Tuesday, April 24, 2012

Priority of Condo Association Liens

The six months of condominium association assessments immediately preceding foreclosure of the association's lien have priority over the lien of an owner's lender (RCW 64.34.364), an advantage recently affirmed by the Washington Court of Appeals in Summerhill Village Homeowners Association v. Roughley.

Summerhill involved a condominium in Issaquah.  When the owner fell behind on her assessments, the association filed a foreclosure action, served the lender and the owner and recorded a lis pendens against the property.  The owner and the lender failed to respond and the association was granted a default judgment.  The association then proceeded with a foreclosure sale.  Following the sale, the lender's successor moved to intervene in the association's action and asked the trial court to void the sale, which the court declined to do.  The court ruled that the lender was not entitled to redeem the property and had lost its mortgage in the sale.  The lender appealed the decision, but the Court of Appeals affirmed the trial court.
Today even good buildings face delinquencies.

The decision is noteworthy in that it affirmed both the association's lien priority over a mortgagee and that such a lender may not redeem the property (i.e. buy it back by paying off the new owner).  It highlights the robust rights of newer condominium associations to recover unpaid assessments, which rights are increasingly important in this post-bubble world.

Associations should note that the super priority lien is only available to those condominiums formed after July 1, 1990 (i.e. "New Act" condominiums) or those condominiums formed prior to that date that have amended their declarations and opted in to the new priority scheme.  Accordingly, an association should carefully consider amending its declaration to take advantage of the super priority available under the Condominium Act.

Lien foreclosure is not a universal solution, however.  The limited six-month reach of the lien priority and the lack of interested buyers at a foreclosure sale can undermine the association's effort to recover by way of a foreclosure.  Accordingly, associations should consult with counsel and carefully consider their options before pursuing any kind of collection.

- Ryan D. White