Foreclosure of DC Condominium Association's Lien for Unpaid Assessments Extinguishes First Mortgage

Foreclosure

(Chase Plaza Condominium Association, Inv. V. JP Morgan Chase Bank, No 13-CV-623 & 13-CV-674, decided August 28, 2014). In a case of first impression, the District of Columbia Court of Appeals held that a condominium association’s foreclosure of a lien for unpaid assessments extinguished the first mortgage on the unit. The District of Columbia’s condominium “super-priority lien” law (created in 1991) grants super-priority to condominium association liens for up to six months of unpaid assessments. The super-priority lien law does not specify what happens when the condominium association forecloses and the proceeds of the sale are insufficient to pay the first deed of trust. The Court of Appeals looked to general foreclosure law for guidance, finding that foreclosure of a lien with superior priority extinguishes liens with lower priority. Here, the $280,000 purchase money first mortgage was made in 2005, the owner’s assessments became delinquent in 2008, the association foreclosed its $9415 assessment lien in 2010, and the bidder at the foreclosure sale paid $10,000 for the property. The mortgagee sued to have the foreclosure set aside. The Court reasoned that the drafters of the super-priority lien law “understood that foreclosure of a super-priority lien could extinguish a first mortgage … but expected that mortgage lenders would take the necessary steps to prevent that result, either by requiring payment of assessments into an escrow account or by paying assessments themselves to prevent foreclosure,” and rejected the lender’s argument that permitting foreclosure of condominium assessment liens to extinguish first mortgages would be unreasonable as a matter of policy.