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Oklahoma Recognizes Priority of Mortgage Over HOA Liens

Posted By USFN, Monday, October 21, 2019
Updated: Tuesday, October 15, 2019

by Kim Pogue Jenkins, Esq.
Baer & Timberlake, P.C.
USFN Member (OK)


In a case of first impression, the Oklahoma Court of Civil Appeals held that a prior recorded mortgage held priority over a homeowners association lien, as the homeowners association lien was inchoate and unenforceable until the homeowners failed to pay assessments due. At issue in CIT Bank, N.A. v. Heirs, Personal Representatives, Devisees, Trustees, Successors and Assigns of McGee, 444 P.3d 496, 2019 OK CIV APP 36, was when a homeowners association lien becomes effective.

The real property involved is located on a residential and golf course development in Love County, Oklahoma. The Dedication of Restrictions, Conditions, Easements, Covenants, Agreements, Liens and Charges, Falconhead, Phase 1 (“Dedication”) was properly recorded on March 15, 1971. The Dedication provided that each purchaser of a lot in the subdivision would, by accepting a deed to the lot, agree to pay all assessments determined by the Falconhead Property Owners Association, Inc. (“HOA”) and that the obligation to pay would constitute a lien upon the property running with the land. Edward and Laura McGee (“homeowners”) purchased a lot in Falconhead in 1996 subject to this Dedication.  In 2005, the homeowners executed a Home Equity Conversion Mortgage in favor of Financial Freedom Senior Funding Corporation, which was recorded on November 14, 2005, and was subsequently assigned to CIT Bank, N.A. (“CIT”).  CIT filed a suit for foreclosure of its mortgage on May 13, 2016. The HOA recorded a Lien Statement on May 20, 2016, after the homeowners failed to pay assessments, and CIT amended its complaint to join the HOA in its foreclosure.

CIT moved for summary judgment, and the HOA responded with a counter-motion for summary judgment in which it claimed priority over the mortgage. The HOA asserted that its lien “came into being and existed” from the time the homeowners accepted a deed in 1996. In support of its assertion, the HOA claimed that the mortgage holder was on notice of the lien and the contents of the Dedication. The HOA cited Grindstaff v. Oaks Owners Association Inc., 386 P.3d 1035, 2016 OK CIV APP 73, to say that adhering to the terms of the Dedication is a contract between the HOA and the homeowners, and cited to First National Bank v. Melton & Holmes, 9 P.2d 703, 1932 OK 149, to say that “a legal contract which creates a lien, does so upon the date of execution of the contract where language creating the lien is in praesenti.”  The HOA interpreted the language quoted above from the Dedication to mean that the lien was created at the time of recording the Dedication, and that the duty to pay assessments constituted an actual lien on the land, not the potential to become a lien. The HOA further noted that it is irrelevant when payment of assessments or payments on a promissory note are paid or not paid; time of creation of the lien is what is relevant. (See 42 O.S. §9 “A lien may be created by contract, to take immediate effect, as security for the performance of obligations not then in existence.”)  Finally, the HOA argued that language in the Dedication provided that HOA liens thereunder would be subordinate to construction mortgages, and that the HOA could voluntarily subordinate its lien to other mortgages if it so chose. The CIT mortgage was not a construction mortgage, and the HOA did not subordinate its lien to the mortgage.

The District Court of Love County granted summary judgment in favor of CIT, finding that its mortgage lien had priority over the lien of the HOA, and the Oklahoma Court of Civil Appeals affirmed, stating that the Dedication only gave the HOA a future right to make assessments and create a lien.

In its analysis, the Court of Civil Appeals looked at case law regarding the nature and priority of other liens. Quoting First Nat’l Bank of Tulsa v. Scott, 249 P. 282, 1925 OK 986, the Court compared the HOA lien to that of an ad valorem tax lien, wherein “the lien securing payment of those taxes does not attach until the amount of the assessment is subsequently determined and the tax becomes due and delinquent.” The Court determined that any lien created by the Dedication was inchoate, as one could not determine amounts due or how to discharge the lien. The Court went on to find that a lien may become choate and attach, but it cannot take priority over a previously perfected lien. U.S. v. Home Fed. Sav. & Loan Ass’n of Tulsa, 418 P.2d 319, 1966 OK 135.

The Court also compared the HOA lien to that of a mechanics and materialmen’s lien as provided by 42 O.S. §141. A “prior recorded mortgage takes precedence over a materialmen’s lien accruing after the recording of such mortgage, even to the extent of attaching to the improvements placed upon the mortgaged premises afterwards by the materialman.” Thompson v. Smith, 420 P.2d 526, 1966 OK 214. The Court reasoned that since a portion of the HOA assessments were used for maintaining common areas in the development, the lien was analogous to a materialmen’s lien and was not entitled to priority over the prior recorded mortgage. The Court did not consider the fact that the mortgage was a reverse mortgage to be relevant to the argument. The Court concluded by finding that the HOA lien was “inchoate and did not mature into an enforceable lien until December 2015” and that the HOA “perfected its lien on May 20, 2018, well after the Bank’s mortgage had been recorded.” In holding that CIT’s mortgage lien was first in time and prior to the HOA lien, the judgment of the District Court was affirmed.

While it will remain necessary to include homeowners association lien holders in foreclosure actions in Oklahoma, mortgagees may rely on this decision and this Court’s analysis to establish priority of the prior recorded mortgage over subsequently perfected HOA liens.


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