Consequences

What happens when a shareholder or a unit owner dies without a will or designated heirs? According to Karen Davakis, of counsel to the law firm Morritt Hock Hamroff with offices in Garden City and Manhattan,“Since cooperative shares are considered personal property under New York State law, title to the shares does not vest immediately upon the death of the shareholder. When a shareholder dies intestate, the unit generally cannot be disposed of or sold until the Surrogate’s Court appoints an interested party to act as fiduciary of the shareholder’s estate, granting this party the necessary authority to sell or dispose of the unit. This ‘interested party’ is determined by statute, but is typically the shareholder’s closest heir(s) at law. If there appear to be no heirs at all, the County Public Administrator must be appointed to sell the co-op and investigate the identities and whereabouts of any potential heirs. If appointed, the Public Administrator can be permitted to sell the co-op and pay any outstanding debts, including maintenance, before completing its heirship investigation, unless its fiduciary authority is otherwise restricted by the Surrogate’s Court.”

The fiduciary appointment process may cause a delay in the sale or disposal of the unit, with maintenance costs piling up during that period. “If there are outstanding maintenance costs due and owing upon the death of the shareholder,” notes Davakis, “the board may have certain rights as a creditor of the estate to move the fiduciary appointment process forward in the event none of the heirs have taken action.”

As for condos, Davakis continues, “Condominium units are handled differently in that they are considered real property under New York State law. When a unit does pass intestate, title automatically vests in the decedent’s distributees or heirs-at-law at the time of death. Accordingly, the unit expenses become those of the distributees. Although a condo unit can technically be sold without the appointment of a fiduciary, as a practical matter that would rarely if ever occur, because title companies will inevitably require the appointment of an estate fiduciary in order to close [on the sale of the unit].”

The Co-op or Condo’s Rights

So what happens during the period in which the estate is being settled? Maintenance and common charges still need to be paid, after all.

Mark Hakim, an attorney with Manhattan law firm Schwartz Sladkis Reich Greenberg Atlas explains. “Whether by the executor or administrator, the estate remains responsible for the payment of the maintenance on the apartment. However, that is often easier said than done, as there are many instances where the estate does not pay during the settlement period, leaving the co-op to consider its options and exercise its rights. Obviously, once the apartment is sold, the co-op will be reimbursed all past due maintenance and all other fees permitted under the proprietary lease. If the estate is not settled quickly enough, the co-op can certainly exercise its rights under the proprietary lease and applicable law for the estate’s failure to pay, which could include termination of the proprietary lease, an eviction proceeding, a non-pay action and/or a non-judicial foreclosure. None of these are quick or cost effective in the short term, so we counsel our co-op boards to do their best to contact a representative for the estate to plan for payments.”

Hakim explains further that in a condominium this matter is more difficult to attend to, given that in a co-op the lessee is a shareholder of the co-op, required by the proprietary lease to pay monthly maintenance and other charges, with rights granted to the co-op under the lease in the event that they fail to do so.  

“In a condominium, however, enforcement of a non-paying unit owner is much more difficult, be it an estate or an individual. In such an instance, the board of managers of a condominium will send default notices. If nonpayment continues, it will file a common charge lien - and if the nonpayment still continues, it will have to foreclose on that lien. That is also neither quick nor cost effective - and the condo board must be mindful about items such as first mortgages as well.  

“Sometimes, the estate of the unit owner may be renting out the apartment, in which case, if the bylaws permit, the board may be able to collect the common charges from the tenant. Regardless, it’s much easier to pursue non-payments in a co-op than in a condominium, and in all instances we recommend that our clients have their managing agent try to locate someone who has been in contact with them before in an attempt to amicably address the problem.”

With these thoughts in mind, it’s been suggested in some quarters that co-op and condo boards should consider requiring purchasers to execute a will and designate heirs prior to buying into a building or HOA. Whether such a rule would be enforceable is questionable - but it certainly speaks to the challenges brought up by the issue. No matter what, however, the best course of action when legal questions arise is to consult your corporation or association counsel for the most prudent way forward.