SUPERIOR COURT THWARTS BANK CHALLENGE TO CONDO’S FORECLOSURE SALE

Published on: November 22, 2019

Once upon a time, Whitman Pond Village Condominium initiated a lien enforcement case against a unit owner that failed to pay her condo fees.  Upon obtaining a default judgment against both the unit owner and her first mortgage holder, the Condo ultimately foreclosed on the unit in order to recoup the unpaid fees as well as the legal fees and costs incurred in the lien enforcement process.  After foreclosure, the Condominium held sale proceeds that it was not entitled to—since the priority lien had been paid— an Interpleader case was filed so that interested parties could claim the funds.

Like a bear waking up after a long hibernation, the bank finally contacted the Condo’s attorney after receiving notice of the Interpleader action and alleged that the foreclosure sale was invalid.  The bank asserted a number of different grounds for invalidating the sale, all of which were rejected by the Court in a decision which is very powerful for condos across the Commonwealth.

The bank first argued that the federal Distressed Asset Stabilization Program (DASP) pre-empted the state condo statute (MGL c. 183A).  HUD (the assignee of the original lender) tried to claim that DASP existed to encourage private lenders to provide loans to otherwise unqualified individuals and that c.183A frustrated that intent.  The Court quickly determined there was no conflict between the federal and state laws since a condo’s ability to foreclose under c.183A does not in any way interfere with the federal government’s ability to assist lenders by guaranteeing loans.

This was an important finding since where there is no conflict, there can be no pre-emption.

Next, the bank attempted to argue that the condo did not comply with the requirements of M.G.L. c.254 which relates to the procedure to be followed when foreclosing on a condo lien.  Counsel for the condo scheduled a sale on a particular day sending notices to all interested parties.   The condo ultimately postponed the sale 13 days by announcement made by the auctioneer on the original sale date.  Counsel also sent notices to the parties of the date change.  The condo did not publish any further notices of the sale in the newspaper.  The Court found that the postponement procedure utilized by the condo was entirely appropriate and completely in line with the requirements of the foreclosure statute.  Additional newspaper publication simply was not required.

Finally, the bank attacked the reasonableness of the foreclosure sale based upon the sale price.  Citing prior precedent, the court found that a low price in and of itself is not indicative of bad faith or a lack of diligence by the entity conducting the foreclosure.  The court determined that the bank had failed to provide proof that the sale was commercially unreasonable despite the fact that the unit sold 7 months later for $100,000 more than the purchase made by the foreclosure sale buyer.

While the decision did not get into the facts concerning price, there could be many factors accounting for the difference.  1) The buyer may have performed significant upgrades and maintenance prior to re-sale. 2) The second sale was likely free and clear of any tenant whereas the foreclosure sale buyer may have had to evict the former owner, an expensive endeavor. 3) A foreclosure sale buyer is going to incur significant risk that a fair market buyer will not.  Risk alone would account for a large price discrepancy.

All in all, the case was a huge win for Massachusetts condo.

For a copy of the Decision [click here].

Please contact Dean Lennon with any questions regarding the foreclosure sale process at dlennon@meeb.com.