Before jumping into how to collect delinquent carrying charges, lets first discuss what housing cooperatives and carrying charges are.
What is a housing cooperative?
Cooperatives offer a unique housing alternative to individuals. They are often compared to both apartment complexes and condominium projects but have significant differences.
Housing cooperatives are different from condominiums in that residents do not own or hold title to their individual dwelling units. Instead, residents own shares of the corporation that owns the underlying real estate. The corporation holds the title to the property and enters into occupancy agreements with the resident members. The occupancy agreement grants permanent rights to residents to live in their units and to use the common elements of the cooperative according to the co-op’s bylaws and regulations under Michigan Cooperative Law. In addition, the members receive a membership certificate representing their shares in the corporation. When a resident wishes to move, the occupancy agreement is assigned, and the membership certificate is transferred, to the subsequent resident.
Housing cooperatives differ from rental housing in that residents’ ownership of shares entitles them to a voice in running the housing. Co-ops are collectively owned and managed by their residents.
What are carrying charges?
Almost all cooperatives charge residents a monthly carrying charge that is determined based on the co-op’s budget. By signing the occupancy agreement, residents agree to pay the monthly carrying charges to cover their share of the cooperative’s operating expenses. Individual monthly carrying charges or fees are usually based on a member’s equity or financial interest, or on the size of the unit occupied.
Occupancy by individual members is protected by their membership in the cooperative, which is represented by the membership certificate, but members are considered in default if they fail to make payments. The occupancy agreement should include the legal remedies available to the co-op to pursue payment and to evict the nonpaying member.
What collection remedies does a housing cooperative have against a defaulting member?
Collecting delinquent cooperative fees is not fun for co-op boards, but it is necessary to provide required services. The cooperative should have a procedure for assessing interest or late charges for delinquent carrying charges and a timetable to retain counsel and/or bring legal action if the default is not cured. The occupancy agreement should also specify the schedule for payment, penalties for late payment, whether unpaid installments for the pertinent fiscal year can be accelerated upon default, and procedures for collecting delinquent fees or initiating legal action. In addition, the default provisions should outline the process for selling the defaulting member’s membership certificate and state when their obligations under the occupancy agreement terminate.
In Penokie v. Colonial Townhouses Co-op, Inc., 140 Mich App 740, 741 (1985), the Michigan Court of Appeals held that cooperative housing associations are not subject to the Landlord-Tenant Relationship Act or LTRA, which is found at MCL 554.601, et seq. Although the subject occupancy agreement specifically stated that a landlord-tenant relationship existed, the Court did not think that the existence of a landlord-tenant relationship was determinative of whether the LTRA applied. Id. at 745. In its analysis, the Court focused on the definitions within the LTRA and noted the absence of housing cooperatives within the definition of rental unit, and that the member would fall within the definitions of both landlord and tenant. Id. at 746-747.
As such, co-ops do not have to comply with the LTRA when filing summary proceedings to evict a defaulted member and must look to the subject occupancy agreement and co-op bylaws. The cooperative should first send the defaulted member any notices required under the occupancy agreement. If the default is not cured, as long as the cooperative’s governing documents do not state otherwise, the cooperative may initiate an eviction action – in the district court encompassing the municipality where the unit is located – seeking a judgment of possession. After expiration of the move out date listed in the judgment of possession, the cooperative may apply for a writ of eviction, which is given to a court officer to execute. Upon execution of the writ, the court officer will transfer lawful possession of the unit to the cooperative. The cooperative must then follow the process outlined in the occupancy agreement to assign the agreement to a new resident, cancel the former member’s membership certificate, and issue a membership certificate to the new resident.
Chantelle R. Neumann is an experienced creditors’ rights attorney who leads Hirzel Law, PLC’s Collections Department. Ms. Neumann received her Bachelor of Arts degree in Psychology from the University of Michigan. She then obtained her Juris Doctor degree from Thomas M. Cooley Law School, where she graduated cum laude and served as the Comments Editor on the Board of Editors for the Thomas M. Cooley Law Review. Ms. Neumann has been named a Michigan “Rising Star” in creditor debtor rights by Super Lawyers Magazine from 2016 to 2021 – a designation given to no more than 2.5% of the attorneys in Michigan each year. She can be reached at (248) 397-6596 or firstname.lastname@example.org.