Editor’s Note: This article originally featured in the January issue of DS News, out now.
With the issuance of its decision in Chase Plaza Condominium Ass’n v. JP Morgan Chase Bank, N.A., 98 A.3d 166, (D.C. 2014), the Court of Appeals for the District of Columbia upended the established manner in which condominium liens have been handled in the District. In Chase Plaza, the court interpreted D.C. Code §42-1901 and its provisions regarding the six-month “super-priority” of a condominium association lien to wipe out a mortgage lender, including those in “first” position. As a result of this decision, a number of related cases have been working their way through the Superior Court to the Court of Appeals. In Liu v. U.S. Bank, N.A. 179 A.3d 871 (D.C. 2018), the court once again ruled in favor of third-party purchasers at a condominium association’s foreclosure auction and against the mortgage lender, despite notice to all potential buyers that the sale was to be conducted “subject to the first mortgage or deed of trust.”
In Liu, the court discounted arguments of equitable estoppel put forth by the lender and ruled that the statute specifically prohibited the ability of the condominium association to “waive” the super-priority status per D.C. Code. §42-1901.07. At the time, the court apparently offered hope to lenders as the court did not address the issue of a “split-lien” and how it might rule in the event that the condominium lien at issue was longer than six months. However, that issue was addressed quickly thereafter in 4700 Conn 305 Trust v. Capital One, N.A., No. 16-CV-977, CAR-593-15, September 13, 2018. In 4700 Conn, the court ruled that the fact that a condominium lien was for more than six months did not constitute a difference for the purposes of interpreting the statute. The lender once again was faced with a situation where its lien was extinguished by the court.
How then, are lenders to move forward? One apparent avenue of assistance was the Condominium Owner Bill of Rights and Responsibilities Amendment Act of 2016. This legislation anticipated and directly addressed the issues that arose out of Chase Plaza and its progeny by specifically requiring that a condominium association send notice to any holder of a first deed of trust or first mortgage of record, their successors and assigns, etc. More importantly, it required the association to expressly state whether the foreclosure sale is either 1) for the six-month priority lien, not subject to the first deed of trust, or 2) for more than the six-month priority lien, which is subject to the first deed of trust. However, the court has also called into question the validity of this legislation. Once again, the court does not directly address the effect of this particular statute and leaves it to future cases.
This sequence of decisions would indicate a continual pattern by the court to reinforce its decision in Chase Plaza. Currently, the litigation in 4700 Conn is moving back to the trial court to address issues related to a sale price that was significantly below the value of both the property and the mortgage and whether or not the condominium foreclosure should be invalidated based upon the “erroneous” belief that the sale was subject to the first deed of trust. Lenders should be cautious moving forward, however, as to the apparent opening left by the Court of Appeals. The court seems eager to rule on the enforceability of notice conditions on current and future condominium associations, and the court may disappoint lenders yet again upon reviewing a decision in 4700 Conn, even if the trial court invalidates the condominium sale due to unconscionability or other equitable grounds.