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Condominium owners around the state face potentially higher fees as the result of a recent Superior Court ruling that limits dramatically the responsibility banks have to pay condo common charges in foreclosure cases.
New Haven Superior Court Judge Michael G. Maronich ruled that condo associations are limited to six months in fees that they can force banks to pay in case of a foreclosure.
That means that if it takes three years for a bank to complete its foreclosure, the rest of the unit owners in the complex will have to pay higher common charges for two and a half years to make up for the loss.
While a large complex with 100 or more units might be able to absorb one or two lengthy foreclosures, small complexes could be devastated.
"A complex with only six units would lose one sixth of its income," said Hamden attorney Kristie Leff, who represents Lake Ridge Condominium Complex in Meriden, with 56 units, which lost the ruling to Bank of America.
That November ruling ran counter to what the actual practice had been in Connecticut where banks traditionally paid all the condo fees that had accrued.
That practice goes back to 1984 when state condo laws were established, including giving associations first priority for up to six months of common charges in case of bank foreclosure.
The only known exception was in 1995 when a bank insisted that state condo laws limit to one six-month charge it had to pay the association. The bank won the case as the judge ruled that once six months in fees were paid, the bank had no further responsibility to the association.
Despite that ruling, other banks did not follow suit and continued the practice of making condo associations whole, said Leff and other attorneys who represent associations.
The issue may not have been important years ago when there were few foreclosures and most of them took only a few months to complete.
But now, because of the housing market meltdown, thousands of foreclosures, improper bank court filings, and the huge losses faced by banks, it can take years instead of months to complete a foreclosure.
Banks may also benefit by delaying taking title to a property to avoid having to pay the common charges.
Other banks are paying attention to Maronich's ruling.
According to lawyers representing condo associations, banks are filing legal challenges to associations attempting to collect more than six months of fees. Leff says she is aware of at least 12 such challenges, none of which have been resolved.
Bank of America declined to comment.
Leff says Maronich misinterpreted the six-month priority lien provision of the condo laws. Maronich's ruling says that no matter whether the association files for foreclosure or the bank files, the maximum that an association can force a bank to pay is six months.
Leff says the six-month priority lien should only apply when a bank forecloses and not when a condo association files legal action to collect its fees.
If other judges agree with Maronich's ruling, "it will have dire consequences" said Leff.
Appealing Maronich's ruling or another ruling that goes against associations will be difficult because of the high cost of an appeal, she says. Plus, the losing side can be forced to pay the legal costs of the winner.
"Condo associations don't have the big bucks to fight the banks," said Leff.
The Community Associations Institute of Connecticut, which represents associations, condo lawyers and property managers, is seeking donations to mount an appeal and is also seeking legislation that would protect condo associations in cases where unit owners stop making payments on their mortgages and for their common charges.