A recent decision by the District of Columbia Court of Appeals is bringing new attention to the priority of condominium and mortgage liens. You may have heard the term “concurrent liens” in the past. This term is often used to describe liens on a property that have “equal” priority and lack the ability to prime one another in a foreclosure action. Taxes are most often cited as this example. A foreclosing lender of a mortgage lien must always pay the taxes and cannot cut out or extinguish a previously unpaid tax bill. Similarly, a tax authority cannot cut out or extinguish a mortgage lien when a tax lien is foreclosed. Therefore the liens are called “concurrent” because they have equal priority.
When it comes to condominium association liens, this theory is often the same. A lien for nonpayment of condo dues or assessments in many states will not prime or cut out the mortgage lien holder. And likewise, the mortgage holder cannot cut out the condominium association from its dues or assessments. Again, they appear as concurrent liens. Many condominium association documents go the extra step of specifically making their liens subject to the lien of a first or purchase money mortgage on the property. This encourages sales and facilitates the approval of the condo for federally insured mortgages.
In Chase Plaza Condominium Association Inc. v. JPMorgan Chase Bank, N.A., decided on Aug. 28, 2014, the District of Columbia Court of Appeals determined that an association’s statutory “super-priority” lien for unpaid assessments took priority of position, not just of payment, over the lender’s mortgage lien. What is different in this case is in states that have adopted some variation of the Common Interest Ownership Act, like the District of Columbia, (or otherwise granted associations some measure of assessment lien priority over mortgage holders), associations are granted a statutory assessment lien as security for the collection of periodic assessments.
The language of the decision in the case was very specific: “… the District of Columbia Condominium Act provides that an association’s lien is ‘prior to any other lien or encumbrance except [among other things] … [a] first mortgage … or [first] deed of trust … recorded before the date on which the assessment sought to be enforced became delinquent.’ However, this priority of mortgages and deeds of trust is limited under the Act to the extent of any ‘superliens.’ In jurisdictions such as the District of Columbia that have adopted superliens, the association’s assessment lien is senior to mortgages and deeds of trust ‘to the extent of the common expense assessments based on the periodic budget adopted by the unit owners’ association which would have become due in the absence of acceleration during the six months immediately preceding institution of an action to enforce the lien.’”
The appellate court reversed the trial court and based its decision mostly on common law principals of lien priority as well as the fact the condo association’s governing documents clearly did not intend to subordinate the association’s assessment liens as to mortgages or deeds of trust. What was even more troubling is the District of Columbia foreclosure laws do not require notice of the foreclosure to the lender. This could expose a lender to being wiped out by an association’s assessment lien foreclosure without any notice or option to cure the default.
When examining condominium properties, the knowledge of your state’s condominium law is paramount. If, like in the District of Columbia, your state grants a “super-priority” to unpaid assessments or dues to a condominium association, then it would be impossible to issue an ALTA 4.0-06 Endorsement (Condominium) without a complete examination of the condominium documents to discover if the intent of liens to be subordinate to any mortgage or deed of trust lien was present in the formation documents.
In all cases when issuing the ALTA 4.0-06 Endorsement, be aware that the endorsement automatically insures priority over assessment liens. Paragraph four of the insuring provisions of the endorsement states as follows: “4. The priority of any lien for charges and assessments provided for in the condominium statutes and condominium documents at Date of Policy over the lien of any Insured Mortgage identified in Schedule A.”
Several groups, including the Uniform Laws Commission, are looking at this issue and identifying ways to amend state laws to protect lenders and condominium associations equally.
An article from the book The Ramblings of a Title Man by Michael A. Holden, Vice President Field Operations at North American Title Insurance Company