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A purchaser of a foreclosed unit sued in DC Superior Court to quiet the title of a unit. The lender/servicer (New Penn Financial) removed the matter to federal court and filed a 3rd Party Complaint against, the Condo Association (Langston Lofts) alleging that the Association failed to obtain the consent of FNMA as per HERA. FNMA is not a party to the litigation. The lender then filed a Motion for Summary Judgment on the sole grounds that HERA trumps the non-judicial foreclosure provisions of the DC Condo Act that provide the Association with a superior lien. The association argues that HERA does not apply because Freddie Mac transferred all risk of loss to the loan servicer so that there is no federal interest at risk and that HERA does not preempt the D.C. Code under the Supremacy Clause because federal and state law operates in harmony without conflict. It is crucial the court understands that community associations provide essential services that benefit homeowners and lenders and require financial stability with effective remedies to recover unpaid assessments. Community associations are self-governing organizations that provide essential services benefiting homeowners and lenders. Homeowners fund associations and rely on effective and timely means to collect unpaid assessments to operate with financial stability.
Court: United States District Court for the District of Columbia
Topic: Super priority lien
Brief Author: Katherine J. Seiklay, Esq. and Robert M. Diamond, Esq., CCAL of Reed Smith, LLP and Marvin J. Nodiff, Esq., CCAL.
CAI Amicus Review Panel: Mr. Robert Diamond, Esq. (VA), Mr. Stephen Marcus Esq. (MA), Mr. Gregory Cagle, Esq. (TX), Ms. Karyn Kennedy Branco, Esq. (NJ), Mr. Kimball A. Forbes, Esq., (UT), Mr. Thomas Morarity, Esq. (MA), and Mr. Steven Sugarman, Esq. (PA)
In a divided decision, the Ninth Circuit held that Nevada's homeowner association lien statute (Nevada Revised Statutes § 116.3116) was facially unconstitutional for lack of a notice provision to lenders in violation of the Fourteenth Amendment's Due Process Clause. The majority erred for two primary reasons: (1) no state action or state actor was involved in the HOA foreclosure sale and (2) even if state action or state actor were involved, the statute expressly incorporates provisions requiring written notice to lenders.
This case is of substantial importance, involving the ability of a community association to maintain common property and deliver essential services. Such services benefit all properties in the community, and protect the value of all parties having an interest in the properties, including all lenders with loans in the community. Homeowners rely on their associations to be financially stable and able to carry out their functions; in turn, associations rely on effective means to recover delinquent assessments to achieve financial stability.
Beyond the parties here, this case affects homeowners in all community associations in the 21 states, the District of Columbia and Puerto Rico that have adopted state lien priority statutes similar to the Nevada statute; approximately half of those states have similar notice provisions. This approach to association lien priorities is modeled on the Uniform Condominium Act ("UCA"), Uniform Common Interest Ownership Act ("UCIOA"), and Uniform Planned Community Act ("UPCA"), all drafted by the Uniform Law Commission (formerly known as the National Conference of Commissioners on Uniform State Laws). This ruling may affect approximately 66.7 million Americans because over twenty percent (20%) of the U.S. population resides in a community association.
Similar in scope to the CAI amicus filings of Chase Bank v. Chase Plaza Condo in DC in December 2013 and the recently filed Nevada brief in of Bayview Loan Servicing v. SFR Investments Pool 1, LLC, the question raised in this case is whether a foreclosure of a statutory non-judicial condominium priority lien is a “true lien priority" and not merely a distributional preference in favor of the association. Additionally, the result of this appeal will have a dramatic effect on all states that have adopted a statutory non-judicial priority lien. The Rhode Island Superior Court has ruled that the foreclosure of a condominium's statutory non-judicial priority lien does not extinguish a first mortgage, regardless of the failure of the first mortgagee to either satisfy the priority portion of the lien prior to the association's sale, or exercise its statutory right of redemption.
If the Supreme Court of Rhode Island affirms the Superior Court ruling that an association's foreclosure of their priority of lien does not extinguish the first mortgage, there will be a chilling effect on association lien foreclosure sales. Individuals will not bid at an auction when the mortgagee may come back at any time to foreclose its mortgage and take the property. Also those who may take the risk of bidding at a foreclosure sale will not maintain payment of condominium assessments and will have no interest in expending money to preserve or otherwise improve the property that they could lose at any time.
Brief: Pending Prior Ruling: Lower Court Decision Status: Supreme Court Ruling for CAI's Position CAI Amicus Brief Author: Edmund Allcock, Esq. CAI Amicus Brief Review Committee: Stephen Marcus, Esq; Thomas Moriarty, Esq; Steve Weil, Esq; Jonathan Levine, Esq.; Gary Kessler, Esq.
Similar to the CAI amicus filing of Chase Bank v. Chase Plaza Condo in Washington, D.C. in 2013, the question raised in this case is whether a priority lien has true priority over a first security interest. Additionally, the trial courts that have decided that there is no extinguishment of a first deed of trust have done so on numerous, conflicting theories. For example, some have determined that “action to enforce the lien" means a judicial foreclosure is required, despite express language that allows non-judicial foreclosure. Some have stated that the priority amount is merely a “payment priority" to be paid when the deed of trust forecloses, despite no mechanism in statute to pay the priority amounts from the sale proceeds. Some have decided it is a payment priority that is only triggered when the association files a lawsuit.
Simply put, there is no controlling law on the interpretation with approximately 100 cases pending before the Nevada Supreme Court and Ninth Circuit. The Nevada Supreme Court also recently issued an order to set oral argument in one case, but has not yet scheduled the date. Other fully briefed cases are receiving orders that they will be submitted on the brief without argument. Thus, the issue has reached a critical mass.
CAI is filing two similar, but separate, amicus briefs on the issue of extinguishment: one before the 9th Circuit and one before the Nevada Supreme Court.
Brief (9th Circuit): Pending Brief (Nevada Supreme Court): Pending Prior Ruling (9th Circuit): District Court - Order for Summary Judgment Prior Ruling (Nevada Supreme Court): District Court MotionsStatus:Supreme Court Ruling for CAI's Position CAI Amicus Brief Author: Thomas Moriarty, Esq.; Loura Sanchez, Esq.; Henry Goodman, Esq. CAI Amicus Brief Review Committee: Stephen Marcus, Esq; Henry Goodman, Esq; Steve Weil, Esq; Jonathan Levine, Esq.; Gary Kessler, Esq.
The question raised in this case is if an association foreclosure wipes out the first mortgage on a property (except to the extent excess monies attach to the proceeds IF NOTICE is given). Importance lies in the fact that the lower court got it wrong on the narrow issue of that an association foreclosure does not wipe out the first mortgage. By basics of foreclosure law the foreclosure action must extinguish the first lien as a matter of law. Ultimately, the questions to be answered in the brief is what is the meaning of “priority" in conjunction with the right of the bank to re-secure its position by payment prior to lien sale by payment? How is the statute designed to help an association which is otherwise subject to the bank's priority? In other words, who would want to bid at an auction, especially where there is no right of the bidder to recoup amounts bid and expenses incurred in a situation where the lender then forecloses its mortgage? CAI's Amicus Committee is asking the intended brief author to limit the argument to whether a foreclosure of a condominium priority lien extinguishes the first mortgage. CAI is not looking to support one side or the other in terms of who should prevail in this case so CAI does not need to address the issue of lack of notice to lenders.
Brief Prior Ruling: Order on Partial Motion for Summary Judgment Status: Ruling for CAI's Position CAI Amicus Brief Author: Thomas Moriarty, Esq; Henry Goodman, Esq; Loura Sanchez, Esq. CAI Amicus Brief Review Committee: Henry Goodman, Esq; Stephen Marcus, Esq; Jonathan Levine, Esq; Steve Weil, Esq; Gary Kessler, Esq.
Carolyn and Randy Britton (the Brittons), unit owners in the Drummer Boy Green Condominium II, withheld payment of monthly condo fees due and owing to protest fines that Drummer Boy Condominium Association, Inc (Association) had previously assessed. The Britons, as of this date, have withheld payment of approximately five years worth of monthly condo fees.
On July 31, 2007, the Association instituted a collection action against the Brittons to establish and enforce a six-month priority lien for common expenses due and owing. On January 28, 2008, the Association instituted a second collection action to establish and enforce a six-month priority lien for those common expenses due and owing in the six-month period subsequent to the filing of the first collection action. On September 30, 2008, the Association instituted a third collection action to establish and enforce a six-month priority lien for those common expenses due and owing in the six-month period subsequent to the filing of the second action. The Trial Court consolidated these three actions for determination. As the delinquency continued, the Association filed successive complaints in order to establish successive priority liens for the Britton's continued non-payment of monthly condominium common expenses. Those actions hadn't been stayed yet.
The Trial Court entered Judgement for the Association finding common expenses due and owing, and establishing that the Association has a lien for the entire amount of the delinquency, but that only a single, six-month period of that delinquency immediately preceding the filing of the first action has priority over the first mortgage holder. The Trial Court declined to award the Association attorney's fees incurred in connection with the filing of the second and third collection actions. The Appellate parties have now appealed the Appellate Division's Decision and Order to the Massachusetts Appeals Court.
Brief: CAI's Amicus Brief Prior Ruling: Appellate Court Decision Status: Pending CAI Amicus Brief Author: PERKINS & ANCTIL, P.C. CAI Amicus Brief Review Committee: Patrick Costello, Esq: Robert Diamond, Esq; Brendan Hunter, Esq; Richard Kennedy, Esq; Russell Robbins, Esq.