There is recent case law from the District of Columbia analyzing the priority of condominium association liens over first mortgages and deeds of trusts. There are similar provisions in Maryland regarding condominium and homeowners’ association liens. Lenders should be aware of this recent case law that resulted in a first deed of trust being wiped out by six months of condominium association dues.
Applicable Law and Implications for Lenders
In the case of Chase Plaza Condominium Ass., Inc., et al. v. JP Morgan Chase Bank, 98 A.3d 166 (D.C. 2014), the District of Columbia Court of Appeals held that condominium associations have a super-priority lien for six months of association dues, and that a first deed of trust on a condominium unit may be extinguished by a foreclosure sale that is held to satisfy six months of unpaid condominium assessments. The D.C. Condominium Act provides that a lien of unpaid assessments for a six-month period has super priority over a first mortgage or deed of trust. The association has a super lien for the six months of assessments and a lien subordinate to the first mortgage or deed of trust for the balance of assessments. (D.C. Code §42-1903.13(a)(2).
In this particular case, the lender had a first deed of trust and the borrower defaulted in his obligations to pay condominium association assessments and his obligations under the deed of trust. The condominium association recorded a condominium assessment lien against the secured property and proceeded with foreclosure.
The Court further found that the general foreclosure principles apply in these cases; liens with lower priority are extinguished if a valid foreclosure sale yields proceeds insufficient to satisfy the higher-priority lien. Accordingly, when a condominium association forecloses on a lien for six or more months of dues, it will extinguish the lender’s mortgage.
There is comparable law in Maryland; however, rather than obtaining a super-priority lien for six months of assessments, Maryland law allows for the creation of a super-priority lien after only four months of condominium and homeowner association assessments. Real Property Article §11-110(f)(2)(3) (Maryland Code, Maryland Condominium Act) and Real Property Article §11B-117 (Maryland Code, Maryland Homeowners Association Act). The assessment may not exceed $1,200. The associations only have priority over a claim of the holder of a first mortgage or deed of trust that is recorded against the condominium unit on or after October 1, 2011. Real Property Article §11-110(f)(2)(3) and Real Property Article §11B-117 (Maryland Code, Maryland Homeowners Association Act).
Under Maryland law, if the holder of a first mortgage or deed of trust gives notice of its interest to the governing body of a condominium or homeowners association and requests notice of any filing of an association lien, the first mortgagee is entitled to notice of the filing of a condominium or homeowners association lien. If the association does not give the first mortgagee notice of a lien within 30 days after the filing of the lien in land records that portion of the lien does not have priority over the first mortgage or deed of trust. Real Property Article §11-110(f)(4) and Real Property Article §11B-117(c)(4).
When a lender receives notice of a condominium association assessment and foreclosure sale, it must act quickly to determine the priority of the lien.
- Conclusion: Lenders need to be concerned about the extinguishment of their liens in the event the association proceeds with foreclosure for non-payment of assessments. Any lender should protect its interest by:
As a part of closing, requiring that notice of its interest be sent to the condominium or homeowners’ association;
- Requiring the borrower to escrow six months of condominium or homeowner’s association assessments;
- Acting promptly upon receipt of a notice of condominium lien foreclosure.
If you have questions about how these laws affect you, consult an attorney.