Daily Development for
Wednesday, February 12, 1997

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

MORTGAGES; RECEIVERS: Receiver, as an officer of the court, properly may direct rental proceeds of condominiums towards common charges in interest of preserving premises.

Ezriel Equities v. 157 East 72nd Street Associates, 638 N.Y.S.2d 470 (App. Div. 1996).

In New York, a condominium mortgagee's lien is superior to the lien of the condominium association for common charges. However, this statute applies only to payment out of the proceeds of a foreclosure sale, not the application of rental payments during the pendency of a foreclosure action.

Comment 1: Note that the receiver is a mere "stakeholder," and its function is to preserve the asset. Obviously the payment of charges directly related to upkeep and maintenance not only protects the asset but also preserves the leases, which themselves could be assets. Most courts at least view the payment of operating costs as within the receiver's discretion, if not a mandatory part of its duties.

Comment 2: If mortgagee takes possession itself, it would still have a duty to preserve the leases to the extent they represented assets, and to pay for the reasonable maintenance costs of the property to the extent that they would preserve its value. In an increasing number of jurisdictions, however, mortgagees simply can activate an assignment of rents without themselves becoming possessors. In this case, one would assume that the mortgagee would have a claim upon the rents that is prior to the claim of the association. If the mortgagee stops paying the assessment charges, however, under other recent New York authority, the association can collect directly from the tenant, (Foxwood Square Condominium I v. Albert, 643 N.Y.S.2d 912 (Civ. Ct. 1996) - yesterday's DD), who in turn likely would have a remedy against the landlord under standard "habitability" doctrine.

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