Foreclosures, Unpaid Dues Strain Condo Boards

I'm hearing a lot these days from condominium board members who are under stress because of financial problems at their associations.

They are starting to see many units go into foreclosure. The financial statement that the property manager sends each month indicates that a growing number of owners are delinquent in paying their association fees.

Yet the association still has bills to pay -- management and legal fees, water and electricity bills.

The board members who contact me want to know what to do. When a condo owner falls behind on monthly fees, the association should act. One step is to place a lien on the owner's unit. The lien puts the world on notice that the homeowner owes money to the association.

In some states, the association is required to file the lien with the recorder of deeds. In the District, however, there is an automatic lien from the time the assessment comes due.

Even where it is not necessary to record the lien, I recommend recording it anyway. Not everyone knows the local law. Recording will alert anyone searching title and considering taking action against the property.

One writer asked whether, when a property goes into foreclosure, the lien remains in force or the delinquent fees are gone forever.

It depends on where the condo is.

In many states, if a mortgage that is being foreclosed on was recorded on land records before the association's lien existed, the foreclosure will erase the lien.

However, in the District and 13 states -- but not in Maryland or Virginia -- there is some form of what is known as a super-priority lien. In the District, if the lender's mortgage was recorded after March 7, 1991, and the owner being foreclosed on is delinquent on association dues, the foreclosing lender is required to pay the condominium association up to six months' worth of those delinquent assessments.

Another board member asked whether a new owner who buys at a foreclosure sale would be responsible for the existing lien. The answer is no. If it is not a super-priority lien, the lien is lost. The new owner (or the bank if it takes back the property) remains responsible for future assessments.

However, the delinquent former owner still owes the money and can be sued. But it is doubtful that he or she has money to pay any judgment that the association may get in court.