amendments set aside, contending that the board lacked power to amend the bylaws without first amending the association's declaration of covenants, restrictions, easement, charges and liens. Supreme Court awarded summary judgment to the unit owners on so much of their counterclaim as was for a declaration that the leasing restrictions were invalid. The association appealed.

In modifying, the Appellate Division held that the unit owners demonstrated that the association had exceeded the scope of its authority in enacting the bylaw amendments without first amending the declaration. As a result, the association could not rely on the business judgment rule, which is inapplicable when a board exceeds its authority. The court modified only to hold that the judgment below should have included a declaration in favor of the unit owners on the association's claim that the leases were void.

Condominium's Failure to File Notice of Lien Precludes Sharing in Surplus Proceeds

Mortgage Electronic Registration Systems, Inc. v. Levin

NYLJ 6/26/09, p. 43, col. 3

AppDiv, Second Dept.

(memorandum opinion)

In a mortgage foreclosure action, unit owner/mortgagor appealed from Supreme Court's denial of his motion to reject that part of a referee's report recommending that surplus moneys be distributed to the condominium association. The Appellate Division reversed, holding that the condominium's failure to file a verified notice of lien deprived the condominium of a basis to obtain surplus proceeds.

Unit owner defaulted both on his first mortgage and on his common charges. After the foreclosure sale, the condominium sought $16,031.65 from the surplus proceeds generated by the sale. The referee recommended payment of the money, and Supreme Court, over unit owner's objections, confirmed that recommendation. Unit owner appealed.

In reversing, the Appellate Division conceded that RPL section 339-z establishes a statutory lien for unpaid common charges in favor of the board of a condominium. But the court relied upon RPL section 339-aa, which provides that such a lien does not become effective until a verified notice of the lien is filed in the office of the appropriate recording officer. Because the condominium in this case never filed such a lien, the court concluded that the condominium had no basis for claiming a share of the surplus proceeds.

Association Exceeded Its Authority in Enacting
Leasing Restrictions

Strathmore Ridge Homeowners Association v. Mendicino

NYLJ 6/30/09, p. 41, col. 6

AppDiv, Second Dept.

(memorandum opinion)

In an action by a homeowners association for a declaration that leases executed by homeowners were void for failing to comply with leasing restrictions, the association appealed from Supreme Court's dismissal of the complaint and denial of its motion to dismiss a counterclaim asserted by the homeowners seeking a declaration that the leases are valid. The Appellate Division modified to declare that the subject leases are valid because the board had exceeded its authority in enacting the leasing restrictions.

The homeowners association had enacted amendments to its bylaws restricting the right of unit owners to lease their units. When unit owners executed leases in violation of the restrictions, the association brought this action for a declaration that the leases were invalid. The unit owners counterclaimed to have the bylaw amendments set aside, contending that the board lacked power to amend the bylaws without first amending the association's declaration of covenants, restrictions, easement, charges and liens. Supreme Court awarded summary judgment to the unit owners on so much of their counterclaim as was for a declaration that the leasing restrictions were invalid. The association appealed.

In modifying, the Appellate Division held that the unit owners demonstrated that the association had exceeded the scope of its authority in enacting the bylaw amendments without first amending the declaration. As a result, the association could not rely on the business judgment rule, which is inapplicable when a board exceeds its authority. The court modified only to hold that the judgment below should have included a declaration in favor of the unit owners on the association's claim that the leases were void.