Even Though Under Washington Law A Condominium Association’s Lien Does Not Arise Until The Time The Assessment Is Due A Default By The Owner Brings The Lender Within The Redemption Statute Provisions

BAC Home Loans Servicing, LP v. Fulbright, 88853-1 (Wash. June 26, 2014) concerns the interplay between Washington’s Condominium Act, its redemption statute, and its recording act. The borrower purchased a condominium with a loan from Plaintiff-lender. The condominium association recorded its declaration in 2006 and lender recorded its deed of trust in 2007. The borrower defaulted on her condominium assessments in 2008 and the condominium association initiated a judicial foreclosure proceeding. The unit was brought to trustee’s sale for less than $15,0 which would extinguish lender’s lien. Lender attempted to redeem the condominium under the redemption statute but the trial and appellate courts held that because Lender recorded its deed of trust before the borrower defaulted on paying the assessments meant that it did not record its mortgage subsequent in time to the condominium’s lien and therefore was not a redemptioner. The Supreme Court reversed. It went over Washington’s rules on lien priority and lienholder’s redemption rights observing that a lienholder that records its lien subsequent in time to a senior lienholder has redemption rights. The Condominium Act altered this rule, however. Even though a condominium association’s declaration, establishing its priority for collection of future assessments, is senior to liens or encumbrances recorded on the unit after the declaration is recorded, the Condominium Act makes an exception for mortgages. While under the recording act an association should have complete priority over liens subsequently recorded, the Condominium Act gives priority to mortgages recorded on the unit after the declaration but before the assessment. But it also provides that a condominium association regains its priority to collect six months’ worth of unpaid assessments. The Supreme Court noted that the Court of Appeals and trial court interpreted subsequent in time literally and held that lender’s lien was not subsequent in time to the association’s lien and therefore the lender could not be a valid redemptioner. To reach this conclusion, the lower courts reasoned that an association’s lien does not arise until the time the assessment is due. The Supreme Court held that the only way to read subsequent in time is within the context of the entire statutory scheme and to interpret the phrase to mean when lien priority is established. To read the statute any other way would create the result that lienholders could lose their claim to any interest in the property, and the redemption statute would have no application. When the legislature enacted the Condominium Act, it was within the context of the recording act and redemption statute. The legislature did not provide that parties like Bank of America, who record its interest, to not only lose their priority to condominium associations but also lose the statutory right of redemption. Thus, a condominium association establishes its priority to collect unpaid assessments at the time the condominium declaration is recorded, even though it is not enforceable until the unit owner defaults. The effect of the association’s foreclosure was to give the association’s lien priority over the lender’s interest, bringing the lender within the redemption statute provisions

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