The opinion of the court was delivered by: CHIN
In this foreclosure action, defendant Board of Managers of the OTIC Professional Condominium ("OTIC") seeks an order requiring the court-appointed receiver to pay the monthly condominium common charges that have accrued on the subject property during the period of receivership and as they become due in the future until the foreclosure sale. Plaintiffs Resolution Trust Corporation (the "RTC") and RTC Mortgage Trust 1995-S/N1 (the "Trust") oppose this motion, arguing that under New York law, the interest of a first mortgagee in a condominium property is superior to the lien of the condominium board of managers unless the declaration of an exclusive non-residential condominium provides otherwise.
For statutory and equitable reasons, OTIC's motion is granted in part and denied in part. OTIC is entitled to be paid the accrued common charges.
On January 17, 1995, the Receiver negotiated a settlement with PIA, which paid the Receiver $ 587,272.20. Defendant J.I. Sopher & Co., Inc. ("Sopher"), the owner of the premises, deposited an additional $ 438,871.95 with the Receiver representing PIA's security deposit, plus interest. PIA paid this money in lieu of rent for the balance of its lease term, which would have run through August 31, 1998. In an order dated February 25, 1995, I approved the Surrender of Lease Agreement, in part because the Agreement served to protect and preserve the property in question. I noted that "fifteen months of rent will be realized from PIA and the property can be relet, thereby producing a future income stream to meet ongoing property expenses." The Receiver sought tenants after the Surrender Of Lease Agreement was approved, but to date, has not been able to relet the premises.
At the time this motion was filed, sixteen months of unpaid common charges, totaling $ 122,976, had accrued. The parties agree that a foreclosure sale will not produce proceeds sufficient to pay both the accrued maintenance charges and the unpaid amounts on the first mortgage.
Plaintiffs rely on N.Y. Real Prop. Law § 339-z (McKinney 1989) in opposing the motion. In pertinent part, § 339-z provides:
The board of managers, on behalf of the unit owners, shall have a lien on each unit for the unpaid common charges thereof, together with interest thereon, prior to all other liens except only (i) liens for taxes . . . and (ii) all sums unpaid on a first mortgage of record . . . . Upon the sale or conveyance of a unit, such unpaid common charges shall be paid out of the sale proceeds or by the grantee . . . .
Notwithstanding the above, the declaration of an exclusive non-residential condominium may provide that the lien for common charges will be superior to any mortgage liens of record.
Hence, under § 339-z, all sums unpaid on a first mortgage take priority over liens on unpaid condominium common charges. The precise issue presented here, however, is whether that priority applies with respect to condominium common charges that accrue prior to the foreclosure proceedings, when a receiver has been appointed at the mortgagee's request. I hold that it does not, for statutory and equitable considerations.
The language of the statute is not clear with respect to when the first mortgagee's lien takes priority. The question of priority, however, usually need be resolved only upon the foreclosure sale, when the amount of the proceeds are determined. Obviously, the priority of liens will not be an issue if the proceeds from the foreclosure sale are sufficient to cover both the accrued condominium common charges and the unpaid sums on the first mortgage. The decision of the New York State Court of Appeals in Bankers Trust v. Board of Managers of the Park 900 Condominium, 600 N.Y.S.2d 191, 192-93 (N.Y. 1993), confirms that the key event is the foreclosure sale. The court held that "the first mortgage foreclosure sale, except to the extent that there are proceeds in excess of ...