Daily Development for Friday, February 4, 2000

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

CONDOMINIUMS; LIENS; DUE PROCESS; NOTICE: A condominium unit owner is entitled to "proper notice" before the filing of a condominium lien. Proper notice includes prior or reasonably contemporaneous notice of the existence of the lien and an opportunity to do something about it. Certain violations of the Fair Debt Collection Practices Act warrant discharge of a condominium lien.

Loigman v. Kings Landing Condominium Association, Inc., 324 N.J. Super. 97, 734 A.2d 367 (Ch. Div. 1999).

New Jersey law authorizes a condominium association to include within its Master Deed or By Laws a provision permitting the imposition of a lien for unpaid assessments. N.J.S. 46:8B21(a). The statute provides, without specification, that the association shall have and may record such a lien "upon proper notice to the appropriate unit owner."

The association in this case contended that "proper notice" was given when its initial demand letter was sent advising that a lien would be filed if certain assessments were not paid. The Superior Court disagreed. It found that while the Legislature did not define what it meant by "proper notice," it must have intended to impose that type of notice which would give the unit owner knowledge of the lien's existence and an opportunity to do something about it. The Court pointed out that the notice sent by the association merely advised the unit owner of the association's potential pursuit of legal remedies. The letter did not say either when these efforts would occur or which remedies would be pursued. "Rather, the Association only made the ambiguous assertion that it might commence a lawsuit 'and/or' file a lien." No notice was given to the unit owner when the association ultimately forwarded a Notice of Lien to the County Clerk's office for recording or at any time thereafter.

The Court found that a unit owner is entitled both to constitutionally guaranteed due process and the process guaranteed by this particular statute. The only question for the Court concerned the amount of process due. In this Court's view, the proper balancing of the rights of both a unit owner and a condominium association requires that the association provide notice simultaneously with the recording of the lien or within a reasonable time thereafter. The Court indicated that the only interest to be served by failure to give notice would be that the association would be able to "ambush" the unit owner upon the resale of the unit. The Court could not "imagine the Legislature intended to provide condominium associations with the right to surreptitiously record a lien." Having found that adequate notice was not given, the Court ordered discharge of the lien.

The Court also examined the events giving rise to the lien because they implicated the Fair Debt Collection Practices Act (FDCPA). It recognized that there is a split among the various Federal Courts of Appeal as to whether condominium assessments fall within the scope of the Act. In the end, it preferred to rely on the approach of those circuits that held that such assessments are within the purview of the Act, rather than the Third Circuit's contrary holding. The Act requires the debt collector to give notice prior to commencing legal action or any other collection activities. Here, the association's attorney was acting as a "debt collector" under the Act. Consequently, the Court found that the association and its attorney breached the Act by failing to halt their collection efforts after the unit owner questioned and sought verification of the amount of the debt. According to the Court, the recording of the lien was inappropriate during the interval between the time when the unit owner wrote to dispute and question the debt and when it received verification of the debt. While the FDCPA expressly creates only a cause of action for monetary damages and the unit owner, in this case, was seeking only equitable relief, the Court held that the FDCPA did not prohibit the granting of equitable relief and, for this independent reason, the Court ordered that the lien be discharged.

Comment: Note that the primary holding was based upon Constitutional due process considerations as well as the statute, so the holding has ramifications beyond the New Jersey state line.

Comment 2: Here we go again on FDCPA issues. The equitable analysis ties in with other decisions reported recently where the courts have held simply that they will withhold remedies in the event of inequitable conduct, even though there is no positive law indicating that the remedy should be denied. And the inequitable conduct here was the violation of the FDCPA. As the Congress specifically decided not to withhold the collection remedy for violations of the FDCPA, it is difficult for the editor to see why the court deems such approach to be appropriate. Clearly, for FDCPA purposes, the court ought to differentiate between the creditor and its agent. The court refuses to do that.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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