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D.C.: New Condominium Lien Foreclosure Statute Opens Door for Challenging Completed Condominium Lien Foreclosure Sales?

Posted By Rachel Ramirez, Tuesday, April 25, 2017
Updated: Wednesday, July 26, 2017

April 25, 2017 and August 1, 2017

by Kenneth Savitz and Tracy Buck
Rosenberg & Associates, LLC - USFN Member (District of Columbia)

In the USFN Report (Winter 2017 Ed.), we advised deed of trust holders and servicers to keep an eye out for possible changes to the D.C. condominium lien foreclosure laws, especially in light of the holding in Bourne Valley Court Trust v. Wells Fargo Bank, NA, 832 F.3d 1154 (9th Cir. 2016).

One such change came sooner than expected when, on February 9, 2017, the D.C. Mayor signed D.C. Act 21-657, known as the “Condominium Owner Bill of Rights and Responsibilities Amendment Act of 2016” (Act). Several draft versions of the Act had been considered in late 2015, but none survived committee review. The Act, enacted on April 7, 2017, contains two important amendments to D.C. Code § 42-1903.13 regarding D.C. condominium lien foreclosure law that heavily impact deed of trust holders and servicers.

Firstly, the Act now requires that condominiums expressly state on their notices of sale that the foreclosure is either for the “6-month [super] priority lien” or for “[m]ore than the 6-month [super] priority lien … and subject to the first deed of trust.” Before the Act, condominiums issued the D.C. Recorder of Deeds’ prescribed Notice of Foreclosure Sale of Condominium Unit for Assessments Due, which contained no such differentiation as to which lien the condominium was foreclosing. This omission created uncertainty for deed of trust holders and servicers regarding the assessments, charges, and fees that were included in the unspecified lien amount. Deed of trust holders and servicers were often forced to pay non-priority condominium lien amounts — and increased attorneys’ fees in negotiating the correct super-priority lien amount — to ensure that their first-priority deed of trust position was preserved. It is anticipated that this clarification on the notice of sale will foster communication among all lienholders affected by condominium foreclosure sales.

Secondly, and more directly related to the Bourne Valley decision, the Act now requires that condominiums provide their notices of sale to “[a]ny and all junior lien holders of record” and to “[a]ny holder of a first deed of trust or first mortgage of record, their successors and assigns, including assignees, trustees, substitute trustees, and MERS.” This is a drastic change from the previous version of the statute, which required that the notice be sent only to the Mayor (i.e., recorded with the D.C. Recorder of Deeds) and to the “unit owner at the mailing address of the unit and at any other address designated by the unit owner.” The pre-Act notices did not have to be sent to the first deed of trust holders or servicers, who were left to scour the D.C. public records for notices of sale.

As noted previously of the Bourne Valley decision, the Ninth Circuit Court of Appeals ultimately viewed the absence of required notice in the Nevada statute as unconstitutional. In addition though, the Ninth Circuit cited to Nevada’s 2015 legislative amendments (which added a notice provision) as “further evidence that the version of the Statute applicable in this action did not require notice unless it was requested. If the Statute already required [ ] associations affirmatively to provide notice, there would have been no need for the amendment.” Bourne Valley, n.4.

The Mayor and D.C. Council’s recent decision to add provisions explicitly requiring notice to lienholders only bolsters any arguments that the prior version of D.C. Code § 42-1903.13 lacked such due process protections and was facially unconstitutional. Deed of trust holders and servicers would be wise to re-review any deeds of trust purportedly extinguished by super-priority condominium lien foreclosures as a result of the pre-Act statute.

© Copyright 2017 USFN. All rights reserved.
April e-Update and Summer USFN Report

Note for consideration of the USFN Award of Excellence: This article is not a "Feature."


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