A borrower who stops paying condo fees can cost you priority. On both sides of the border, condominium and homeowners' associations have special lien rights for unpaid fees, and some of those liens can rank ahead of an earlier-registered first mortgage.
Ontario
Under the Condominium Act, 1998, a condominium corporation's lien for unpaid common expenses can rank ahead of registered mortgages if the corporation registers a certificate of lien within the statutory period after the default. The priority is limited, but lenders on condo units should treat arrears seriously.
United States
- Super-priority states. About 20 states give HOA or condo associations a limited super-priority, usually a set number of months of assessments. In Nevada, a properly conducted HOA foreclosure of the super-priority portion extinguished a first deed of trust in SFR Investments Pool 1, LLC v. U.S. Bank, N.A., 334 P.3d 408 (Nev. 2014).
- Florida's safe harbor. Florida protects first mortgagees differently: after acquiring title by foreclosure, a first mortgagee's liability for unpaid assessments is capped at the lesser of 12 months' assessments or 1% of the original mortgage debt (Fla. Stat. §§ 718.116, 720.3085).
Five checks that prevent the problem
- Obtain a status or estoppel certificate before funding
- Require borrowers to keep fees current as a loan covenant
- Ask the association to notify you of arrears or lien filings
- Reserve the right to pay arrears and add them to the loan
- Respond immediately to any association foreclosure notice
This content is general information for industry professionals and is not legal, tax or financial advice. Laws change and apply differently to each transaction; obtain advice from qualified counsel in each relevant jurisdiction. Legal counsel to the Cross-Border Private Lenders Association: Jasmine Daya & Co. Questions: info@cbpla.com