Can Condominium Liens Survive Foreclosure?
Attorney: Shawn R. Willis
Generally, the liens for unpaid condominium owners’ association assessments do not survive a mortgage foreclosure action if the mortgage has priority over the association’s lien. The association’s junior lien will be extinguished and removed from the condominium unit by the mortgage foreclosure action. Additionally, S.C. Code Ann. §27-31-210(b) specifically provides that a purchaser of a condominium unit at a mortgage foreclosure sale “shall not be liable for the share of the common expenses or assessments by the co-owners chargeable to such apartment accruing after the date of the recording of the mortgage, but prior to the acquisition” by the new purchaser. In other words, the liability for the unpaid assessments does not transfer to the new owner of the unit. This means that unless the property sells for enough money at the mortgage foreclosure sale to pay off the mortgage and the association’s lien, the association will not be able to recover the unpaid amount from the condominium unit itself.
However, even though §27-31-210(b) provides that condominium liens with junior priority do not survive a mortgage foreclosure action, the liability for the amounts underlying the lien can survive other types of foreclosure actions, including an action foreclosing the condominium lien itself. In Council of Co-Owners of Forest Beach Villas Horizontal Property Regime v. Smith, 314 S.C. 134, 442 S.E.2d 173 (1994), the Council of Co-Owners commenced an action to foreclose a lien for assessments against the owner of the property, Smith. The suit involved a number of other judgment creditors of Smith, and the trial court determined that the other judgment creditors had priority over the Council of Co-Owners’ lien for assessments. The foreclosure sale continued, and because the lien for assessments did not have priority over the other judgments, the lien was extinguished without being satisfied, because the purchase price for the unit at the foreclosure sale was not enough to pay all of the creditors.
The Council of Co-Owners argued that though its lien was extinguished, pursuant to a different statute, S.C. Code Ann. §27-31-220, the liability for the unpaid assessments transferred to the purchaser of the unit at the foreclosure sale. The trial court disagreed, and held that §27-31-210(b) exempted the purchaser at the foreclosure sale from liability for the prior owner’s unpaid assessments.
However, on appeal, the South Carolina Supreme Court held in favor of the Council of Co-Owners, stating that the exemption in §27-31-210(b) only applies to mortgage foreclosure actions, and since the action was not a mortgage foreclosure action but instead was an action foreclosing a lien for unpaid assessments, §27-31-210(b) did not apply. Accordingly, §27-31-220 operated to transfer the liability for the unpaid assessments to the new owner that purchased the unit at the foreclosure sale. (The Court noted that original owner remained jointly and severability liable for the debt along with the new owner.)
Though the Court clearly held that the new owner was personally liable for the unpaid assessments, it did not address whether the transfer of the liability for the unpaid assessments to the new owner also reconstituted the lien on the condominium unit itself.
Though this case is complicated, it illustrates that situations exist where even though an association’s lien may be extinguished, the association’s right to recover may otherwise survive and be enforceable in some manner. Homeowners associations should always consult their attorney when faced with situations regarding the enforceability of their liens.
This blog post is not, and should not be considered, legal advice, and is for general informational purposes only. Always consult an attorney for legal advice regarding specific situations.