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D.C. Superior Court Decision Shows Progress Against Super-Priority Condominium Lien Claims

Posted By USFN, Monday, June 15, 2020

by Gene Kendricke Sanchez, Esq.

Rosenberg & Associates, LLC
USFN Member (DC, MD, VA)

 

Decisions in recent years by the District of Columbia Court of Appeals have tipped the scales in favor of condominium liens over mortgage liens where both liens attach to a property. First, in Chase Plaza Condo. Ass'n v. JP Morgan Chase Bank, N.A., the Court of Appeals held that D.C. condominium foreclosure statutes gave condominium liens a “super-priority” that, when exercised, extinguished even a first-priority mortgage lien. Building on that decision, the Court of Appeals held, in Liu v. U.S. Bank, N.A., that a condo could not willingly waive its super-priority lien in favor of a first-priority mortgage lien. However, a recent decision in D.C. Superior Court, Wells Fargo Bank, N.A., v. Hyun Uk Lee, et al., 2017 CA 007966 R(RP) (D.C. Cir. Feb. 27, 2020), shows one way that the lower court is balancing the equities in favor of mortgage lienholders.

In Lee, the property owners encumbered the subject property with a mortgage lien in 2005. In 2010, the condominium association initiated a foreclosure action for unpaid condominium assessments and recorded a notice of foreclosure sale for the property. At the condominium foreclosure sale that same year, the association bought the property. However, it did not immediately execute its deed. In 2017, Wells Fargo, the beneficiary of the mortgage lien, filed a judicial foreclosure action against the mortgagors in D.C. Superior Court. Two years later, a court-appointed trustee sold the property at foreclosure auction to a third-party. It was only after Wells Fargo’s foreclosure auction that the association finally executed and recorded its foreclosure deed from the 2010 sale. The association then intervened in Wells Fargo’s foreclosure action and filed a counter-claim to quiet title, claiming that the 2010 sale extinguished Wells Fargo’s mortgage lien.

On summary judgment the Court ruled against the association, finding that the quiet title claim was barred by laches. Laches is the legal principle that a claim is barred when the claimant causes an unreasonable delay in bringing its action and the delay causes prejudice on the defendant. Here, the Court found it unreasonable that the association waited over nine years from the 2010 sale to execute and record its deed, especially when the purchase contract had a 30 day settlement requirement.

Further, the association not only waited until after Wells Fargo had filed a foreclosure lawsuit, but waited until after the foreclosure auction took place. The Court was unconvinced by the association’s argument that its recorded notice of foreclosure sale was sufficient notice of ownership to Wells Fargo and that Wells Fargo should have contacted the association to learn about its ownership interest. The Court reasoned that regardless of Wells Fargo’s inaction in contacting the association, D.C. law is clear that only a recorded deed after a condominium foreclosure sale can serve as proof of ownership. The Court also found that the association’s delay prejudiced Wells Fargo, which had incurred costs to maintain the property and pursue its foreclosure action. The Court also found that the delay by the association prejudiced the third-party purchaser at the mortgage foreclosure auction because the purchaser had no notice of the condominium association’s ownership.

The take-away from Lee is that laches is working as an effective defense for mortgage lienholders when faced with a quiet title claim stemming from a super-priority condominium lien. Lee has not gone through appellate review and, therefore, is not binding in D.C. However, it is a positive sign for mortgage lien holders facing aged claims from condo sale purchasers that the lower court is balancing the equities and fairly considering the time, effort, and expense, of enforcing a mortgage lien.

Finally, while the result in Lee provides a remedy for past condo foreclosure sales, it is very clear that current and future condo sales can and will extinguish even a first-priority mortgage lien. Therefore, it is still very important to monitor and take appropriate action when condominium dues fall in arrears in the District of Columbia.

 

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