Is Rent Interception a Viable Collection Tool for Condos?

Can condo associations intercept rent from a tenant living in an owner's unit?

This week we assisted a tenant living in a unit that is going through a bank foreclosure. The condo association has demanded that the rent be paid to the association, not the landlord. The association is threatening to sue if they don't get the rent and the landlord is threatening to sue if he does not get the rent. The tenant came to us understandably confused about what the law required in this situation.

The lease between the unit owner (landlord) and tenant does not state that the tenants are bound by any provisions of the condo Declaration. The Declaration does not give permission for the collecting attorney to contact the tenant and discuss the debt owed by the landlord to the association. (In fact, it is a violation of the Fair Debt Collection Practices Act for a debt collector, such as an association attorney, to communicate with a third party about a debt they are trying to collect without the debtor's permission.)

Our first recommendation was to pay the rent to the court handling the collection matter, and let the court determine who is entitled to the rent. However, at this time, there is no court involved in this dispute. The bank is foreclosing non-judicially, and the association has filed no action against the landlord (probably because it expects no recovery after the bank is paid). So what is the tenant to do?

What seems to be happening is that the condo association has a legal right to receive the rent from the tenant, but the tenant has no legal obligation to pay the rent to the association.

The long term solution for condo associations is to amend their declaration to provide that owners give permission to the association's debt collectors to contact third party tenants to discuss the debt. Associations should also try to get a document signed by the tenant and the landlord that would clarify the obligation to pay rent to the association. That way there would be an enforceable contract between all of the parties to make clear the obligations of the tenant, who is not otherwise bound by the terms of the Declaration.

If you have any questions we can answer, please feel free to leave a comment or contact us directly. We look forward to continuing this conversation with you in our future posts!