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Massachusetts Supreme Judicial Court Rules On Lien Priority Between Condominium Associations and Mortgage Lenders

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After nearly a decade of ongoing litigation, the Massachusetts Supreme Judicial Court (SJC) issued a decision in Drummer Boy Homes Association v. Carolyn P. Britton, No. 11969 slip op. (Mass. March 29, 2016) regarding the relative priority under Massachusetts General Laws c. 183A, § 6 of condominium liens for unpaid common expenses and first mortgages. The SJC held that a condominium association, which functions as an “organization of unit owners” under the statute, can obtain multiple contemporaneous super-priority liens on a condominium unit for unpaid monthly common expenses under M.G.L. c. 183A, § 6 by filing successive legal actions to collect those unpaid amounts for successive six-month periods.

The District Court and its Appellate Division had previously held that, although the Drummer Boy Homes Association was entitled to recover the full amounts of all unpaid monthly common expenses, related fines and other expenses, the Association’s statutory super-priority lien over the first mortgage encumbering the unit was limited to one six-month period. This decision was later affirmed by the Massachusetts Appeals Court. The SJC, however, overturned that decision, confirming that, pursuant to M.G.L. c. 183A, § 6, organizations of unit owners may seek super-priority liens of unpaid monthly common expenses and related expenses for successive six-month periods and are not limited to one six-month period.

In its decision, the SJC acknowledged that during the real estate recession in the early 1990s, a first mortgagee’s foreclosure action sometimes resulted in insufficient funds to satisfy a condominium association’s lien for unpaid common expenses on the unit. This had a disastrous financial effect on many condominium associations, and, in response, the Massachusetts Legislature enacted the super-priority lien, among other amendments to M.G.L. c. 183A (the Massachusetts condominium statute). The SJC also stated that the Massachusetts Legislature has had a longtime interest in improving the ability of organizations of unit owners to collect common expenses because those funds are so important to the long-term feasibility of the condominium ownership structure.

This case is significant to mortgage lenders on both residential and commercial condominiums in Massachusetts. More lenders may now require escrows and personal recourse liability for condominium common expenses (akin to that for real estate taxes, which also constitute super-priority liens) to reduce the risk of losing priority to multiple super-priority liens.

This advisory was prepared by Beth H. Mitchell in the Commercial Finance practice group at Nutter McClennen & Fish LLP. For more information, please contact Beth or your Nutter attorney at 617.439.2000.

This advisory is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.

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