Are purchasers of condos responsible for past owners' unpaid assessments?
A look at an association’s recourse for recovering delinquent payments
According to the Community Associations Institute, of the thousands of associations that exist in New Hampshire, more than 40 percent belong to condominiums. That’s a lot of condos.
These “communities within communities” are largely dependent on the health of their membership. Timely assessment payments help keep condo associations afloat. Those without a slew of delinquencies should consider themselves blessed, or lucky, or both. Smart associations supplement their good fortune with diligent budgeting for the inevitable. But many, especially those that have been around for decades, rarely take adequate precautions.
Most of the money that an association uses to pay its expenses typically comes from member assessment payments. If even one member’s assessments go unpaid or short-paid, the association may have to lean on the balance of the membership to make up for the loss in revenue. Naturally, one of the biggest challenges facing associations’ board of directors is how to collect from delinquent owners.
The primary options available to associations for pursuing delinquencies are set forth in the New Hampshire Condominium Act, which includes provisions for lien perfection and rent garnishment.
Most New Hampshire associations’ declaration and bylaws carry provisions that echo or reference the Condominium Act. Unfortunately for NH condo associations, the state does not have a statutory provision similar to Florida’s, where its Florida Condominium Act establishes joint and several liability between current and previous unit owners, even in cases of mortgagees.
Despite the significant difference between the two states, developers of newer condo projects in New Hampshire have slipped Florida-esque language into condo declarations.
Not surprisingly, it didn’t take long for a disgruntled post-foreclosure purchaser to challenge such a provision, but somewhat surprisingly, a lower court bought the argument favoring such a provision.
The Hillsborough County North Superior Court held, in NH Housing Finance Authority v. Pinewood Estates Condominium Association, that the provisions in the condominium declaration compel the purchaser at foreclosure or voluntary sale to pay pre-foreclosure assessments.
It remains to be seen whether or not the NH Supreme Court will uphold the lower court’s position, as the case is now pending before it.
This particular case is based on the fact that the association recorded a lien for delinquent assessments, terminated services and privileges prior to foreclosure, and failed to restore services and privileges after foreclosure. In layman’s terms, the new owner was deemed responsible for the previous owner’s failure to pay.
In the case, the NH Housing Authority argues that the assessment is a personal debt of the delinquent owner, and that the association lien should get wiped out by foreclosure. To support its argument, the housing authority points to the fact that the NH Legislature, in its 2010 amendment to the Condominium Act, capped liability for institutional lenders at six months of assessments. It contends that upholding the lower court’s decision would grant more power to the association than the Legislature intended.
To support its argument that purchasers of units with delinquent assessments should be accountable for the delinquencies, the association points to a previous ruling by the NH Supreme Court. In that ruling, the court recognized a condominium declaration as a hybrid document. The declaration blends two elements into one document – the contract that governs the association and property owner's relationship and the covenants that run with the land.
Essentially, the court ruled that condominium declarations do not automatically get wiped out at foreclosure, and thus continue to encumber the land. As such, the association argues that language in a condominium declaration allowing for perfected liens to survive foreclosure should carry on with the land. Therefore, to not uphold the lower court’s decision would be to effectively go against their own precedent.
If the court does uphold the Superior Court’s ruling, there are bound to an onslaught of calls, by associations, to vote on amendments incorporating joint and several liability language for current and past unit owners. Failing such a favorable ruling, associations will have to resort to the often unreliable collection process currently available in New Hampshire.
Attorney Paolo Wieser works in the Littleton office of Primmer Piper Eggleston & Cramer. He can be reached at 603-444-4008 or firstname.lastname@example.org.