In a decision that will affect the majority of community associations in Pennsylvania, the United States Court of Appeals for the Third Circuit has determined that associations must initiate foreclosure proceedings against delinquent unit owners in order to prevent a statutory lien over three (3) years old from being extinguished.
The case – In re Makowka, which was decided on June 9, 2014 – centers on the interpretation of specific language in Section 5315 of the Pennsylvania Uniform Planned Community Act (“UPCA”), which states that a “lien for unpaid assessments is extinguished unless proceedings to enforce the lien are instituted within three years after the assessments become payable.” More specifically, this case ultimately turned on what constitutes “proceedings to enforce the lien.
The facts are as follows: the Pocono Mountain Lake Estates Community Association sought to collect on certain past due assessments from Ms. Makowka. The Association obtained a money judgment against Ms. Makowka in 2008 and then a second judgment in 2010. When the Association was unable to collect on these judgments, it obtained a Writ of Execution and requested that Ms. Makowka’s unit be sold at Sheriff’s sale on September 14, 2011.
Two days before the Sheriff’s sale, Ms. Makowka filed a Chapter 13 bankruptcy petition and sought to avoid the Association’s claims under 11 U.S.C. § 522(f), which releases a debtor from obligations imposed by judicial liens (i.e., money judgments). Although Ms. Makowka acknowledged that Section 5315 of the UCPA granted the Association a self-executing, statutory lien, she argued that a portion of that lien was extinguished by law because the Association failed to enforce the lien within the statutory period of three (3) years. The Association objected, asserting that it had preserved its statutory lien by obtaining the money judgments against Ms. Makowka and these money judgments constituted “enforcement of the lien.”
The Third Circuit disagreed with the Association and, based on its reading of how the Pennsylvania Supreme Court would interpret Section 5315 of the UCPA, held that “proceedings to enforce the lien” meant only foreclosing the lien, not proceeding against a delinquent unit owner to obtain a money judgment.
Unlike New Jersey, which does not have automatically extinguishing liens in this context, community associations in Pennsylvania must be cautious of outstanding unit owner balances that either approach or exceed three (3) years from the time the assessment or fine becomes due. Note that Section 3315 of the Pennsylvania Uniform Condominium Act mirrors the language in Section 5315 of the UCPA, so this ruling will no doubt be applied to condominium associations as well as homeowners associations. This decision now mandates that in order to prevent a portion of the statutory lien from being extinguished after three (3) years, a foreclosure proceeding will be necessary.
You can read Third Circuit’s decision in In re Makowka here.
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