Recovering Delinquent Condominium Assessments; Scope and Limits of Missouri's Super-Priority Lien - Weiss Attorneys at Law

Missouri Super-Priority LienIn 2014 the Missouri Legislature passed, and then-Gov. Nixon signed into law, an amendment to the Missouri Uniform Condominium Act, which granted condominium associations the right to collect up to six months of delinquent common expense assessments as a super-priority lien. This provision was part of a national effort to have state legislatures recognize what the Missouri Supreme Court and other states’ courts had already recognized: “that assessments against individual unit owners ensure that the common elements are maintained and the value of the entire condominium is not diminished.” (Board of Managers of Parkway Towers Condominium Association v. Carcopa, 403 S. W. 3d. 590 (Mo. en banc, 2013))

As part of the legislation as passed in Missouri, a condominium assessment is prior to all other liens and encumbrances on a unit, except, in part:

  1. Liens and encumbrances recorded before the recordation of the condominium declaration;
  2. Any mortgage or deed of trust securing a purchase money loan for the unit recorded prior to August 28, 2014; and
  3. Any mortgage or deed of trust on a unit recorded before the date on which the assessment sought to be enforced became due, except that a lien under this section has limited priority for common expense assessments in an amount not to exceed six months of delinquent common-expense assessments, which would have become due in the absence of acceleration during the six months immediately preceding the date of filing a petition to enforce the association’s lien or the date of sale by the holder of a mortgage or deed of trust.

Prior to the effective date of the amendment to Section 448.3-116 R.S.Mo. the U.S. District Court for the Eastern District of Missouri had construed the prior law on condominium association liens for unpaid assessments and held in River Oaks Condominium Association v. Donovan that the prior statutory scheme did not grant a condominium association the right to have outstanding assessments, even if limited to only six months, paid upon a foreclosure rather than in the case of a refinancing of a condominium unit.

Section 448.3-116 as it existed prior to August 28, 2014, provided that “[a] lien pursuant to this section is prior to all other liens and encumbrances on a unit except:

  1. A mortgage and deed of trust for the purchase of a unit recorded before the date on which the assessment sought to be enforced became delinquent;
  2. Except for delinquent assessments or fines, up to a maximum of six months’ assessments or fines (sic), which are due prior to any subsequent refinancing of a unit or for any subsequent second mortgage interest.

Because of the limitation in recovering delinquent assessments to only those situations, remarkably in the sole control of either the unit owner or the bank, condominium associations could not force collection absent a refinancing or creation of a second mortgage — thus the push by Missouri condominium stakeholders to adopt the amendment to grant a super-priority lien that reaches beyond the priority lien provisions previously in force in Missouri.

No decisions from Missouri courts have construed amended Section 448.3-116 R.S.Mo.  However, because “uniform acts” are to be construed uniformly with decisions from other states, recourse to such other states’ court decisions are instructive. In Chase Plaza Condominium Association v. JP Morgan Chase Bank, a District of Columbia Court of Appeals 2014 decision, the appellate court opined that the D.C. Condominium Act:

“effectively splits condominium-assessment liens into two liens of differing priority: (1) a lien for six months of assessments that is higher in priority than the first mortgage or first deed of trust — sometimes called a “super-priority lien” — and (2) a lien for any additional unpaid assessments that is lower in priority than the first mortgage or first deed of trust.”

In the Chase Plaza case, the six months of assessment liens amounted to $9,415. After complying with the District of Columbia’s foreclosure notice provisions, a foreclosure sale was conducted, and the unit, purchased for $280,000 in 2005, was sold in 2010 for $10,000. The note owned by JP Morgan, secured by the first mortgage, had been indorsed in blank and held by a loan servicer which made the loan servicer the effective owner of the note. The loan servicer did in fact receive notice of Chase Plaza’s notice of foreclosure. Thus, the appellate court held that notice was sufficient and the subsequent foreclosure, even at the price of $10,000, was valid.

The Chase Plaza court also addressed what happens in the event a foreclosure of a condominium super-priority lien’s proceeds are insufficient to pay off a mortgage or deed of trust recorded prior to the recording of its lien. Relying on the common-law principle that the foreclosure of a prior lien extinguishes all junior liens, the court held that the otherwise first mortgage held by JP Morgan Chase Bank was equally extinguished by the foreclosure of the condominium association’s super-priority lien.

Thus, the condominium association could sell the unit delinquent in the payment of assessments free and clear of other liens attached to the real property. Such a result greatly enhances the viability of the relief granted by Section 448.3-116.

In a Southern District of Missouri Court of Appeals case decided in 2016 (which was transferred to the Missouri Supreme Court but, as of the date of original publication of this article, no decision has yet been issued),[1] the underlying provisions of a condominium’s own declaration compounded the hoped-for ease of application of the pre-August 28, 2014, iteration of Section 448.3-116. In that case, the condominium declaration expressly provided that in the event of any delinquency in the payment of any assessment,

“[s]uch Assessments shall bind such property in the hands of the then owner, his heirs, devisees, personal representatives and assigns. The personal obligation of the Owner to pay such Assessments shall remain his personal obligation and shall pass to successors in title.”

Because a holder of a mortgage or deed of trust which forecloses on such instrument does not, it was argued, constitute a “successor,” the bank in Pointe Royale sought to recover assessments it paid under protest to the Association. The appellate court noted that prior decisions had held that restrictive covenants (not being favored under Missouri law) will be read in favor of the free use of property when there is any ambiguity or substantial doubt as to the meaning of that restrictive covenant. While the court found that the covenant at issue in Pointe Royale was not a restrictive covenant but rather an affirmative covenant, such an affirmative covenant still would possibly obligate a party who takes property with actual or constructive notice of such covenant, and that possibility of liability is what the court addressed in light of the above-quoted provision.

After reviewing the above-quoted assessment liability clause, the court found that the bank, the purchaser at the foreclosure sale, being beyond that of a party having a personal relationship with the individual owning the condominium unit at the time the delinquency in the payment of the assessments arose, did not succeed to liability for pre-foreclosure assessments.

Weiss Attorneys at Law represents a variety of common-interest communities: condominiums, subdivisions, planned-unit developments and occasionally a special arrangement, such as a private road association. Conveniently located at the intersection of corporate law and real estate law, Weiss provides guidance you can rely on. If we can be of assistance, please contact us at 314-588-9500. We can also be reached via email at law@weisslawstl.com or using the Contact Us link on this page.

David Weiss Business AttorneyDavid Weiss counsels business owners, associations and individuals in a variety of legal matters central to business and nonprofit organizations, including corporate law, real estate, homeowner and condominium associations, tax and employment law matters. David also represents clients in business litigation involving business disputes, shareholder and corporate governance matters, and homeowner and condominium disputes. If he can be of assistance, please call 314-588-9500 or email dweiss@weisslawstl.com.

 

 

 

[1] First National Bank of Dieterich v. Pointe Royale Property Owners’ Association, Inc., 2016 WL 3564205 (Mo. App. S.D., 2016)

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