COA Lien Foreclosure Eliminates Prior Mortgage Lien

| May 1, 2013 | Homeowners' Associations |

The foreclosure of Condominium Owners Association (“COA”) assessment liens can under some circumstances remove and eliminate a prior mortgage lien. In two recent Washington State Court of Appeals decisions the Court ruled that the COAs in those cases that had foreclosed their comparatively small assessment liens against a condominium unit had the effect of eliminating a previously-recorded mortgage lien against the unit.

As a result, the successful bidder at the foreclosure sale (often the COA itself) obtained title to the unit free and clear of the prior mortgage. This somewhat surprising outcome was confirmed and explained in both the 2012 Summer Hill Village Home Owners Association v. Roughley and the 2013 BAC Home Loans v. Fulbright cases. The factual contexts of these cases were of course important to the outcomes, but there is nevertheless an important lesson to be learned from the decisions.

That lesson is that a COA can potentially receive a great and unexpected financial reward when it initiates a lien foreclosure action for delinquent assessments – even when the unit in question is subject to a prior recorded mortgage. This may occur even if the prior mortgage is larger than the present value of that condominium unit (i.e., an “upside down” mortgage to fair market value scenario).

Our firm represents COAs (as well as single family residence Homeowner Association), and if your Association wishes to consider taking collection action against delinquent owners, including possible foreclosure of the Association lien, please contact us. We can review the circumstances surrounding your Association lien and advise you as to the potential risks and rewards of taking legal action to enforce your lien rights.