Condominium Lien May Be Partially Avoided

Posted by NCBRC - August 31, 2012

Interpreting the condominium documents and state law, the Western District of Pennsylvania found that the debtor could partially avoid a lien based upon unpaid condominium assessments. Young v. 1200 Buena Vista Condominiums, No. 12-786 (W.D. Pa. Aug. 27, 2012), rev’g, 467 B.R. 792 (Bankr. W.D. Pa. 2012). The case turned on whether a lien created through the operation of the condominium declaration and by-laws and state statute, 68 Pa. C.S. § 3315, constituted a “security interest” under Bankruptcy Code section 101(51) which would be subject to the anti-modification provision of section 1322(b), or a “statutory lien” under section 101(53) which could be bifurcated into secured and unsecured portions.

Because the operation of the underlying condominium documents and state law were dispositive, the court addressed them first. The Condominium Declaration provided that: “All sums assessed by resolutions duly adopted by the Association against any Unit for the share of Common Expenses chargeable to that Unit shall constitute a lien against the affected Unit in accordance with the Act.” The by-laws provided that: “The Association shall have a lien on a Unit for any Assessment levied against that Unit from the time the Assessment becomes due together with any interest payable pursuant hereto. The Association’s lien may be foreclosed in like manner as a mortgage on real estate.” The Pennsylvania Uniform Condominium Act contemplates the creation of a lien, enforceable through foreclosure, as soon as an assessment is made.

The court turned to the legislative history of the Bankruptcy Code to find that the three defined liens—statutory, judicial and security interest—are mutually exclusive and that the classification of the lien is fixed upon creation of the lien rather than upon later action taken toward its enforcement. Therefore, a lien created by statute but giving rise to a security interest upon the assessment of fees remains a statutory lien, just as a lien created by an agreement including the grant of a security interest remains a security interest even though judicial action may be undertaken to enforce it. The court concluded that the lien at issue which was created by operation of the state statute was a statutory lien even though it purports to create a security interest in the condominium. See also In re Eatman, 182 B.R. 386, 390-91 (Bankr. S.D. N.Y. 1995); In re Johnson, 108 B.R. 81 (Bankr. W.D. Pa. 1989); In re Nentwick, 79 B.R. 145, 146 (Bankr. N.D. N.Y. 1987); In re Stern, 44 B.R. 15, 18 (Bankr. D. Mass. 1984).

Rejecting the argument that the provision in the condominium declaration that “All present and future Unit Owners and Residents of Units shall be subject to and shall comply with the provisions of this Declaration and the By–Laws as they may be amended from time to time” was a covenant running with the land and, therefore, created a security interest, the court found that the provision did not change the underlying classification of the lien as a statutory lien. That provision merely provided notification of obligations under the condominium declaration without creating any distinct obligations or liens.

Young opinion

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One Comment

  • Posted June 14, 2013 at 7:55 pm | Permalink

    This is very good info, as things can get quite complicated with condo associations etc. I have had a few run-ins regarding liens that made deals fall apart.

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