What’s a board to do when a shareholder or unit owner consistently fails to hold up their end of the agreements—both spoken and unspoken—that underpin successful multifamily living, either through nonpayment of fees, or objectionable behavior? If every other effort to correct the situation has failed, can a board vote a persistently problematic resident ‘off the island,’ so to speak? 

The short answer is yes… sometimes, depending on the nature of the dysfunction and the state in which it’s happening, as well as the rules and bylaws of a given community—and it’s almost always easier said than done. 

Classifying the Problem

Generally, when the board of a co-op, condominium, or HOA is faced with a member or shareholder who is causing damage or discord, the issue falls into one of two categories: either failure to pay their fees, or failure to abide by the rules and regulations that govern their building or association. Both are serious issues for the community as a whole, and must be addressed as soon as the board is made aware of them.  

A resident failing to meet their financial obligations affects every other member or shareholder, because responsibility for the cost of operating, maintaining, and repairing the property is shared by all members. Arrears can quickly become a burden on everyone else. After all, the utility companies, vendors, and service providers hired or contracted by the community expect to be paid for their work, regardless of whether Mr. Smith in unit 5F pays his common charges or not. 

By the same token, refusal to comply with the social rules of the community also infringes on the right of fellow residents to peacefully enjoy their homes. Ongoing violations of rules around noise, guests, and general conduct can be as corrosive as unpaid bills, and warrant just as much concern from boards.

As fiduciaries, boards are legally mandated to enforce the governing documents of their community, so letting arrears or unacceptable behavior slide for any reason isn’t an option, says Mark Hakim, a partner with New York-based law firm Schwartz Sladkus Reich Greenberg & Atlas. “Unfortunately, boards are forced to deal with the inevitable. How each contends with it differs sharply based on whether it’s occurring in a cooperative corporation or a condominium association. But make no mistake about it, as fiduciaries, they must deal with it. 

“Generally speaking,” he continues, “co-op boards have an easier time attending to defaults and other issues, given that in a co-op the shareholder is a lessee under a proprietary lease with the corporation, which owns the building. In a condominium, the unit owner owns the apartment in fee simple, which makes enforcement of the rules tougher” but does not exempt boards from upholding their legal duty to the association as a whole. 

Failure to Meet Financial Obligations

One reason for attempting to remove an owner or shareholder is failure to meet their financial obligations to the condo or co-op. Boards draft an annual budget to cover the cost of running the property day-to-day—everything from custodial fees to garbage disposal to periodic mandatory inspections—and depend on each member’s monthly contribution to meet that budget, pay for those necessities, and remain in good financial health overall. Condominium associations, HOAs, and co-op corporations are not-for-profit entities, so when one or more residents don’t pay their share, the financial margins can quickly shrink to nothing, or even go into the red. That leaves the entire community in the lurch when bills come due, and that’s a big problem for everyone.

Condo vs. Co-op

The pathway to dealing with non-payment can differ a bit between states, but is firmly rooted in general legal principals governing foreclosures and related financial recovery methods.  

First of all, “It’s important to use the correct terms,” says Dillon Brown, a junior partner with the law firm Marcus, Errico, Emmer & Brooks, located in Braintree, Massachusetts. “You can evict a shareholder in a co-op,” he says, “because a co-op is really a hybrid between a condo and a rental. Co-op residents are shareholders, and as such they have a proprietary lease. So in a co-op, removal is in fact called an eviction,” and is achieved through the termination of the shareholder’s proprietary lease. Because condos are real property, condo owners can’t be ‘evicted’ from their unit as one might evict a nonpaying renter or shareholder under a lease agreement. “But you can compel that owner to meet financial obligations,” says Dillon, “and you can enforce the provisions of your condominium documents; the remedy isn’t to remove the owner, but rather to force their compliance.”

When the issue is arrears, that is usually accomplished by means of liens and foreclosures. Scott Piekarsky, an attorney with Phillips Nizer, a law firm in Hackensack, New Jersey outlines the process: “An association can put a lien on the unit for outstanding common charges, and then foreclose on that lien,” he says. “The lien has a priority over the first mortgage and tax liens. The association can pursue a foreclosure, and then a sheriff’s sale subject to the lien. In the end, if the foreclosure and sale are successful, the association gets the unit and the owner is out.” So, the process is not an eviction per se, but achieves the same end.

Brown adds that “a condominium association doesn’t have a right to step in to stop a foreclosure initiated by a lender against a condominium mortgage, but they can step in to prioritize a lien over the first mortgage on any unpaid monthly common charges. Priority over the first mortgage is statutory in Massachusetts. [Associations] receive a priority for six months and can extend that.”

“Ultimately, it comes down to the association having two options to make the best of a frustrating situation,” says Michael Simone, principal of the Simone Law Firm, located in Cinnaminson, New Jersey. “The first is known as a motion to sell real estate, which in New Jersey, the courts are generally reluctant to accept. There must be a judgement against the homeowner, and once you have a judgement, the courts want all other alternative judgement enforcement means attempted before a sale of real estate occurs. Then, and only then, when all efforts are exhausted, will the courts entertain a motion to sell real estate. It’s the same across the board for co-ops, condos, and HOAs.”

The second option is to file a foreclosure action against the resident. Unlike with a motion to sell real estate, a foreclosure action is a special action an association can bring to force a sale of the property. It’s typically limited to a major violation of the bylaws, declarations and covenants. “These actions are well scrutinized by the court and should be issued with caution,” says Simone.

Michael Kim, of counsel with Schoenberg Finkel Beederman Bell Glazer located in Chicago, notes that in Illinois, “Statutes provide for the eviction of a condo owner without affecting their ownership. If you don’t pay your common charges, we can have the sheriff evict you from your home, then take your unit and rent it out to someone else. The rent that we collect can be used to pay down your unpaid assessments, but you as the owner still have to pay the real estate taxes and mortgage. That’s very unique. If the owner does at some point get current, they have the right to regain possession of their unit, but if there’s a tenant on a lease in the unit, [the owner] has to wait until that lease expires.”

When It’s Not About Money

Boards are also sometimes faced with members whose behavior is the problem, rather than their failure to pay their bills. It may be their disregard for house rules, severe, ongoing interpersonal conflicts, or chronic litigiousness, to name a few of the more common issues. What are a board’s options in these situations? 

When the violation is against a house rule, says Brown, a condo board again must turn to the courts. For example, if a resident acquires a dog in violation of their community’s no-pets policy, says Brown. “Typically, we send a letter to the owner demanding their compliance to get rid of the dog. If the owner doesn’t, the association takes legal action. The ultimate remedy is injunctive relief in the form of a court order for removal of the dog. It’s the court, rather than the board, that can force the unit owner to comply.” 

In a co-op, according to New York City-based attorney Stuart Saft, “While not a common practice, objectionable conduct on the part of the shareholder or other residents in the apartment provides the board with the basis for terminating the shareholder's shares and evicting them from the building.”

What qualifies as objectionable in the legal sense can range from more mundane quality of life issues like excessive, ongoing noise or smoking odors to verbal or even physical abuse of staff and neighbors. Kim recalls a situation in which a unit owner routinely addressed building employees with egregious racial slurs, and even tried to claim battery after he himself started a physical altercation with one worker. “We had a long history of his remarks and confrontations,’ Kim says, “and sought involuntary sale, but ultimately, he sold his unit and moved out voluntarily.”

Hakim notes that in NYC, the right of co-op boards to terminate proprietary leases for objectionable conduct is the result of the landmark 2003 decision in 40 West 67th Street v. Pullman—often referred to as ‘the Pullman case’ or simply ‘Pullman,’—“In which a court held that the shareholder had been so disruptive, and his actions so persistent, pervasive and objectionable that the court permitted the board to terminate his proprietary lease and evict him from the building. As a result, boards have used that case, which remains good law, as a basis to go after disruptive shareholders who violate the provisions of the lease.” 

Of course, a board can’t just give a shareholder a pink slip and tell them to get out. In some cases, a co-op’s governing documents may stipulate that a vote by all shareholders is required to terminate a proprietary lease; in others, the board may act unilaterally to put the process in motion. Hakim is quick to note that regardless, “These types of actions are neither quick nor cheap. They take time, patience and good record keeping to commence, maintain and prevail.” 

How it Plays Out

After a co-op board makes the decision to commence eviction proceedings against a shareholder, according to Saft, the corporation may commence an action in Housing Court to obtain possession of the apartment. After gaining custody of the unit, the cooperative may then auction off the shares and lease, and reimburse itself for its fees and other related expenses owed to the corporation. “In addition, the corporation would also give the balance to any bank holding a mortgage on the apartment, with the remaining capital going to [the evicted shareholder].”

Other jurisdictions have different rules. In New Jersey for example, in virtually all disputes in shared interest communities, mandatory arbitration is required by state law before litigation can commence, says Simone. “So, prior to initiating a suit or foreclosure, arbitration is offered. If the resident doesn’t respond, that’s sufficient to satisfy the requirement. But the association or corporation has to give notice.”

In Illinois, explains Kim, a lot of association documents will have in their ‘remedy’ section an involuntary sale clause. “An association can begin proceedings to force what’s called a judicial sale,” he says. “When someone is acting badly, we seek an injunction from the court and a request for an involuntary sale.” And while Kim says it’s not common, “it happens three or four times over the year. In the end however, the owner generally has a voluntary sale.”  

Do it By the Book

According to Geoffrey Mazel, an attorney and founding partner with Manhattan and Long Island-based law firm Hakin & Mazel PLLC, “There are numerous cases citing the Pullman finding which give a co-op board clear guidance on how to properly handle a shareholder who is acting objectionably.” That said, “these cases further stress the importance of the board acting in good faith, within their authority, strictly following the procedures as outlined in the proprietary lease, and giving the offending shareholder the opportunity to be heard,” Mazel says. “If these guidelines are followed, the board should enjoy the court’s deference to their decision under the longstanding Business Judgment Rule.” Court-mandated compliance remains the solution for most condo boards. 

In the end, whether a resident is a co-op shareholder or a member of a condo association or HOA, removing them is a long, costly, frequently acrimonious process for everyone involved, even when the situation is cut-and-dry in legal and financial terms. Documenting the problem thoroughly, working with qualified counsel, and understanding the extent and limits of your own governing documents are all key to resolving one of the tougher situations your board may have to navigate.

A J Sidransky is a staff writer/reporter for CooperatorNews, and a published novelist. He may be contacted at alan@yrinc.com.