Written by our Law Clerk Ashley Martin
Two recent cases in the District of Columbia Court of Appeals interpreted the D.C. Condominium Act in a way that may potentially harm lenders. The court ruled in both cases that the enforcement of a super-priority lien in a foreclosure case brought by a condominium association pursuant to the Condominium Act extinguished the underlying first deed of trust on the secured property, even in the instance where the foreclosure advertisement stated the property would remain subject to the first deed of trust.
The Condominium Act (D.C. Code § 42-1903.13) establishes that condominium associations are given “super-priority” lien status for the most recent six-months of arrearages they are owed; according to recent rulings, this lien status places the association’s lien ahead of any first deed of trust in foreclosure priority. Presumably, the original purpose for this statute was simply to make sure condominium associations received payment for their most recent arrearages in foreclosure actions.
In March of 2018, the District of Columbia Court of Appeals decided the case Liu v. U.S. Bank N.A.. In this case, a condominium association foreclosed on an $11,000.00 condo lien for unpaid dues. The lienor noted that the property would be sold subject to the first deed of trust. When the lender attempted to foreclose on the property to enforce its first deed of trust, the court ruled that the condominium’s foreclosure extinguished the first deed of trust under the D.C. Condominium Act, since a condominium association cannot waive their super-priority status.
Last month, the District of Columbia Court of Appeals issued its opinion in the case 4700 Conn 305 Trust v. Capital One, wherein a condominium association foreclosed on a condo lien for $6,000.00. Again, the lienor noted that the property would be sold subject to the first deed of trust; however, the court held that the condominium association’s liens were split into two liens of differing priority and the first six-month super-priority lien effectively extinguished the underlying first deed of trust.
If you hold first deeds of trust for condominium units in the District of Columbia, be alert to foreclosure notices of HOAs and condominium association liens. Even if the condominium association agrees to foreclose subject to your first deed of trust, your lien may be extinguished by the super-priority lien foreclosure. To the extent that your institution lends in the District of Colombia, this is an important issue of which to be aware. Currently, Maryland statute limits super-priority liens to the last four months of condominium arrearages and limits the amount to $1,200.00, which can be enforced through the Maryland Contract Lien Act via a foreclosure action; Maryland courts have not yet addressed the question of whether the Condominium Act extinguishes first deeds of trusts in foreclosure actions.