SJC: Condo Fee Liens Come Before Primary Mortgagee

SJC: Condo Fee Liens Come Before Primary Mortgagee

The Massachusetts Supreme Judicial Court recently affirmed a condominium association’s right to file multiple, successive liens against a homeowner that supersede the primary mortgagee. The decision clarifies the law and seemingly puts an end to nine years of litigation, but the defendant in the case says this story isn’t over.

Attorney Thomas Moriarty, a real estate litigator with Marcus, Errico, Emmer & Brooks (MEEB) in Braintree, represented the plaintiff, Drummer Boy Homes Association, in a suit against defendants Carolyn and Randy Britton, who own a unit in a Lexington development. Moriarty sits on the board of directors at the Massachusetts Real Estate Bar Association (REBA) and said that while attorneys have differed on the legality of these liens in the past, the SJC decision settles it for good.

“We have had the rolling lien for 20 years,” Moriarty said. “There are thousands of trial court decisions recognizing multiple, contemporaneous liens. This decision eliminates any doubt as to what the intent of the legislature was and what the application will be going forward.”

Lenders are going to need to pay more attention to homeowners association deficiencies going forward, said Ben Giumarra, a banking regulatory consultant with Spillane Consulting Assoc. in Braintree and a contributor to this newspaper.

“Now lenders will have to act quickly – the longer this goes unpaid, the larger the amount of a super lien that could jump ahead of the first mortgage,” Giumarra said. “Certainly a bank does not want to be in the position of essentially collecting someone else’s debt. The reputation and compliance risks are higher than they have been before, especially after the tough revisions to the federal servicing regulations in 2014 by the CFPB.”

Keeping Tabs On Dues Payments

The court characterized the nine-year legal action as “protracted and contentious litigation concerning parking rights at a condominium complex.” Randy Britton represented himself pro se in District Court, Appeals Court and in front of the SJC.

Britton stopped paying his condo fees in 2006 (at the time it was around $370 per month, but it is currently $501 per month, according to Britton) over the parking dispute, and Drummer Boy Homes Association filed suit against him in 2007. When he didn’t pay, they filed twice more.

In 2009, a judge ordered the Brittons to pay the condo association $22,742.08 plus fines and reasonable attorney’s fees. The case went through two appeals processes before the SJC reversed the appellate court and found in favor of Drummer Boy.

Britton contends, among other things, that the Drummer Boy has no legal standing to sue him. Britton said that group represents all 150 or so condominiums in the 9-building development, not the Drummer Boy II condominium building he and his wife live in.

Moriarty said he was pleased the SJC reversed the appellate decision, which makes it clear that condos can get superpriority liens for unpaid dues over lenders. That is the way it has worked for years, he said, but it hadn’t been sufficiently challenged.

“There have been arguments over the years and banks have made noises about whether or not it was allowed, but no one had ever taken it to the appellate level,” Moriarty said. “Prior to Britton there was never a district court that failed to recognize them.”

In the years between the 2011 appellate court decision and the recent SJC decision, associations have changed the way they collect unpaid dues.

“They took a completely different approach,” Moriarty said. “They had to accelerate their collection procedure. They had less time to work things out with unit owners because any delay beyond six months could mean the unpaid dues would be lost.”

Lenders Weigh In

Bank of America, which is not financially involved with this case, did file an amicus brief in support of Britton and against the practice of condominium associations filing multiple, successive liens.

Bank of America’s 54-page amicus brief in support of the Brittons, reads, in part, “The case under consideration by this court is one of substantial interest to Bank of America and to all who hold first mortgages on condominiums in Massachusetts. Bank of America firmly believes that the Appellate Division correctly held that under G.L. c. 183A, § 6, Plaintiff Drummer Boy Homes Association Inc. is entitled to only a single six-month priority lien.”

Attorney Clive Martin, of Robinson & Cole in Boston, said he filed an amicus brief on behalf of REBA an in support of Drummer Boy because the stakes were so high for Massachusetts condo associations. The 1992 law that gave liens for failure to pay condo fees superpriority over the first mortgagee practically created the modern condo market.

During the recession of the early 1990s, many people stopped paying their condo fees, and in a small association, that can mean deferred maintenance and repairs for buildings and an undue burden on other owners. Martin said associations need to be able to recover unpaid condo fees, and if the SJC had not ruled in Drummer Boy’s favor, it would have spelled disaster for the state’s condo market.

“It would have rolled back the clock to a very bad time for condos and for Massachusetts,” Martin said. “Condo associations are breathing a sigh of relief and I think banks are, too, because this gives them certainty. Condos are dependent on lenders to put in place a mechanism whereby if people don’t pay their fees, the condo is not ruined. This case clarifies that the way condo practitioners have asserted the lien for the last 23 years has been fully appropriate and lawful under the statute.”

Several banks filed amicus briefs on behalf of Drummer Boy Homes Association. They said multiple contemporaneous priority liens for successive six-month periods of time reduces the risk associated loaning money to condominium associations. These banks reported having $229 million in outstanding loans to more than 700 condo associations in Massachusetts.

Still, Britton said he thinks the SJC got it wrong. He said the plaintiff has no standing and because Fannie Mae now owns his loan, federal law prohibits anyone from getting a priority lien over it.

“There’s no point for all these multiple suits,” Britton said. “I think MEEB should have been more diligent about finding out who they’re suing first. Otherwise, you can spend 10 years and end up with nothing, and that’s exactly what’s going to happen in this case.”

On March 29, the SJC ordered Britton to pay back homeowner’s association fees, penalties and reasonable attorney fees to Drummer Boy Homes. The final figures are still being calculated, but that number could approach six figures.

“What I’m going to do next, by April 12, [is] file a petition for a rehearing and a motion to dismiss for lack of subject matter jurisdiction,” Britton said. “I’m contemplating filing another motion, but I haven’t decided if I’m going to do it now or later. It’s something I can file at any time.”

By Jim Morrison | Apr 10, 2016

Banker and Tradesman