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Connecticut Supreme Court Clarifies Condition Precedent for HOA Foreclosure Actions

Adam L. Bendett is President and shareholder of Bendett & McHugh, P.C. He is currently the Managing Attorney for the Connecticut Foreclosure Group and oversees many of the operational functions of the firm.  He has represented lenders and mortgage servicers in mortgage default matters for over 26 years.

On April 26, 2016 the Connecticut Supreme Court issued a decision in The Neighborhood Association, Inc. v. Jill M Limberger, et al, 321 Conn. 29, which held that pursuant to Conn. Gen. Stat.  §47-258(m)(1)(C), prior to any foreclosure action of an  homeowners’ association (HOA) commenced on or  after July 1, 2010,  the HOA must have either (1)  had  a vote to authorize the individual foreclosure; or (2) had a collection policy adopted as a rule, with notice to unit owners and a minimum ten day comment period as required under the Conn. Gen. Stat. §47-261(b).  If neither one of these two criteria are met, the HOA lacks subject matter jurisdiction in its foreclosure action. In  Limberger, the HOA’s foreclosure action was dismissed for lack of subject matter jurisdiction despite the HOA having adopted a “standard collection policy” because the HOA’s Executive Board had not provided notice to the unit owners prior to adopting the policy pursuant to Conn. Gen. Stat. §47-261(b).

HOW LIMBERGER AFFECTS PENDING AND FUTURE HOA FORECLOSURE ACTIONS

In Connecticut HOAs are given a super-priority lien in the amount of nine months’ worth of common charges and expenses (in addition to reasonable attorney’s fees and costs) over first and second mortgages. Accordingly, an HOA   typically names as a defendant in its foreclosure action the first and second mortgagee of record, in addition to all other subordinate lien holders.  For this reason, a mortgagee will often take title to a property through protecting its interest in the HOA action, by either bidding at the HOA foreclosure action, or more typically, redeeming the priority debt of the HOA on its assigned law date after a judgment of strict foreclosure. This firm has been in conversations with several of the major title insurance companies about how Limberger affects insurability of title for a property acquired through an HOA action.  Two of such companies have confirmed they will insure title if either (1) the HOA specifically pleads in its complaint that it has complied with Conn. Gen. Stat. §47-258(m)(1)(C) ), including, when  applicable, the notice provisions of  Conn. Gen. Stat. §47-261(b); or (2) the HOA executes an affidavit specifically setting forth its compliance with said statutes.  A third title company has responded to date that they will require the affidavit. Therefore, at this time, it is recommended that in pending HOA cases, the mortgagee obtain an affidavit from the HOA’s counsel establishing compliance with Conn. Gen. Stat. §47-258(m)(1)(C) ), including, when  applicable,  the notice provisions of  Conn. Gen. Stat. §47-261(b),  and also confirm, and if necessary, require that  compliance with these statutes are  specifically plead in the HOA complaint  as well. .

HOW LIMBERGER AFFECTS HOA FORECLOSURE ACTIONS THAT HAVE EXTINGUISHED A FIRST POSITION MORTGAGE LIEN

As mentioned, because of the nine month super-priority inchoate lien given to HOAs in Connecticut under Conn. Gen. Stat. §47-258, the HOA has the ability to foreclose out even first and second mortgages through its foreclosure action. Also, in Connecticut, subject matter jurisdiction can be raised at any time, even after the foreclosure has been concluded. For this reason, in instances where a mortgage has been foreclosed out by an HOA action for any reason and the HOA action was commenced after July 1, 2010, we recommend that the mortgagee seek the advice of counsel, as it may be possible to collaterally attack the validity of any foreclosure action where compliance with Conn. Gen. Stat. §47-258(m)(1)(C), including, when  applicable,  the notice provisions of  Conn. Gen. Stat. §47-261(b),  cannot be established by the HOA.

HOW LIMBERGER AFFECTS ACTIONS WHERE A MORTGAGEE HAS ACQUIRED TITLE TO THE SUBJECT PROPERTY BY REDEMPTION OR WHERE THE MORTGAGEE WAS THE SUCCESSFUL PURCHASER AT THE HOA FORECLOSURE SALE

If the property has been resold, we recommend you take no action unless your purchaser contacts you, at which point we recommend you seek advice of your counsel.

For properties that have not been resold, mortgagees who have taken title to a HOA unit through redemption or through the HOA foreclosure sale can decide whether to go forward based on the representation that at least title insurance company  is willing to insure title on properties acquired through HOA foreclosures brought prior to  April 26, 2016. In the alternative, the mortgagee may consult with counsel as to whether it would like to attempt to have the HOA sign the affidavit of compliance approved by the title companies, and if that is not successful, file a motion to open and/or dismiss the HOA judgment based on Limberger and/or foreclose on its own mortgage

About Author: Kendall Baer

Kendall Baer is a Baylor University graduate with a degree in news editorial journalism and a minor in marketing. She is fluent in both English and Italian, and studied abroad in Florence, Italy. Apart from her work as a journalist, she has also managed professional associations such as Association of Corporate Counsel, Commercial Real Estate Women, American Immigration Lawyers Association, and Project Management Institute for Association Management Consultants in Houston, Texas. Born and raised in Texas, Baer now works as the online editor for DS News.
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