Condo Media - December 2013 - 40

LEGAL UPDATE

Possible 6-Month Priority Lien Changes
Modifications Would Correct Some Shortcomings

he six-month priority lien, ensuring the ability of community
associations to collect delinquent
fees, has been by all accounts a
lifesaver for many condominium communities grappling with the collateral
damage from the most damaging economic downturn in decades.
But while recent experience has confirmed the
importance of the "superlien," it has also highlighted
the lien's shortcomings. As
a result, the Uniform Law
Commission (ULC) is considering proposals to amend
the lien provision in the
Uniform Common Interest
Ownership Act (UCIOA).
In a report to the ULC,
the Joint Editorial Board
(JEB), which advises the
commission, outlined two
major problems with the
lien:
* Courts in many states have differed
in interpreting its scope. Some have
concluded that the priority lien can
be filed only once against an owner,
even if the owner becomes delinquent
more than once or if delinquent fees
continue to mount after the six-month
mark has been reached. Other courts
have agreed that community associations can file successive six-month liens
to cover additional delinquent fees.
* Foreclosure actions have been taking
much longer than the six months
drafters of the UCIOA lien assumed
would be more than adequate to
protect community associations.
The foreclosure backlog created
40

Condo Media * December 2013

by the virtual collapse of the housing
market and regulatory and legal actions
targeting abusive foreclosure practices
have extended the foreclosure timeline dramatically, especially in "judicial
foreclosure" states, where courts must
approve foreclosures.

Compounding that problem, the
JEB report notes, market conditions
and regulatory considerations have created a "substantial economic incentive"
for lenders to delay foreclosures, to
delay booking losses on those loans, to
wait for prices to recover (so they can
recover more of their collateral), and to
avoid assuming responsibility for paying common area fees on the units they
acquire through foreclosures.

'Catastrophic' Impact

The resulting delays in collecting delinquent fees and the inability to fully
recover those losses have had a "catastrophic" impact on many condominium communities, the JEB report notes.
Many have been forced to cut services,

delay essential maintenance and repairs,
and/or increase the fees paid by other
owners, putting some of those owners,
too, at risk of default.
"The six-month priority lien has
proven insufficient to protect the
financial interests" of condominium
communities, the report
concludes.
The ULC accepted that
conclusion and directed the
board to draft proposed
changes in the lien provision.
The board requested input
from the various stakeholders, including the Community Associations Institute
(CAI), which established a
task force for that purpose.
The deadline for submitting recommendations to
the JEB was Oct. 31 - after
the deadline for this issue of
Condo Media. When reporting this story, the CAI task
force had just begun to discuss what it
was going to propose. Because those
discussions were incomplete at that
time, it would be "premature" to speculate about what the task force might
suggest, says Dawn Bauman, senior vice
president for government and political
affairs at CAI.

Need for Balance

But a recently enacted Connecticut statute
was "of interest" to the task force, she
notes. That measure extended the priority
period from six to nine months, included
legal fees in the priority, and made it clear
that nine-month liens could be filed successively. That general approach "meets
several standards" of concern to CAI,
Bauman says. "It appears to provide an

Condo Media - December 2013

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