Washington D.C. Appellate Court Holds Foreclosing Condominium Association Might Not Have Super-Priority if It Forecloses on More Than Six Months of Dues

The District of Columbia Court of Appeals recently reversed a lower court’s decision granting summary judgment to a condominium association and held that the association’s foreclosure of a “super-priority” condominium lien may not have extinguished an otherwise first-priority mortgage on the property.  See U.S. Bank Nat’l Ass’n v. Green Parks, LLC, No. 16-cv-842 (D.C. Mar. 13, 2018).  In the case, the borrower obtained a loan to purchase a condominium.  In 2013, the condominium association foreclosed on the property because of the borrower’s failure to pay the association fees, and the defendant third-party purchaser obtained the property.  In 2015, the plaintiff lender initiated this action to foreclose, and the third-party purchaser filed a counterclaim seeking to quiet title based on the Court’s August 2014 decision holding that super-priority condominium liens could extinguish mortgages.  See Chase Plaza Condo. Ass’n, Inc. v. JPMorgan Chase Bank, N.A., 98 A.3d 166 (D.C. 2014).  The lender moved to dismiss the counterclaim, but the trial court sua sponte converted the motion to one for summary judgment, denied the motion, dismissed the lender’s complaint, and entered summary judgment against the lender and in favor of the third-party purchaser, all without giving the parties prior notice of any of these actions

On appeal, the Court reversed the trial court’s order, holding that it was procedurally improper because, among other things, the trial court failed to view the evidence in the light most favorable to the lender.  Although the trial court correctly viewed the evidence in the light most favorable to the third-party purchaser when deciding the lender’s motion to dismiss, it should have shifted this perspective and viewed the evidence in the light most favorable to the lender when deciding whether to grant summary judgment in favor of the third-party purchaser.  Additionally, the court did not give proper notice to the parties before converting the lender’s motion to dismiss into a motion for summary judgment in favor of the third-party purchaser.  More importantly, however, in remanding the proceedings, the Court also gave instructions to the trial court for how to resolve the priority issue.  Specifically, the Court cited to its recent decision in Liu v. U.S. Bank Nat’l Ass’n, 2018 WL 1095503 (D.C. Mar. 1, 2018) and held that if the foreclosing association only foreclosed on the most recent six months of unpaid dues, the association’s claim took priority over that of the lender and extinguished the lender’s mortgage.  However, “if the trial court finds that the association foreclosed on more than the most recent six months of dues, it will need to determine the legal effect of the foreclosure.”  Finally, the Court held that the trial court must also address the lender’s equitable defenses to the quiet title claims.

For analysis of the Liu v. U.S. Bank Nat’l Ass’n decision, please click here.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Michael Crowley at mcrowley@riker.com or Dylan Goetsch at dgoetsch@riker.com.