By Jonathan H. Katz, Esq.

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.

In order to qualify as having limited priority over an existing mortgage, the association must: (a) record a lien before either the receipt by the association of a mortgage foreclosure complaint regarding the unit or the filing of a lis pendens giving notice of the foreclose action on that unit; and (b) make a good faith effort to notify the mortgage lender in writing of the filing of the association’s lien.

As defined by the Condominium Act, “customary condominium assessments” are “assessments for periodic payments, due the association for regular and usual operating and common area expenses pursuant to the association’s annual budget” and shall not include late charges, penalties, interest or any fees or costs for the collection or enforcement of the assessment.

It is important to understand that these provisions apply only to condominium associations in New Jersey – and not homeowners associations or cooperatives. In addition, the priority granted to a lien pursuant to the Condominium Act is only good for sixty (60) months (five (5) years) following the recording date of the association’s lien. This is one (of many) reasons why liens should be regularly updated by condominium association boards.

Put simply, what this means for condominium associations is that if an association records a lien for delinquent assessments and provides notice of that lien to the unit owner’s mortgage lender prior to notice and filing of a mortgage foreclosure action, the association will be entitled to receive six (6) months of regular, monthly assessments (not late fees or legal fees) from the mortgage lender following the transfer of title to the unit by way of Sheriff’s sale.

For more information on this issue or any other issue concerning your community association, please contact one of our Community Associations attorneys. For breaking news or updates on new blog posts, follow us on Twitter at: @njcondolaw.