December 9, 2013
by David C. Boyer
RCO Legal, PC
USFN Member (Alaska, Oregon, Washington)
In Oregon, condominium association (COA) liens can obtain priority — or “jump” priority — over a first trust deed of record. Accordingly, any loan in default within a planned community should be carefully and promptly assessed.
Under Oregon’s Condominium Association Trust Act (ORS 100.105, et seq.), any assessments or fees due under a condominium declaration has the ability to jump priority. To do so, the COA must provide notice to the lender of record (the “Notice to Lender”). If a foreclosure of the trust deed is not initiated within 90 days from the date of the Notice to Lender, the COA lien jumps priority. In judicial foreclosures, which have recently been the predominant form of foreclosure in Oregon, a foreclosure has been generally perceived as being initiated upon the first legal filing.
Requirements to Jump Priority
A COA lien can establish priority ahead of a trust deed by recording and providing a Notice to Lender that includes: the name of the borrower, date and recording number of the trust deed, name of the condominium, unit number, and the amount of unpaid assessments (ORS 100.450(7)). Further, the notice must contain the following in 10-point font: “NOTICE: The lien of the association may become prior to that of the servicer pursuant to ORS 100.450 (Association lien against individual unit).”
The notice must be accompanied with an affidavit providing the date and person to whom notice was served (ORS 100.450(f)). If the borrower is in default under the terms of the trust deed, then the COA lien notice can establish priority if the servicer fails to initiate a foreclosure or complete a deed-in-lieu of foreclosure within 90 days. The COA lien includes all associated attorneys’ fees and interest.
SB 558: Opening the Door to COA Lien Priority?
The recent passage of Senate Bill 558 (SB 558) has failed to clarify when foreclosure of a trust deed is “initiated,” an important term because such initiation prevents a COA lien from jumping priority.
SB 558 requires a beneficiary under a residential trust deed to request a resolution conference with a borrower for purposes of negotiating foreclosure avoidance measures prior to bringing a judicial foreclosure suit, unless the beneficiary is eligible to claim exemption from the requirement. [SB 558, Section 2(1)(a)].
The requirement to request or participate in a resolution conference does not apply to a beneficiary if the beneficiary submits a sworn affidavit to the attorney general, stating that during the preceding calendar year the beneficiary did not commence or cause an affiliate, subsidiary, or agent of the beneficiary to commence more than a total of 175 actions to foreclose a residential trust deed, either by judicial foreclosure or by nonjudicial foreclosure. [SB 558, Section 2, 1(b)(A)].
SB 558 permits either a beneficiary or grantor to request a resolution conference. Whether a resolution conference is initiated by a borrower or a servicer, several steps must be completed before a servicer is able to retain the certificate of compliance that must be attached to the first legal filing in a judicial foreclosure suit.
Since proper notice of a COA lien provides the COA the ability to jump the priority of a trust deed if a foreclosure is not initiated within 90 days of the notice, the question becomes: When is a judicial foreclosure initiated in terms of the new requirements under SB 558? Instances can certainly be anticipated where a COA provides a servicer with notice of a lien pursuant to ORS 100.105, and the requirements of SB 558 obstruct a servicer’s ability to file a judicial foreclosure suit prior to the expiration of 90 days. There is no clear guidance in SB 558 indicating whether or not the servicer in such a situation has initiated a foreclosure by requesting a resolution conference.
Arguably, the request for a resolution conference is the initiation of a foreclosure under the new requirements to foreclose in Oregon. However, no rules or case law provide a clear answer. While recent case law may help servicers return to more nonjudicial foreclosures, mediation requirements cannot be avoided (mediation is required under Senate Bill 1552 for nonjudicial foreclosures). (Editor’s Note: For further insight into the most recent changes to Oregon foreclosures, see the Oregon segment of Mediation: Foreclosure Updates from Four States, USFN Report (Summer 2013 ed.).)
Is it a COA or an HOA?
One of the first steps in any new foreclosure case in a single family or multi-unit development is assessing whether a COA or Homeowners Association (HOA) runs with the property. HOAs are governed under the Planned Community Act (ORS 94.550 to 94.783). If an HOA covers the property, then there is no risk of assessments, fees, or a lien taking priority over the trust deed. HOA liens are subordinate to first and second trust deeds and are generally acknowledged as junior by the subject HOA.
The organizing documents of an HOA typically provide covenants that give the association authority to lien for unpaid dues and any subsequent attorneys’ fees connected with collection (ORS 94.709). However, as against third parties, a claim of lien is not perfected until it is recorded (F.N. Realty Services v. Oregon Shore Rec. Club, 133 Or. App. 339 (1995)). Thus, HOA liens have priority according to their respective recording date, and do not relate back to when organizing documents (bylaws, declarations of incorporation, etc.) or amendments were recorded.
Lenders and servicers should quickly take action on any Notice to Lender. Correspondingly, when assessing a foreclosure within a COA, counsel should carefully review any COA letters, declarations, or liens recorded in the real property records. If a COA lien notice is discovered, counsel should be promptly notified so that an assessment can be made as to whether ORS 100.105 requirements have been satisfied. If all notice requirements have been met, swift steps must be taken to initiate a foreclosure within 90 days to avoid losing priority to the COA lien.
A COA’s ability to jump priority continues to plague servicers. However, with proper oversight, foreclosures can be managed to provide servicers with the ability to maintain priority and save on the growing costs of Oregon foreclosures. While the full effects of SB 558 are still unknown, servicers and their outside counsel need to pay particular attention to any COA notice so that they may act timely to maintain lien priority.
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