Community Collateral: Security Rights in Common Interest Community Declarations

Abstract

The common interest community framework is seen in almost all legal forms of real estate-related projects and ranges from condominium complexes, housing developments, vacation timeshares, and numerous mixed-use projects. The foundational document of the common interest community is the “declaration of covenants, conditions, and restrictions” — a document that sets forth the basic framework of the community, imposes a number of deed restrictions, easements, and servitudes, and establishes a governing association of owners geared toward handling the day-to-day operations of the community. Frequently the developer will reserve to himself for a certain period of time a number of rights under the declaration, such as the sole authority to govern the association, add or withdraw real estate to the community, and raise assessments, among others. Increasingly financing transactions involving common interest communities are requiring the developer to collateralize his declarant rights in favor of the lender. However, the status of declarant rights under the law, as well as how they fit (or don't) into contemporary secured credit frameworks remains uncertain. This Article analyzes this uncertainty and posits how it might be addressed going forward.

Keywords: Secured Lending, Real Estate, Property Law, Common Interest Communities, Homeowners Association, Condominium Association, Timeshare, Cooperative, Banks, Lending, Developers, Housing, Credit