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District of Columbia: Treacherous Footing Continues for Lenders Facing Condominium Association Foreclosure Sales

Posted By USFN, Tuesday, March 13, 2018
Updated: Monday, March 12, 2018

March 13, 2018 and May 1, 2018

by Matthew Fischer and Christianna Kersey
Cohn, Goldberg, & Deutsch, LLC – USFN Member (District of Columbia)

Continuing the tectonic shifts begun with its decision in Chase Plaza Condominium Ass’n v. JPMorgan Chase Bank, N.A., 98 A.3d 166, (D.C. 2014), the Court of Appeals recently issued an opinion in Liu v. U.S. Bank, N.A. No. 16-CV-262, CAR-6539-14 (D.C. Mar. 1, 2018) that further undermines the position of mortgage lenders after a condominium association initiates a foreclosure sale.

As readers will recall, in Chase Plaza, the court interpreted D.C. § 42-1901 and its provisions regarding the six-month “super-priority” of condominium association liens to wipe out mortgage lenders, including those in “first” position. As a result of that 2014 decision, a number of related cases have been working their way through the superior court to the court of appeals. In Liu, the appellate court overturned a superior court’s grant of summary judgment for the bank and, once again, ruled in favor of third-party purchasers at a condominium association foreclosure auction.

The Liu opinion expanded upon the ruling in Chase Plaza holding that, even in the face of a sale allegedly conducted “subject to the first mortgage or deed of trust,” a holder of a deed of trust in first position could still be wiped out. The court of appeals ruled that the statute specifically prohibited the ability of the condominium association to apparently “waive” the super-priority status per D.C. Code. § 42-1901.07. In footnote 9 of the decision, the appellate court explicitly withheld its views over a “split-lien” and how it would rule in the event that the condominium lien at issue were longer than six months. In Liu, the lien was for less than six months and, thus, the court side-stepped the question for now. More importantly, the court of appeals found little merit in the bank’s argument for equitable estoppel based upon a reasonable reliance on the stated terms of sale, due to both the action of the bank (which attempted to pay off the condominium association lien) and the “expression provision” of the statute among other reasons.

In footnote 9, the appellate court also avoids the issue as to whether the foreclosure sale should be set aside due to the bank’s stated desire to not seek to set aside the sale. The opinion in Liu, therefore, offers some possible avenues of attack for future litigants. First, the court leaves open the question of how it would treat a lien that was in excess of six months. Second, the court seems to invite mortgage lenders to seek to have sales in question set aside, though such arguments might be better suited to the superior court. Finally, different facts could present a stronger case for equitable estoppel in the event that a mortgage lender did not seek to pay off a condominium lien, and failed to do so.

Closing Words
Despite this latest ruling, concerns of mortgage lenders were addressed by the Council of the District of Columbia in passage of the Condominium Owner Bill of Rights and Responsibilities Amendment Act of 2016. This legislation directly dealt with issues arising out of Chase Plaza and its progeny, by specifically requiring that a condominium association send notice to any holder of a first deed of trust (or first mortgage of record), their successors and assigns, including assignees, trustees, substitute trustees, and MERS. Moreover, the legislation requires the association to expressly state whether the foreclosure sale is either for the six-month priority lien, not subject to the first deed of trust, or for more than the six-month priority lien (which is subject to the first deed of trust).

While boding well for the future, the Amendment Act does not address condominium association foreclosures that occurred prior to its enactment, leaving mortgage lenders stranded until these pre-Chase Plaza cases work their way completely through the courts.

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