Washington D.C. Appellate Court Holds Foreclosure of Condominium Lien Extinguished First Mortgage Despite Condominium Association’s Representations to the Contrary

The District of Columbia Court of Appeals recently held that a condominium association’s foreclosure of a “super-priority” condominium lien extinguished an otherwise first-priority mortgage on the property, despite the fact that the association’s notice of sale and deed to the third-party purchaser stated that the sale was “subject to” the mortgage.  See Liu v. U.S. Bank Nat’l Ass’n, 2018 WL 1095503 (D.C. Mar. 1, 2018).  In the case, the borrower purchased a condominium in 2007 and financed it through a loan from the lender, which was secured by a mortgage on the property.  In 2009, the borrower defaulted on both his loan and his condominium assessments.  Under D.C. Code Ann. § 42-1903.01 et seq. (the “Act”), condominium associations are entitled to super-priority liens for the most recent six months of unpaid assessments.  Thus, beginning in 2011, the association scheduled multiple foreclosure sales under the Act, but cancelled each one after the lender paid the amounts owed.  In 2014, the association again attempted to sell the condominium through a non-judicial foreclosure.  In its advertisements, it stated that the property would be sold “subject to” the lender’s mortgage.  On June 4, 2014, it held a public auction and sold the property for $17,000 to a third-party purchaser, and the deed again stated that the property was sold subject to the mortgage.  The day after the sale, the association received a check from the lender for the unpaid assessments, but it returned the check and informed the lender that the property was sold.  In October 2014, the lender commenced a foreclosure action, and the purchaser defended the action by arguing that the mortgage was extinguished pursuant to both the Act and an August 2014 decision from the District of Columbia Court of Appeals 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).  In Chase, however, the advertisements stated that the sale would not be subject to the existing mortgage on the property.  The lender moved for summary judgment and the trial court granted the motion, holding that the law was unclear as to the extinguishment issue at the time of the sale and that the advertisements and deed made it “abundantly clear” that the mortgage was not extinguished.

On appeal, the Court reversed the decision.  First, it held that the Act contains an express anti-waiver provision that states, “[e]xcept as expressly provided by this chapter, a provision of this chapter may not be varied by agreement and any right conferred by this chapter may not be waived.”  Accordingly, the association’s statements that the sale would be subject to the mortgage could not override the plain language of the Act, which called for the mortgage to be extinguished.  Second, the Court held that the purchaser was not equitably estopped from extinguishing the mortgage because the lender could not show that it reasonably relied on the association’s statements, as evidenced by the lender’s attempt to pay the condominium lien. Similarly, the Court held that equitable relief cannot contravene express statutory language.  Finally, the Court noted that the Act was amended in 2017 to require notices under the Act to specify whether the foreclosure sale is for the six-month super-priority lien and not subject to first mortgage, or for more than the six-month lien and subject to the mortgage.

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.