Daily Development for
Wednesday, October 25, 1995

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

CONDOMINIUMS; ASSESSMENTS; PRIORITY: Uniform Condominium Act provisions, establishing that assessments take priority as of filing of declaration regardless of when they arise, apply even to condominiums developed prior to enactment of the Uniform Condominium Act. Carroll v. Oak Hall Assoc., 898 S.W.2d 603 (Mo. App. 1995)

This somewhat remarkable case has interesting facts worth reporting.

The condominium was a 160 unit multi story building established in 1978. In 1982 (apparently), one of the original developers acquired 47 units in the building. He gave a $2.6 million deed of trust to Lender, which deed of trust the court assumes (for argument only) was a purchase money deed of trust. Later, the developer sold the units to a limited partnership subject to the $2.6 million deed of trust.

Five years later, the limited partnership was not doing well. The owners stopped paying assessments, and the association filed a notice of assessments in 1989 claiming almost $76,000 unpaid at that time and also claiming a lien for future assessments. The developer, who still had personal liability on the $2.6 million loan to Lender, acquired that loan and deed of trust through a wholly owned corporation at the end of that year. At the time of this acquisition, the amount of unpaid liens amounted to $89,000.

Thereafter, the developer, instead of foreclosing immediately, began to collect the rents from the condominiums in the hands of the limited partnership and applied the rents to satisfaction of the debts, without paying past or ongoing assessment liens.

The association brought suit to foreclose to recover the assessments, claiming a priority superior to the developer's deed of trust. By time of trial, the unpaid assessments, with interest and attorney's fees, had reached almost $790,000 (and counting).

Held: Notwithstanding the fact that the original deed of trust arose prior to the enactment of the Uniform Act in 1983, the priority of Association liens versus that deed of trust, at least Association liens that arose subsequent to the adoption of the Uniform Act, will be determined by reference to that Act. The Act provides that no recordation of notice of claim of liens of any kind is required. Recordation of a proper declaration providing for liens establishes the priority. The Declaration was recorded prior to the Lender's deed of trust.

The developer argued that the Lender's lien was a purchase money lien, and therefore primed the association liens. But the court pointed out that (even assuming the deed of trust was purchase money) prior law had required that "priming" deed of trust liens were recognized only when the deed of trust met the technical requirement that the mortgage contain the name and address of the mortgagee. The deed of trust in this case lacked such identification, and the court refused to credit the argument that the subsequently recorded assignment of that deed of trust to the developer did contain the name and address of developer's law firm. The court commented that the statutory intent was to draw a narrow exception from the usual rule of association priority, and that associations should not be required to search the records to find addresses in subsequent recordings.

The developer argued that the new Uniform Condominium Act did not contain the same requirement for the lender's address, but the court held that, in this respect, the old law applied, because it created vested rights in the association based upon the lack of an address in the Lender's deed of trust at the time it was recorded.

Note what has happened. The court applied the new Uniform Act to give the liens priority, but then applied the terms of the old Act to deprive the lender of an exception otherwise available under the Uniform Act.

Note also that the application of the Uniform Act priority provisions alters the priority rules with respect to a deed of trust entered into prior to the enactment of the Uniform Act. (The court does not analyze how the old law might have affected priority - arguably even under the old law the association had priority, but the argument would have been much different.)

Conflicts prevent the editor from commenting further, but the editor stresses that he had no involvement in any aspects of the events leading to this mess.

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