Priority of Liens for Assessments
A question faced by many homeowners’ associations is whether the association’s lien against a property for unpaid assessments has priority over a mortgage on the property. This issue can arise in many circumstances, but most often when the mortgage lender starts a foreclosure action against the property.
The question of lien priority was addressed by the South Carolina Court of Appeals in First Federal Savings and Loan Association of Charleston v. Bailey, 316 S.C. 350, 450 S.E.2d 77 (S.C. App. 1994). In this case, the homeowners’ association argued that since the restrictive covenants (the “Covenants, Conditions and Restrictions” or “CCRs”) were recorded in the courthouse prior to the lender’s mortgage, the date of the lien “related back” to the date when the CCRs were recorded, and therefore the association’s liens for unpaid assessments had priority over the mortgage. The Court of Appeals decided against the association, and held that the mortgage had priority over the lien for assessments, even though the mortgage was recorded after the CCRs. The Court’s rationale focused on the fact that the mortgage was a “purchase money mortgage” (which means that the mortgage was security for the loan that was used to finance the acquisition of the property) and that purchase money mortgages typically have priority over all other liens (except for taxes.) The Court went on to state that the priority of the association’s lien for assessments arose when the assessments were fixed and became due.
Though First Federal answered one question about lien priority, many other questions regarding lien priority still exist, and disputes regarding lien priority are common in foreclosure actions. There are a number of situations in which an association’s lien for assessments will have priority over mortgages and other liens. Homeowners’ associations should always consult their attorney in order to determine the priority 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.