On April 29, 2019, Governor Murphy signed into law a package of foreclosure bills designed to help owners keep their homes, shorten the time a house sits vacant, and prevent abandoned properties from becoming eyesores. Of specific interest to community associations was the expansion of the statutory “lien priority.” The new law now provides that both condominium and homeowner associations are eligible to receive a six-month “rolling” lien priority. This means that instead of having a priority for only six months of assessments, an association may be eligible to claim a six-month priority for every year that it has a recorded lien (up to five years).
On April 29, 2019, Governor Murphy signed into law a package of foreclosure bills, all of which were all passed by the New Jersey Legislature on March 25, 2019. Among these new laws are provisions lawmakers promise will help owners keep their homes, shorten the time a house sits vacant, and prevent abandoned properties from becoming eyesores.
The big news for community associations, however, is that the new law expands the scope of lien priority for community associations. This new provision will create for the first time a lien priority for homeowner associations, and will provide both condominium associations and homeowner associations a six (6) month “rolling” lien priority. This means that instead of having a priority for six months of assessments once every five years, associations will have a six month priority once each year.
Prior to today, only condominiums in New Jersey were able to claim limited lien priority. As previously enacted, the lien priority statute entitled a condominium association to six (6) months of “aggregate customary assessments” following a mortgage lender’s Sheriff’s sale so long as the association has a lien recorded prior to the mortgage lender’s initiation of the foreclosure process. Put simply, even though this limited priority existed, it could only be exercised once every five years. So in most cases associations were forced to write off years of unpaid assessments, which increased the assessment burden for the paying owners and adversely affected associations’ budgets and the ability to make necessary repairs and/or capital replacements. Of course, homeowners associations were not even entitled to those six months of fees.
On March 25, 2019, the New Jersey Legislature passed a bill that will enhance the lien priority for condominium associations and, for the first time, give the same lien priority to homeowners associations.
If this legislation is signed by Governor Murphy, both condominium and homeowners associations will enjoy a limited priority over all other liens (except for municipal liens or liens for federal taxes). The legislation would amend the lien priority provisions already contained in the Condominium Act and add the lien priority provisions in the Planned Real Estate Development Full Disclosure Act (PREDFA).
New Jersey Appellate Division Closes the Door on Mortgagee in Possession Actions: Woodlands Community Association, Inc. v. Mitchell
Over the past ten or so years, community associations in New Jersey have struggled with delinquent owners who, for numerous reasons, have ignored their responsibility to pay their common expense assessments and, in some cases, abandoned their homes. Many of these homes sat (or still sit) vacant for years due to the fact that mortgage lenders did not – or for a few years were prohibited by the courts from – prosecuting mortgage foreclosure actions. Since we are only now starting to see some increasing movement with mortgage foreclosures and Sheriff’s sales, associations were required to find creative ways to collect these past due assessments.
When traditional collection methods failed, some associations opted to foreclose the assessment lien(s) on the delinquent homes. Some obtained authority to rent vacant homes with the assistance of a court-appointed receiver (rent receivers), when and if the courts were amenable to such remedy, which is not always the case. In other circumstances, where the mortgage lender changed the locks or winterized a home, associations sought to hold the mortgage lender responsible for the assessments, claiming that the lender was a “mortgagee in possession”; however, due to a recent published decision, that avenue to collect delinquent assessments has been prohibited in most cases.
On June 6, 2017, the Appellate Division issued a decision in Woodlands Community Association, Inc. v. Mitchell. That decision, which was approved for publication, held that a mortgage lender’s act of securing its interest in the unit (changing the locks and “winterizing” the unit) did not amount to possession and did not create a duty for the lender to pay the ongoing assessments due to the association.
Pennsylvania Community Associations Benefit from Amendments to Uniform Planned Community Act and Uniform Condo Act
On April 20, 2016, Governor Tom Wolf signed into law Act 21 – House Bill 1340, sponsored by Representative Martina White, which amended the Pennsylvania Uniform Planned Community Act (UPCA) and the Uniform Condominium Act (UCA) under Title 68 (Real and Personal Property). The amendments, specifically with regard to Section 3315(d) and Section 5315(e) of the Title 68 Acts – Lien for Assessments, expanded the provisions under the UPCA and the UCA and established that a lien for unpaid assessments may now be instituted within four (4) years (rather than the previous timeframe of three (3) years) after the assessments become payable. Additionally, the amendments now enable associations to resolve assessment delinquencies by allowing an association to obtain a personal judgment against the delinquent unit owner(s) rather than foreclosing on the lien, while still preserving the statutory lien. Previous to the amendment, in 2014, the United States Court of Appeals held that a personal judgment obtained by a community association in Pennsylvania did not preserve the statutory lien and that unless associations filed a lien foreclosure action within three (3) years of a delinquency, the lien for assessments was extinguished. The amendment allows associations to resolve assessment delinquencies without putting ownership of homes at risk through foreclosure proceedings.
Hill Wallack LLP’s Condo FAQs is a continuing series in which we answer frequently asked questions (FAQs) pertaining to condominiums, cooperatives and homeowners associations. These FAQs relate to various issues that include interpretation of governing documents, board meetings, suspension of privileges, collections, or bankruptcy and foreclosure.
Question: I’ve heard that when a mortgage lender forecloses on a condominium unit, the association is entitled to six (6) months of assessments. I’ve also heard that the association has “limited priority” over the mortgage. Is that true? What does that really mean?
Answer: Pursuant to N.J.S.A. 46:8B-21(b) of the New Jersey Condominium Act, a condominium association’s recorded lien for delinquent common expense assessments may have limited priority over an existing mortgage under certain circumstances. If those specific requirements are met, the association to would be entitled to six (6) months of “customary condominium assessments” from the mortgage lender if the unit is sold as part of a mortgage lender’s foreclosure action.