Muddying the Waterfall: How Ambiguous Liability Statutes Distort Creditor Priority in Condominium Foreclosures
75 Pages Posted: 5 Sep 2014
Date Written: September 3, 2014
Intentionally or not, every state’s law regarding lien priority and post-foreclosure liability allocates risk between mortgage lenders and privately governed “common interest communities” (CICs), such as condominiums. When lenders secure their interests with mortgages on property within a CIC, the mortgages may compete against the CIC’s interests for primacy in the lien hierarchy. Modern state regimes typically delineate the respective rights of mortgagees and CIC associations according to lien-priority statutes. Older condominium-enabling statutes, however, do not address CIC lien priority directly and speak only to continuing joint and several liability for subsequent purchasers. These older and more ambiguous statutes do not indicate how state law intended to — or should — balance the competing interests of mortgage lenders and community associations. Today, these vague statutes present important and politically charged issues that merit legislative consideration and clarification. Furthermore, recent case law demonstrates that a plain-meaning construction of such an un-clarified statute can produce an outcome that is wrong as a matter of law and unwise as a matter of policy.
This article examines the problems of vague statutory provisions regarding assessment obligations and their effect on lien priority. It advocates for judicial interpretations that focus on the purposes and intent of these provisions while upholding basic lien-priority law, and it urges legislative clarification of the existing language.
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