Daily Development for
Tuesday, June 25, 1996

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
randolphp@umkc.edu

MORTGAGES; FORECLOSURE; CONDOMINIUM; COMMON CHARGES: In Connecticut ( a Uniform Common Interest Ownership Act state) a court does not have equitable authority to order a foreclosing mortgagee to pay common charges accruing during the pendency of the foreclosure action. Dime Savings Bank of New York, FSB v. Muranelli, 667 A.2d 803 (Conn. App. 1995), cert. denied.

The trial court ordered a foreclosing mortgagee to pay accruing common charges on a condominium subject to first and second mortgages being foreclosed. The appellate court reviewed Connecticut's statutory provisions for the priority of liens on condominium property under that state's Common Interest Ownership Act, Conn. Gen. Stat. 47-258.

The statute provides that first and second security interests have first priority, liens for property taxes have a second priority and the condominium Association has a third priority for accruing common charges. The Association also has a "super priority" for common charges that accrued during the six month period immediately preceding the foreclosure action.

The court held that the trial court's attempt to exercise equitable powers by requiring payment of common charges accruing after the foreclosure procedure was begun violated this statutory scheme. The court recognized that the foreclosing mortgagee may realize a gain at the expense of the Association and all of its other members to the extent that the foreclosure does not bring an amount of sufficient to satisfy both the mortgage debt and common charges not entitled to super priority. However, the legislature had considered the matter and allocated priorities in a way which can not be revised in equity.

Comment 1: Foreclosing lenders don't want to be subject to huge unanticipated liens. That's why, in the elaborate "give and take" process that resulted in the development of UCIOA, the lenders most important to the condominium process - institutional and secondary market players - pushed hard to prevent complete subordination of their liens behind condominium liens. On the other hand, lenders have another concern as well - the preservation of the condominium and its improvements for the benefit of all the "healthy" unit owners, who also have liens with these same lenders. The "six month superpriority" concept is an attempt to balance these important competing values. Without the super lien, following a period with several units in default, a condominium could languish into disrepair with inadequate support for its maintenance and operations. Other unit owners are willing to pay their share, but are less likely to be willing to "kick in" a larger share when some units haven't paid at all. Now, even if the liens aren't paid, there is some assurance that at least six month's worth will come in at the time of foreclosure, and other unit owners will be more likely to behave responsibly.

Comment 2: Speaking of responsible - shouldn't the lender have paid the liens anyway - as part of the general preservation of the unit? Even if not required by law to pay the assessments, the lender still could argue that the "anti-waste" covenants of the mortgage justified its assessing the costs of maintenance of the common areas to the unit owner in order to prevent further deterioration. Otherwise, the lender might find the market value of its security is diminishing in proportion to these unpaid fees, and it is losing on the back end (resale) what it's gaining on the front end, even if it is unlikely ever to be able collect a deficiency.

Comment 3: The UCIOA balance in this area is a good example of how the uniform laws process, which has sufficient substance to bring together all parties with significant interests in the covered topics, can result in a political balance that takes all interests into account.

Comment 4: The latest version of UCIOA, which was adopted last year by the National Conference of Commissioners on Uniform State Laws, significantly upgrades the earlier version of that statute and the other Uniform common interests acts, such as the Uniform Condominium Act and the Uniform Time Share Act that preceded it. States which have earlier versions of these various acts ought to be looking at these new provisions. Coincidentally, your editor also has another hat as Executive Director of the Joint Editorial Board on Uniform Real Estate Laws and can provide you with all you need to know about UCIOA and how it would affect your state.

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 five years, these Reports annually have been collated, updated, indexed and bound into the Annual Survey of Developments in Real Estate Law, volumes 1-5, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Laprica Mims at the ABA. (312) 988 6233.

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