New Hampshire Condo Associations Need Foreclosure Authority to Make the Superlien Effective for Them
By Gary M. Daddario
If you look at a list of states that have a condominium superlien, you will find New Hampshire among them. But you can’t judge a book by its cover – and you can’t judge a statute by its name. All superliens are not equal. And the New Hampshire superlien includes some differences of which New Hampshire associations should be aware. It is important for boards and managers to understand the details of the law in order to maximize the protections it offers their associations.Four critical differences diminish the effectiveness of the New Hampshire superlien:
- It is limited in scope. The New Hampshire statute was enacted in 2011 and is prospective; it applies only to mortgages created on or after January 1 of that year. Older mortgages aren’t covered by the priority lien.
- There is no automatic lien in New Hampshire. In most states, including Massachusetts, a lien applies automatically to any unpaid owner obligations. Associations in some states must follow a statutory notice process to establish the priority protection for amounts covered by the super lien, but the underlying lien is automatic. In New Hampshire, condo associations must physically record a lien at the Registry of Deeds to make it effective, and the lien must be filed within six months of when the assessment comes due. Most superlien statutes require associations to meet strict procedural deadlines. An association that begins the process a month too late in other states might collect only five of the six months of delinquent payments covered by the superlien. In New Hampshire, the penalty for delayed action is far more severe. The New Hampshire Supreme Court has construed the state’s statute strictly to set an absolute six-month deadline: Filing a lien for more than six months of unpaid fees, the court has ruled, will invalidate the lien entirely and the association will not be able to collect a penny of the amount owed.
The New Hampshire Condominium Act expressly limits associations to one super lien at a time. In Massachusetts, by comparison, if a unit owner’s delinquency persists, , an association may file consecutive “rolling” super lien actions every six months.- The New Hampshire super lien has no enforcement teeth. This is the most serious flaw. Unlike condo associations in Massachusetts and other states, New Hampshire associations don’t have the authority to foreclose. They can obtain a court could order authorizing a sheriff’s sale to deal with an owner’s delinquency, but under this process, the owner has a one year right of redemption, which means that a buyer must wait a year to gain clear title to the unit. To say that this chills bidder interest is an understatement. Even more chilling – and we’re talking sub-arctic temperatures now – the sheriff’s sale does not extinguish the first mortgage. Buyers must take the property subject to that still outstanding debt. Not surprisingly, sheriff sales attract few, if any, bidders and long-term delinquency cases in New Hampshire may languish for years as a result, because absent a mortgage foreclosure, associations can’t bring the situation to a definitive end.
Under the current structure, condo associations may perfect a superlien on a delinquent unit and win a court judgment affirming their right to collect up to six months of unpaid assessments, but they have limited means of converting that judgment into cash. This is like having a ticket that admits you to a banquet but doesn’t allow you to eat anything on the table. What makes the situation particularly frustrating – New Hampshire borders other states in which associations can eat at the banquet, because they can foreclose to enforce their super liens. New Hampshire associations need that authority.To make the super lien a collection tool that can truly end a delinquency case, associations must have the authority to foreclose on delinquent owners and sell their units at a foreclosure sale that extinguishes the first mortgage. The threat that an association might pursue this remedy creates an incentive mortgage lenders otherwise often lack to deal quickly with delinquent owners, either by paying the money they owe the association or by foreclosing on the unit themselves. And a speedy resolution of delinquencies is essential to maintain the revenue flow on which condo associations depend.
Seeking a Legislative Solution ─ Again
CAI-New England’s New Hampshire Legislative Action Committee (LAC) – of which I am a current member and chairman - has been lobbying intensely for several years to persuade the legislature to approve this essential remedy. In previous attempts, the legislation died in committee, without receiving a vote in the House or the Senate.The bill’s prospects seem at least marginally brighter this year, because the Legislature’s Permanent Subcommittee on Association Law has agreed to support it. That by no means ensures its success, however. The banking industry, which has opposed the bill in the past, is opposing it again and opposition from that powerful lobby has proven difficult to overcome. Their primary argument is that lenders will not finance condominium loans if associations have the authority to foreclose and extinguish the lender’s security interest. If the measure is enacted, the bankers warn, the condominium market in New Hampshire will simply disappear.We know this isn’t true, because housing markets are vibrant and mortgage credit readily available for condos in states in which condominium associations can foreclose on delinquent owners. We’re hoping lawmakers will be persuaded by the testimony of bankers from Massachusetts, where a super lien statute that includes foreclosure authority for associations has been working effectively for many years.We anticipated the banking industry’s opposition to our foreclosure bill, but it has also encountered resistance this year we haven’t seen before from the New Hampshire Housing Authority and New Hampshire Legal Aid. Representatives of both organizations testified against the measure at a recent hearing.
The Housing Authority’s concerns – that some sections aren’t clear and some terms aren’t defined – are easily addressed. Legal Aid’s objection is more fundamental: Foreclosures are bad for consumers and this measure makes it easier to foreclose on them. Legislators at the hearing were sympathetic to that consumer protection argument, but the LAC had an effective counter: Delinquent condominium owners are consumers, but non-delinquent condominium owners are also consumers, and they need protection from the potentially devastating consequences if some owners are unable or unwilling to pay their share of the common fees that finance the association’s operating expenses.There is no way to predict how these arguments and counter-arguments will play out as lawmakers consider the foreclosure reform bill this year. There is always cause for concern when a measure attracts new opposition. But it was possible to detect something of a silver lining in the testimony against the bill. Everyone who spoke against it, including the bankers, acknowledged that the inability to deal with long-term delinquencies is a serious problem for condo associations. And that sliver of common ground will provide a starting point for discussing possible solutions. The hope is that when proponents and opponents start talking to each other during the subcommittee working sessions, we’ll come up with some language everyone is willing to live with. Even if we fall short of an ideal solution, I think New Hampshire condo associations will end up in a better position with an additional remedy of some kind.
Termination of Services
The New Hampshire superlien statute does have one advantage that its Massachusetts counterpart and most other state superlien statutes lack: It allows associations to terminate association services to delinquent owners. The remedy applies only to common area services provided by or through the association. Electricity billed separately to owners would not be a target, but water billed as a common area expense could be. And turning off water service tends to get an owner’s attention. Other potential attention-grabbers include denial of access to association amenities, such as a pool, and revocation of parking privileges, which could result in the towing of an owner’s ‘unauthorized’ vehicle. The New Hampshire courts have ruled that parking is among the services/privileges associations can deny delinquent owners. Until New Hampshire associations gain the authority to foreclose on super liens, termination of services will remain one of the most effective lien enforcement tools available to them.