Skip to Content
EXTENDED LIEN PRIORITY TO EXTEND ASSOCIATION BUDGETS
January 17, 2020 Posted in Community Association Law Share
A new bill, passed on April 29, 2019 (N.J.S.A. 46:8B-21), signed into law by Governor Phil Murphy, extends lien priority for condominium associations and creates similar lien priority protections for homeowner associations. For many years, the New Jersey Condominium Act has permitted the filing of liens against condominium units when assessments remain unpaid. Homeowner association, because they were not included in the Act, provided for the filing of liens in their governing documents. These liens served as the basis for foreclosure against units in serious arrears. The ability to file liens and foreclose provided a substantial benefit to the fiscal stability of community associations throughout the State. Without the ability to file liens and foreclose on them, abandoned units, units falling into serious disrepair due to owner inability to afford to pay maintenance or afford repairs, and units in which residents are otherwise judgment-proof, would substantially increase the monetary burden on those who do pay their maintenance fees, and would reduce the marketability of all Units in the community.
Over the years, hard economic times have demonstrated that just having a lien, and even attempting to foreclose on it, may not be enough. The first money mortgage lenders had priority over Association liens in bankruptcy situations. Thus, bankruptcy, in cases in which there was a purchase money lender seeking recovery of its mortgage rendered any Association liens useless.
In the 1990's, on the theory that the Association, as it was maintaining the common areas and providing insurance to restore even the insides of Units to builder's grade in the event of a covered loss, the legislature decided to provide condominiums (but not homeowner associations) a limited priority over mortgage lenders, provided the Association filed its lien(s) before the bank filed its lis pendens (notice to the world that there is a claim against the Unit) or its own foreclosure action. The limited priority the condominium association received under the statute was limited to 6 months of maintenance fees (but not late fees, interest, counsel fees or other charges).
During the recession of 2008, it became obvious that even this was insufficient. Mortgage lenders were leaving properties in a state of foreclosure for many months or years, with adjournment after adjournment or the foreclosure or Sheriff's sale. The mortgage lenders had many properties in foreclosure. The market was not bringing in new buyers. Taking Units in foreclosure meant that the mortgage lenders would end up paying maintenance fees, taxes, and would end up having to winterize and maintain the Units without the ability to sell them. This, combined with programs to prevent foreclosure unless there was counseling for those subject to foreclosure and meetings to try to work out mortgage debts, along with a shortage of court staff to handle the great number of foreclosures being filed, extended the amount of time mortgagees held onto units before finalizing foreclosure, to up to three years or more. While this was occurring, the Association was stuck with sometimes abandoned, deteriorating, mold-ridden Units, and an increased maintenance fee burden upon the rest of the Unit Owners in the community.
The bill passed this year, intended to partially address these inequities, provided several benefits:
- It places homeowner associations on the same plane as condominiums. Both now operate under the same
- Instead of not being able to have a priority lien (homeowner associations), or having a priority for six months of assessments, an association may be eligible to claim a six-month priority for every year that there is a recorded lien, up to five years.
- Association liens can now include not only unpaid assessments, but also late fees, fines, expenses, and reasonable attorney's fees imposed or incurred in the collection of the unpaid assessment, but, as existed previously, a lien cannot be recorded solely for late
- The requirement that liens be authorized by an association's governing documents has been removed.
As always seems to be the case, there are conditions:
- Based on this legislation's language, which provides that the "limited priority shall be cumulatively renewed on an annual basis as necessary," the Association must, in order to maximize its priority, file an amended lien each
- As before, once a mortgagee/lender files a lis pendens or begins a foreclosure action, priority is lost. Example: Let's say that a Unit Owner ceases payment of maintenance fees and after three months the Association files a lien. Assume that the mortgage lender has not already filed a lis pendens or a foreclosure action. The Association's lien for that year takes priority for up to 6 months of maintenance fees, plus late fees, fines and counsel fees. In the second year, the Association files an amended lien covering the previous delinquency and the accelerated amount for the new fiscal year {Most governing documents allow the Association to accelerate the maintenance fees due so that if a Unit Owner fails to make payments, the entire fiscal year of maintenance fees becomes ). If, during that second year, but after the Association's amended lien is filed, the Association will receive priority as to 6 months of fees in year one, including late fees, fines and legal fees, and 6 months of those fees in year two. But since the mortgagee filed its lis pendens and/or its foreclosure action in year two, the Association's priority ends. Amending the lien will not result in additional priority up to the 5 years specified in the statute.
While, as you can see, the change is the law is not a panacea, the new law is a substantial benefit to community associations and is a step in the right direction. It helps to address the inequities that previously plagued associations as numerous units were going into foreclosure or bankruptcy.
We hope you have found this description of the new lien law helpful. Please feel free to call us if you have any questions or if we can be of assistance.
The information in this Client Alert is provided solely for information purposes. It should not be construed as legal advice on any specific matter and is not intended to create an attorney-client relationship. The information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based upon particular circumstances. Each legal matter is unique, and prior results do not guarantee a similar outcome.
ATTORNEY ADVERTISING MATERIAL © 2020 Griffin Alexander, P.C. All rights reserved.
For any questions about this blog, or to schedule a consultation with an attorney, contact Griffin Alexander, P.C. at 973-366-1188 or through our website here!