Collecting Common Expenses: Priority Lien in Review

Published on: October 1, 2009

Since the passage of Chapter 400 of 1992, the Massachusetts Condominium Act, M.G.L. 183A Section 6(c), was amended to provide Condominium Associations with a priority lien, otherwise known as the superlien. For the past fifteen years, this law has enabled Massachusetts Condominium Associations to greatly reduce and, in many cases, altogether avoid any of financial devastation that previously resulted when a Unit was foreclosed upon by a Lender or the Owner had filed bankruptcy. There is no question that the change in the law has saved many associations and the remaining Owners who were left behind.

With the sharp rise in Lender foreclosure sales, the collection of condominium fees has also once again increased. Unfortunately, the properties facing foreclosure are typically those without any equity and possibly with an Owner that has been through a bankruptcy. The net result of these circumstances is that the purchase price at a Lender foreclosure sale is not sufficient to satisfy the lien holders of record. Now more than ever, it is important to take the appropriate steps as required by the law to ensure that the Condominium Association is protected so that the loss to the Association is minimized.

Under Massachusetts law, an Association has an automatic lien that arises whenever there is money owed. However, that lien is not a priority lien unless the Association follows the specific statutory process, which includes sending notices to the Owner and Lender of record and ultimately filing a legal action. Once the requirements are followed, the Association will have a priority lien that consists of six months of “regular” monthly common expenses preceding the institution of the legal action, plus the legal fees and costs. Late fees, interest, fines, special assessments and other charges are not protected as part of the priority lien and therefore may not be recovered. Although not legally obligated to do so, in some cases, Lenders have been willing to pay the entire amount owed, including all charges posted on the account, to the Association to discharge the lien against the Unit. Though, with the increase in delinquencies, we are finding that many Lenders are now only willing to pay the priority portion as mandated by the law.

If necessary, the law allows an Association to establish more than one priority lien, so if an Owner continues to be delinquent, the Association is able to perfect additional priority liens. As long as an Association takes prompt action to collect delinquent fees, the priority lien affords an Association the ability to recover monthly fees and the legal fees and costs incurred to do so. The benefits of the priority lien cannot be overstated – without the law, there would likely be no recovery of any fees for an Association in this position and, any delinquent balances, including legal expenses incurred, would have been previously written off.

Given the present economic climate, we cannot overemphasize the importance for an Association to be vigilant in collecting delinquent common expenses. Implementing the following few key measures, will enable an Association to preserve a priority lien to the maximum extent possible under the law:

  1. Timely posting applicable charges to the accounts, such as work orders, late fees, fines and legal expenses.
  2. Apply payments, unless restricted, to the oldest balance on the account.
  3. In lieu of levying special or supplemental assessments, revise annual budgets to incorporate the increase necessary so the funds will be collected as part of the monthly fee.
  4. Early turnover of accounts for collection. Generally, accounts should be turned over no more than 60-90 days delinquent.

These simple measures, coupled with the application of the law, afford a Massachusetts Condominium Association with the ability to recover delinquent common expense assessments and legal expenses. The net result of the priority lien is the stable fiscal health of the Association and minimal impact to the remaining Unit Owners. In these difficult economic times, we must appreciate that the growing foreclosure rate will not substantially impact the administration or operation of an Association. For that, Lenders and Owners alike are substantially benefited as market values for the property are greatly sustained.