In New Jersey, condominium associations often face an uphill battle when trying to collect on delinquent owners’ accounts. A recent decision out of the New Jersey Chancery Division marks another setback in this regard, as it held that an association was not entitled to the appointment of a rent receiver to collect and forward rents associated with a unit that was in foreclosure. If nothing else, this decision emphasizes the importance to condominium associations of including appropriate collection and remedial provisions in their governing documents.
In Paddington Square at Mahwah Condominium Association, Inc. v. Sanzari, a unit owner defaulted on its mortgage, and both the first mortgage-holder and the condominium association initiated foreclosure proceedings. At the same time, the condominium association moved for the appointment of a rent receiver to forward any rents collected on the unit by the unit owner to the association. However, the court denied the association’s request because: (1) the association’s governing documents lacked any specific provision for the appointment of a rent receiver; (2) the governing documents did not require the unit owner to rent his unit to a tenant; (3) no tenant currently occupied the unit; and (4) the association failed to give notice to the first mortgage-holder, which had also foreclosed on the unit. What this decision makes clear is that, in communities where unit owners are permitted to rent their units, associations should ensure that the governing documents authorize the association to seek the appointment of a rent receiver in addition to foreclosing on a unit in the event of a unit owner’s default in maintenance payments.