Condominium Lien Enforcement
"CASH FLOW IS THE ASSOCIATION'S LIFEBLOOD."
If a condominium association doesn't collect so-called "common area" charges assessed against its unit owners, the association would slowly but surely financially implode - it's just that simple. This is because the typical condominium association relies almost exclusively on the timely collection of common area charges to fund the association's annual budget. Assessments cover operational expenses ranging from paying the electric bill to snow removal.
In both Massachusetts and Rhode Island, the condominium association has a lien on a unit for any assessment levied against that unit or fines imposed against its unit owner from the time the assessment or fine becomes due. Even more critical to the financial health and well being of the condominium association is the right to what is commonly referred to as the "super priority lien."
The Rhode Island Condominium Act requires that these expenses be assessed to all unit owners, in accordance with the condominium’s declaration. All unit owners have both a contractual and statutory obligation to pay their common fees. Failure to pay assessments is not without consequence. The unit owner can be divested of their title to the unit as a result of delinquency. The condominium association has an automatic lien against the unit for these assessments.
In Rhode Island, a condominium lien is enforceable in the same manner as a mortgage, which is by non-judicial foreclosure. The first step is to send the unit owner a statutory notice of delinquency when the account is 60 or 90 days in arrears. Unless payment is received or an acceptable payment arrangement is agreed upon, a unit title is ordered and reviewed. A notice is sent to the owner of the first mortgage held on the unit, informing them of the delinquency amount.
In Rhode Island, the condominium lien enjoys a priority status ahead of any first mortgage, to the extent of 6 months of assessments, $2,500 in attorney fees, and $5,000 in collection fees. To protect the security interest, the holder of the first mortgage will often satisfy the arrearage by paying the condo board.
If the fees remain outstanding, the board can move to close on its lien, sending a 2nd notice to both the unit owner and mortgagee. The board can then sell the unit at public auction. If there is a mortgage on the unit, the board must send a notice to the first mortgagee within seven days of the sale, identifying the high bidder and the bid amount. The mortgagee has 30 days to redeem the unit through payment to the Association.
As a unit owner, just remember that when debts begin to pile up, you must pay the condo fees first. If you cannot pay, you cannot stay!
From the late 1980s to the present, “super-priority” lien laws have been enacted throughout the country, enhancing the power and ability of a homeowners association (HOA) to collect fees at the peril of mortgage holders. These statutes are the single biggest emerging threat to lenders due to confusion as to how priority legislation works. Given the high number of defaults, many first and second mortgage interests have been lost due to misconceptions about priority lien laws.
In December 2015 the Rhode Island Supreme Court confirmed the super-priority aspect of a condominium lien foreclosure sale under the Rhode Island Condominium Act, Title 34 Chapter 36.1-3.21, et seq. [Twenty Eleven, LLC v. Botelho, 127 A.3d 897, 2015 R.I. LEXIS 112 (R.I. 2015)]. The Court ruled that a first mortgage and all other junior liens are extinguished by an HOA sale where the mortgagee failed to either (i) pay the assessments, or (ii) exercise its right of redemption.