Condominium Act Reprioritizes Lien

Posted by NCBRC - March 4, 2016

The New Jersey Condominium Act reprioritizes the condominium association’s lien making it partially secured and subject to the anti-modification provision of section 1322(b). Whispering Woods Condominium Assoc. v. Rones, No. 15-4271 (D. N.J. Feb. 17, 2016).

The Rones’ condominium had a value less than the amount of the first mortgage on the property. They proposed a chapter 13 plan that would strip off the condominium association’s lien on their residence as wholly unsecured. The condominium association claimed the benefit of the super-priority provision of New Jerseys’ Condominium Act and objected to the plan. Finding that the Condominium Act applied to “payments” rather than “security,” the Bankruptcy Court overruled the objection. In re Rones, 531 B.R. 526 (Bankr. N.J. 2015).

The district court reversed and remanded. It found the bankruptcy court’s interpretation of the Condominium Act as applying to payments rather than security was contrary to the plain language of the statute which provides: “A lien recorded pursuant to subsection a. of this section shall have a limited priority over prior recorded mortgages and other liens . . .” for an amount accruing over the six-month period prior to the recording of the lien. The court concluded that the statute plainly caused a portion of the lien to be elevated to the top position in the lien hierarchy.

The district court further disagreed with the bankruptcy court’s dictum to the effect that if the Condominium Act reprioritized the lien the Act would become the source of collateral and the debt would not be secured solely through the debtors’ residence. Rather, the court found the Condominium Act merely altered the priority of the lien but did not change the underlying collateral.

Having found the lien to be partially secured by operation of the Condominium Act, the court concluded that it was subject to the anti-modification provision and could not be stripped off.

Rones D NJ opinion Feb 2016

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