Published on: November 22, 2001
A recent Massachusetts court decision has given condominium associations a new legal tool – or at least, sharpened an existing tool – for dealing with disputes over liability for unpaid condominium fees.
Interpreting Mass. General Laws Chapter 60 Section 77 (governing municipal tax takings) for the first time in a condominium context, the Supreme Judicial Court held in Town of Milford v. James S. Boyd that the town had benefited from the community association’s “continued care and maintenance” of the common areas, and thus should pay its proportionate share of the common area expenses. While the foreclosure proceeding erased the condominium association’s lien, the court agreed, that action did not negate the town’s liability for the unpaid condominium fees incurred from the date of the taking until the foreclosure judgment was entered.
The case began when the town of Milford initiated tax title proceedings against 11 commercial condominium units owned by Caruso Builders, the developer of the complex. The recession of the late 1980s had left the units seriously underwater from all directions, worth considerably less than the outstanding mortgage or the unpaid taxes. With resale prospects limited, to say the least, neither the town nor the banks holding the mortgages were much inclined to foreclose. So the units remained in limbo for almost two years, with condominium fees continuing to mount all the while. Finally, in an effort to stop the bleeding, the condominium association moved to foreclose, claiming that it had a priority lien on the units (a contention the association ultimately dropped) and that the town was liable for the more than $200,000 in accrued condominium fees – the central issue that the court decided in the association’s favor.
It Means What it Says
The legal arguments focused on the wording of the state statute governing municipal tax takings, the key provision of which specifies:
“Before foreclosure, so much of the provisions of any covenant or agreement running with the land as calls for the payment of money by the owner thereof shall not be enforceable against a town which is the owner of record of such land under a tax title taking, except as hereinafter provided.” After some intervening language, this section continues: “In no event, however, shall such provisions calling for the payment of money be so suspended and inoperative during any period in which such town directly or indirectly in any capacity accepts or receives the benefit of such covenant or agreement or of any right or privilege created or affected thereby.”
Milford argued that only the language barring enforcement of payment obligations against a municipality applied. The exception language, the town contended, was unrelated to this central rule.
The Land Court rejected that argument, concluding that the statute was clear and that its plain language meant what it said. The foreclosure extinguished the condominium’s lien for unpaid common expenses (permitting the sale of the units), the court said, but it did not erase the town’s liability for unpaid common expenses accrued before the foreclosure decree. The SJC had no trouble affirming that opinion. “To conclude that the last sentence does not provide an exception to the first sentence would render the modifying clause nugatory,” the state high court asserted in a unanimous opinion.
Say It Ain’t So
In its appeal, the town had emphasized a second argument, challenging the Land Court’s finding that the town had, in fact, benefited from the upkeep of the condominium common areas after taking tax title to the condominium units. Under the Land Court’s interpretation of the statute, the town noted, municipalities would always benefit from common area maintenance and thus would automatically become liable for condominium fees for at least six months (the required wait before filing a foreclosure petition) whenever they initiated tax title proceedings against a condominium unit.
The SJC did not find that prospect nearly as troubling as the town suggested it should be. “The town may have accurately predicted the consequences of the Land Court’s interpretation,” the SJC agreed. “But we see nothing incongruous about those consequences. Rather, they are consistent with the statutory language and overall statutory scheme….Although it may be difficult to imagine a situation in which the payment of a common area charge would not benefit a town,” the court added, “we do not foreclose such a possibility.”
The key issue, the court emphasized, is the benefit the town derives from the maintenance of the common areas – a benefit that, the court concluded, is impossible to deny. “Common areas of a condominium unit are inextricably connected to the condominium units themselves,” the decision notes. “The units literally could not exist without them.”
Common area expenses were particularly important in this development, the court added, because the 11 units at issue represented more than 38 percent of the condominium “and therefore 38 percent of the condominium expense budget.” Eliminating the town’s obligation to pay those condominium fees, the court said, would threaten the financial viability of the condominium as a whole. The decision noted similarities between this case and previous tax title cases, in which the SJC had found communities liable for injuries incurred before the foreclosure proceedings. “…[I]n the present case, the town could not permit the units and their corresponding share in the common areas to fall into a state of disrepair or dilapidation,” the court observed. “It would have had to incur expenses for the ongoing maintenance of that property.” Given that the town clearly benefited from the community association’s efforts to maintain the property, the court concluded, “the Land Court’s construction of the statute requiring the town to pay its proportionate share is eminently logical and reasonable.”
Incentive to Act
As a practical matter, this decision probably won’t change current condominium association practices. Even with the current economic downturn, property values remain strong and it is difficult to anticipate a foreclosure situation in which units would lack sufficient value to pay off all outstanding liens. Certainly in a residential context, it is unlikely that an owner who has stopped paying property taxes would continue paying condominium fees for long enough to accumulate a large tax deficiency before someone – the town, the lender, or the association – acts.
However, we are entering a period that will almost certainly see a period of slower growth in property values than we have seen in recent years, and could see some depreciation. Given a steep and prolonged downturn, this case should give community associations a measure of added comfort. It also should underscore the need for local officials to move quickly in a tax title situation to limit the liability that the courts have made it clear, municipalities will not be able to deny.