Daily Development for
Wednesday, October 29, 1997

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

CONDOMINIUMS; ASSESSMENTS; PRIORITY: Public agency buying at its own tax foreclosure is personally liable for assessments that come due after foreclosure.

Alpenwald Village, Inc. v. Town of Readsboro, 687 A.2d 481 (Vt. 1996).

The town, which purchased at its own tax foreclosure, was quite willing to have the condominium foreclose on the lot. But the value of the lot apparently was negligible, and the condominium opted instead to seek a personal judgment against the city as owner of the lot for post foreclosure assessments. The court held that the language of the recorded declaration was unambiguous in imposing personal liability upon successor owners of the units. The language the court found unambiguous is as follows:

". . . [T]he owner of each Lot shall, on the first day of May in each year ... pay to the REVERSIONARY OWNER, or its successors and assigns ... the annual payment in the amount hereinafter recited. Such annual payment shall be a lien on each Lot, and if not paid by June 15th of each calendar year, the REVERSIONARY OWNER, or its successors and assigns, may enforce said lien, as hereinafter provided, as and when the REVERSIONARY OWNER shall elect ....

(8).... [I]n the event of a breach of any of the covenants, conditions, reservations, or restrictions hereby established, the REVERSIONARY OWNER shall have the right to enforce or remedy such breach or enforce such lien as hereinbefore provided by appropriate legal proceedings. As to each Lot owner in such premises these covenants, conditions, reservations, and restrictions shall be covenants running with the land....

The Town also argues that "scarce public funds in a tax-poor community" should not be allocated to assessments on property the Town has acquired at a tax sale. The court simply scoffed at that notion, but later was more gentle with the Town's argument that imposing personal liability on the town was contrary to public policy where it resulted in the Town's being stuck with an unending and unavoidable charge for assessments on an unsaleable lot merely as a consequence of the Town's initiating tax collection procedures.

"The trial court has not yet had the opportunity to make findings or to frame an appropriate order. It is therefore premature to consider the Town's concern that its assessment obligation will be permanent, in the absence of a foreclosure action by AVI or an increase in the value of the properties it acquired via tax sale. Moreover, the Town does no more in its brief than to mention the dilemma, presenting no further legal argument. Should the issue come before us again after remand, it will be incumbent upon the Town to demonstrate in fact that it has no options in the absence of a foreclosure action by AVI, why its position mandates judicial relief, and what the nature of that relief should be."

Comment 1: The parties apparently did not attempt to argue the common law rules for running covenants, perhaps because Vermont already has moved to the approach advocated by the proposed Restatement of Servitudes and abandoned any requirement for a "touch and concern" requirement in order for successor owners to be bound absent an express assumption of personal liability. It is likely that the "touch and concern" requirement could be met, since the purpose of the assessments probably was to pay for maintenance and improvement of common areas, but it is noteworthy that the court did not mention the issue. Further, the court ignores the fact that there likely is no privity of estate or contract between the present owner and the benefitted association - thus making it difficult for the covenant to run at law. Earlier cases that permitted payment obligations to run often did so through the imposition of an equitable lien, which would not require privity. A few courts have permitted "equitable damages" - whatever that means. Again, the editor doesn't quarrel with the ultimate outcome, but wonders about the lack of analysis of these areas.

Comment 2: If there is no touch and concern requirement, then ought the courts to adopt some public policy restriction upon when covenants ought to run? The Town in this case more or less invites such an approach. The court seems ready to entertain it, given the proper development of a factual record. The editor has railed before about the wisdom of adopting a general "public policy" loophole for courts to use in evaluating the rights and responsibilities of parties who have committed themselves to a long term property relationship. The parties knew going in that there would be long term commitments expected of them. They traded their commitment for the expectation of long term benefits. It was a fair trade. The court should leave the bargain alone, except where, at the outset, it was a bargain that was against policy (such as a racially restrictive covenant). How things work out over time should not be the province of the courts, but of market factors.

Comment 3: Whatever the merits of permitting courts to refuse to enforce money covenants based upon public policy, the editor submits that this is not the case for such discretion to be exercised. The Town had a choice not to foreclose on the unit in question. It did so because it perceived that there would be value, now or in the future, in ownership. If someone else had bought at the foreclosure sale, that buyer would have been bound by the assessments, and the other condominium owners would have been protected from having to pay more than their share. Why should the Town be permitted to acquire property at auction and then duck the uniform requirements that would apply to other parties who would have bought?

Comment 4: Note that statutes in other jurisdictions may have an impact on the question of personal liability for assessments, particularly as applied to foreclosure sale purchasers.

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