Super Priority Lien Basics

A lien is a document that records a debt, using a condo unit as collateral for the debt.  Ordinarily, a lien against real estate has “priority” based on the date the lien is recorded.  Once a lien is recorded, it becomes next in line to any liens previously recorded – first come, first served.  This is the general rule of lien priority.

When a condo unit owner fails to pay assessments, Washington law provides for the automatic creation of a lien in the amount of the unpaid assessments.  Associations have the option to record a lien to make the association’s interest in the unit a matter of public record.  Contrary to the normal lien priority analysis above, a condo association lien’s “date” of priority is determined by when the declaration for that condominium association was recorded.

Under the Horizontal Property Regimes Act (also known as the “Old Act,” RCW 64.32), no matter when they are recorded, the priority of liens always goes in this order:

(1) Government liens for unpaid taxes;
(2) Mortgages; and
(3) Association liens.

The government always gets its money first; then mortgages are paid; then, only if there is money left over, the association’s lien is paid.  The Old Act applies to all condos created before July 1, 1990.

The Condominium Act (also known as the “New Act,” RCW 64.34) contains an additional protection for association liens known as a super priority lien.  The super priority lien has priority over mortgages to the extent of the most recent six months’ delinquent assessments dating back from a sheriff’s sale or trustee’s sale.  Condo associations formed under the “old act” (RCW 64.32) may also take advantage of the super priority lien protection by amending their declaration to include priority lien language in that documents.

So under the New Act, lien priority looks like this:

(1) Government liens for unpaid taxes;
(2) Association lien to the extent of the most recent six months’ delinquent assessments;
(3) Mortgages; and
(4) The remaining amount of the association’s lien.

The priority lien applies if the lender initiates a judicial foreclosure or a non-judicial foreclosure, and if the association initiates a judicial foreclosure.  Exceptions to the super priority lien rule:

(1)  If a mortgage-holder requests written notice of delinquent assessments and the COA fails to provide that written notice, the priority of the COA’s lien can be reduced by up to three months.  RCW 64.34.364(4).
(2)  If the COA forecloses its lien non-judicially, the lien ceases to have super priority over previously perfected liens.  RCW 64.34.364(5).

If you have any questions we can answer, please feel free to leave a comment or contact us directly.  We look forward to continuing this conversation with you in our future posts!

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28 Responses to Super Priority Lien Basics
  1. Janet Schooler
    February 9, 2011 | 11:24 pm

    Do the above rules apply to Homeowners’ Associations as well as condos? (The Old Act and the New Act – lien priorities) Our HOA was formed in the 1970’s. We have had banks say they will pay only dues outstanding for 6 months prior to the date of foreclosure. Some will pay only from the date of foreclosure to the present. If there are automatic liens against the property in the state of Washington, is there any point to filing and recording liens at the county office for the amount owed? (And to keep amending the amounts?)
    This is a very helpful site! Thank you!

  2. Valerie Farris Oman
    February 10, 2011 | 6:16 pm

    Hi, Janet,

    Homeowners’ associations formed under RCW 64.38 do not have any lien priority over lenders. Lenders are not obligated to pay HOAs anything beyond the amounts due that accrue from the date of the foreclosure sale forward.

    There is a point to recording liens in the public record even though they arise automatically. One basic reason is that recording a lien makes it a matter of the public record and ensures that any parties who review the public record are on notice of the Association’s lien.

    Amending the amount of a lien is rarely necessary, and should be done upon the advice of your HOA’s attorney.

    Hope this helps!

  3. Dennis Johnson
    March 31, 2011 | 11:33 pm

    Hi Valerie,

    You say “a condo association lien’s “date” of priority is determined by when the declaration for that condominium association was recorded.”
    Our master Declaration was filed in 2004 referencing Phases I, II, III, and IV, but only adding Phase I units at that time. Then Amendments were filed to add Phase II units in 2005 and Phase III units in 2008. Would the HOA’s lien priority for Phase II and Phase III units start in 2004, when the association was formed, or when those amendments were filed?

    Thanks for your help.

  4. Valerie Farris Oman
    April 5, 2011 | 10:30 pm

    Hi, Dennis,

    Your HOA’s lien priority would only date back to the date each amendment was recorded adding the pertinent phase to the association.

    I hope that helps!
    Valerie Farris Oman recently posted..New Definition of “Service Animal”

  5. […] Super Priority Lien Basics […]

  6. Peter
    January 14, 2012 | 5:54 am

    What would happen in the following situation:
    1) COA initiaties foreclosure action for unpaid dues on a unit
    2) unit also has mortgage debt (underwater)
    3) Nobody bids at foreclosure auction

    My understanding is:

    In a non-judicial foreclosure, title passes to the lien holder that initiated the foreclosure – in this case the COA. Any senior liens (including the mortgage) would pass with the title. The COA is now the proud owner of the title and the debt (underwater).

    Is that about right?

    What would happen in a judicial foreclosure?

  7. Valerie Farris Oman
    January 19, 2012 | 11:03 pm

    Hi, Peter,

    In neither case would the association inherit the debt upon foreclosure. Whether it’s a judicial or non-judicial foreclosure, the property would be sold subject to the mortgage. The one notable exception is if the condo is one entitled to the priority lien protection of RCW 64.34.364 and if the lender was properly named, served, and pleaded in the lawsuit, the Sheriff’s Sale could wipe out the mortgage entirely.

    As a practical matter, the mortgage-holder will eventually exercise its right to foreclose and their eventual foreclosure will “trump” the association’s foreclosure. However, the association does not become liable for paying the mortgage at any time. And lenders are taking a very long time to foreclose right now, so there is often very good reason for the association to foreclose even when an eventual lender foreclosure is a certainty.

    In a judicial foreclosure (in Washington State), the association would become the “sort of” owner after the sale, subject to a one year redemption period following the sale. During the redemption period, the owner can tender a payment to the association for the full amount of the association’s bid plus any costs paid in connection with the unit during the time since the sale, and “redeem” the property – essentially undoing the foreclosure. If that doesn’t happen, then the association is entitled to a deed from the Sheriff after the redemption period is over. Again, though, title is taken subject to the mortgage.

    With a non-judicial foreclosure, there is no redemption period, so the association would take title (subject to the mortgage) right away. However, the association also has to forego any deficiency – in other words, if they collect nothing at the sale, they are out of luck and can’t pursue the former owner for the delinquency.

    Whew! That’s a lot so I’ll leave it there, and you can let me know if you have any more questions.

  8. Peter
    January 20, 2012 | 10:19 am

    Valerie,

    Thanks for the super-clear and valuable feedback.

    1) Okay, lets start again with a non-judicial foreclosure. Again, lets assume an association initiated non-judicial foreclosure, association has lien, owner is nowhere to be found, there is a mortgage, no recent mortgage payments, the mortgage is under-water, and association dues are 3 years delinquent, taxes are not delinquent:
    a) If there are no bidders at the foreclosure, is it true that the title passes to the association?
    b) If the attorney’s fees for the non-judicial foreclosure and any collections actions are $9K, and there is no bidder, how does the attorney ultimately get paid?
    c) What expenses is the association responsible for once it gets title (taxes, sewer, remodeling; not the mortgage)?
    d) It’s my understanding that an association will typically pursue this course of action in order to generate income from renting the unit until the mortgage holder exercises their rights, forecloses and takes title (or the association completes a short sale). Is that about right?
    e) Any other comments on this situation?

    2) You mention “The one notable exception is if the condo is one entitled to the priority lien protection of RCW 64.34.364 and if the lender was properly named, served, and pleaded in the lawsuit, the Sheriff’s Sale could wipe out the mortgage entirely.” If I understand correctly, this would have to be a judicial foreclosure.
    a) I understand all new act condos are entitled to priority lien protection if they have proper language in their declarations? Is this true? How does a condo qualify or not qualify?
    b) The main wrinkle I see in your language is “pleaded in the lawsuit”. Does that mean the lender has to show up in court?
    c) What if the lender is named, served, and never shows up? What would it take for the mortgage to be wiped out entirely?
    d) This approach seems very enticing for the association. Either the association gets the title free of encumbrances (and can then sell the condo) or the bank exercises its rights, takes title, and starts being responsible for HOA dues (so the association starts getting HOA dues again). Why would an association pursue a non-judicial foreclosure instead of taking this course of action?

    3) In a non-judicial foreclosure the association foregos the right to go after the previous owner for any deficiency. If the association does not foreclose, how would it typically go after the owner for a deficiency and what factors determine whether this will be successful?

    Thanks a million. Although it seems that many associations have to deal with this situation, the information addressing it just isn’t publicly available.

    Pete

  9. Valerie Farris Oman
    January 20, 2012 | 3:07 pm

    Hi again, Pete. Okay, in order:

    Non-Judicial Foreclosure

    1. No bidders at the sale = title passes to the association.

    2. Attorneys’ fees are paid out-of-pocket by the association as they are billed. The association, therefore, bears the risk of not being able to recover those fees from the delinquent owner. The attorney gets paid for work performed, and payment is not contingent upon recovery.

    2a. Note that as I stated before, a non-judicial foreclosure requires the association to forego its right to collect any sums due from a delinquent owner. So if an association chooses non-judicial foreclosure, it’s typically because either (a) there is equity in the unit and they are expecting to recover via a third-party bidder at the sale or by otherwise capitalizing on that equity or (b)they don’t care as much about recovering money (or know that the likelihood of doing so is very slim) as they do about getting the non-paying owner out and a paying owner in.

    3. Once the association takes ownership, it is financially responsible for everything BUT the mortgage – assessments, utilities, refurbishment costs, etc.

    4. It is not uncommon for an association to pursue foreclosure – of either type – in order to rent the unit out until the lender forecloses. Whether non-judicial foreclosure is the best route to take is debatable. Giving up the right to collect any of the balance due from the owner seems like a high price to pay in exchange for renting out the unit for an undetermined period of time. Why not file a judicial foreclosure lawsuit and get a receiver appointed instead? Other factors to take into consideration are the condition of the unit (is it too expensive to refurbish such that it can be rented out?) and who the lender is (some take MUCH longer than others to foreclose.

    Judicial Foreclosure

    1. RCW 64.34.364 changes the “normal” lien priority scheme (first in time, first in line) to create a limited “super priority” for condo association liens. In order to benefit from this protection, the condo must be a “new act” (created after July 1, 1990) condo WITHOUT conflicting language in their declaration OR must be an “old act” condo (pre-dating July 1, 1990) with an adopted, recorded priority lien amendment.

    2. In order to wipe out the mortgage, the association’s judicial foreclosure must name the current investor in the mortgage as a defendant, serve that defendant, and obtain a judgment against the lender. If the lender does not contest the lawsuit, a judgment may be obtained by default. The lawsuit itself and the judgment documents must state that if the lender does not appear and pay the super priority lien amount before the Sheriff’s Sale takes place, its interest will be wiped out.

    3. As a practical matter, however, once the Sheriff’s Sale takes place, the redemption period expires, and the Sheriff’s Deed is issued, title companies require associations to also bring a quiet title action and obtain an additional court order stating that the lender’s lien is wiped out and title is clear as far as that lien is concerned. Most title companies won’t insure a sale of the property without this.

    4. Most of the time, especially now with most properties under water, judicial foreclosure is a more attractive option than non-judicial foreclosure. In a judicial foreclosure, for example, the association can choose to set its opening bid (and therefore its “credit bid”) at an amount lower than the full balance of the judgment. For example, if the association has a judgment for $10K but knows the property is under water, no third party bidders will likely bid at the sale, and the owners are unlikely to try to redeem the property, it can set the opening/credit bid at $500. That leaves the balance of the judgment ($9,500) subject to collection from the former owner, preserving options like garnishment to collect on the judgment. The drawback to that approach is that if the owners DO redeem, all they have to pay the association to take title back is the amount of the association’s bid plus any costs paid by the association after the sheriff’s sale (i.e., assessments, refurbishment, etc.). The decision of how to bid is a very fact-specific one that must be made on a case-by-case basis with the assistance of the association’s attorney.

    That’s all I’ve got for now. I do have one suggestion for you – have you heard of the Community Associations Institute (CAI)? They are an organization that works with condo and homeowner associations and they have many education resources and opportunities for homeowners and boards to learn about stuff like this. Check out their Washington chapter here.

  10. Peter
    January 23, 2012 | 4:14 pm

    Valerie,

    You are a star! Super helpful information, and clearly presented. Impossible to find anywhere else.

    Yes, I’ve previously checked the WSCAI site but it hasn’t been convenient to attend any of their events. Super helpful site. Regrettably, I didn’t find information covering this topic.

    Okay – a curve ball question.

    Situation – Condo unit owner filed Chapter 7 and was discharged. Two years later, bank still has not foreclosed. Association is bleeding a bit because nobody is paying the dues.

    I’m extracting the following quotes from an article in Florida and am wondering if something similar has been tried in WA – to force the bank to foreclose and start paying dues or to walk away from the mortgage.

    The article is here:
    http://www.bloomberg.com/news/2011-08-24/homeowner-associations-in-need-of-cash-sue-lenders-to-force-foreclosures.html

    Some quotes:
    = = = =
    “The lenders are stalling foreclosures,” Ben Solomon, the Miami Beach attorney for the Vintage East association, said in a telephone interview. “Our complaints say the banks abandoned their interest and either need to accept responsibility for the title or walk away.”

    Solomon, whose Association Law Group represented homeowner boards in 16 Florida counties with 15,000 delinquent owners, also won what he calls “mortgage terminator” lawsuits in claims against Bank of America Corp. (BAC), Citigroup Inc. (C), Deutsche Bank AG (DB) and Wells Fargo & Co. (WFC), according to court records.

    To compel banks to act, Solomon’s lawsuits start by suing the homeowner for unpaid dues as a way of seeking title to the property. Then he files a claim against the bank, contending the non-performing loan restricts the association’s right to sell the property because the mortgage is worth more than the home.

    In March 2010, Citigroup lost a lawsuit over a Miami Beach condo with a $136,000 mortgage, according to court filings.

    “We sue whoever holds the mortgage,” Solomon said. “The bottom line is the bank had a loan and the mortgage got terminated.”
    = = = =

    This seems a bit different than the typical judicial foreclosure process. Has anyone in WA tried something similar – suing the lender to either foreclose and start paying dues or walk away from the mortgage? Is it workable?

    Pete

  11. Ellen Boughn
    February 8, 2012 | 5:44 pm

    Hello Valerie,
    I too have read the Bloomberg article and others including similar bank abandonment mortgages. Our condo is facing such a situation. The bank hasn’t foreclosed on over three years since the owner herself abandoned the property. The HOA foreclosed on the unpaid dues and assessments but the bank does nothing except pay the property taxes. Can we force the Bank to sign over the property as they have effectively abandoned the mortgage?
    Thank you so much for your time.

  12. Valerie Farris Oman
    February 8, 2012 | 5:59 pm

    Ellen, you say your association has foreclosed; does that mean it owns the unit? If so, what about renting it out until the bank forecloses? If not, once a foreclosure lawsuit is started you can ask the court to appoint a receiver to rent out the unit.

    There isn’t a known mechanism in Washington State that can force the bank to take the property back. Any lawsuit that attempted to do that would be experimental in nature, so the problem is that most associations don’t want to be the “guinea pig” – spending legal fees on a “maybe.” We do have a research attorney working on this question and if/as we learn more, we will update the blog!

  13. Ellen Boughn
    March 2, 2012 | 6:25 pm

    Thanks Valerie. Our association has concluded a non-judicial foreclosure and we now have title to the unit. The first mortgage holder hasn’t foreclosed and the unit was abandoned two years ago. Presumably the owner stopped paying the mortgage somewhere between two and three years ago. When the owner left they stripped the unit of all appliances, blinds etc. We estimate that it would cost between $10,000 and $15,000 to get the unit into rentable shape. And then we fear once the place is fixed up, the bank will foreclose.

    My question is has your research mentioned above yielded any decision to take on mortgage termination/abandonment cases? If so, we’d like to know.
    Thanks so much.
    Ellen Boughn recently posted..Technically Speaking-Reasons Photos are Rejected

  14. Valerie Farris Oman
    March 2, 2012 | 7:13 pm

    Hello Ellen,

    Unfortunately our research has yielded nothing that suggests we can do here what associations have done in Florida. Those lawsuits were based on a Florida law that doesn’t have a counterpart in Washington.

    Best wishes to your association and sorry we don’t have the “silver bullet” answer for you!

  15. Ellen Boughn
    March 2, 2012 | 9:52 pm

    Thanks Valerie. I would like to direct you to a video from a Miami news station that interviewed Ben Solomon in which he stated that his firm’s success can be duplicated across the country as “the process is not based on Florida law”. http://www.youtube.com/watch?v=BwPYK_pAAMc Presumably fact checking still exists in the news business…but who knows.

    Also since the bank we have an issue with is BofA based nationwide does that have anything to do with ruling laws?

    Thanks again.
    Ellen Boughn recently posted..Technically Speaking-Reasons Photos are Rejected

  16. Valerie Farris Oman
    March 2, 2012 | 11:59 pm

    Ellen, I’ll take a look at that video. However, I can tell you that the fact that the bank if BofA doesn’t make a difference in terms of the legal options available. They are the worst culprits, so far as we have seen, in terms of taking forever to foreclose.

  17. Albert
    March 19, 2012 | 12:12 am

    So, as I understand things, assessments made by new act condominiums (or old act condominiums updated with specific language) which are dated up to 6 months prior to a sheriff’s sale or trustee sale would gain priority lien status and come before a mortgage lien.

    So, my question is if it’s possible (and legal) for an association to de-age assessments that are older than 6 months prior to the sheriff sale/trustee sale?

    Suppose the deliquent homeowner would be 12 months behind on dues of $1000/mo at sheriff sale/trustee sale date, so there is $6000 in assessments that fall within the prior 6 months and $6000 in assessments which are older than 6 months. Based on my understanding, the HOA would be eligible to recover $6000 assessed within the prior 6 months.

    (Notwithstanding the restrictions of the declaration around assessments) If an association create a special assessment equal to the non-recoverable dues and issued this assessment immediately before the date of sheriffs/trustee sale and paired such a special assessment with a special refund of an equivalent amount, then would this action effectively redate all assessments to be due within the 6-month timeframe?

    i.e. for homeowners who are current on dues, the special assessment/refund would cancel out, but for the delinqueint homeowner, the special refund could cancel out the oldest debt, but re-assess it within the 6-month timeframe, effectively redating the unqualified assessments to be qualified for super-priority lien status.

  18. Valerie Farris Oman
    March 19, 2012 | 1:07 pm

    Hello Albert,

    The super priority lien amount is limited to the most recent six months’ dues for common expenses adopted as part of the association’s annual/regular budget process. So the method you are suggested would NOT work to get the full balance due in your hypothetical paid.

    There is also the small matter of that method being fraudulent and intended SOLELY to result in collecting more than is owed after the foreclosure.

    Sorry! :)

  19. Peter
    February 8, 2013 | 11:40 am

    Valerie,
    Condo association completed a non-judicial foreclosure on a vacated property. There was a first and second mortgage lien. Want to ask several questions:
    1) Can you confirm that the association can rent out the unit without having to pay the rental income to the lien holder/mortgage company.
    2) It’s my understanding that the association is responsible for all costs of the unit, including taxes. What is the association’s liability for property taxes and can you explain why the lien holder/mortgage company continues to pay property taxes?
    Many Thanks!

  20. Valerie Farris Oman
    March 1, 2013 | 7:05 pm

    Peter, the responsibility for taxes and expenses can only be clearly established when there is clear title to a property. Further, the answers to your questions depend on the Condominium Declaration and the terms of the mortgage instruments securing the property. In general, though, if an association is in possession of a property, the board of directors is entitled to make a business judgment decision about what expenses to pay and what benefit there may be to the association of paying any expense (or declining to do so). Beyond that, your questions are too specific and require legal advice, which we cannot give on our blog. :)

  21. Miriam Miller
    June 22, 2013 | 5:31 pm

    I have “owned” my condo since April, 2007. I paid
    assessments when I had a job, but I cannot pay
    the recent assessment of $ll,000. The board here
    decided not to defer the obligation until next year.
    This is Washigton State. Will or can a lien be
    put upon my condo and what is the practical effect.

  22. Sandra
    August 8, 2013 | 5:17 pm

    Trying to understand Super liens and Redemptions procedures in CO. Hoping you can clear things up.

    I bid on a 1st mortgage and won with an overbid at a trustee Sale. There is a 2nd mortgage and an HOA lien.

    1) Does the Overbid go to the Super lien first, then the 2nd, the the HOA lien (if above the Super lien and recorded last?

    2)Can someone still buy the HOA lien (which was recorded before the Notice of Default), redeem it and snag the property from me? If so, what can I do to stop this from happening.

  23. Valerie Farris Oman
    August 8, 2013 | 5:25 pm

    Miriam, I cannot tell you if the association WILL record a lien or take legal action, but they certainly CAN do so if you are unable to pay the assessment(s). Try contacting your board to work out a payment plan or other agreement. Good luck.

  24. Valerie Farris Oman
    August 8, 2013 | 5:26 pm

    Sandra, I can’t speak to how the priority lien stuff works in CO since I don’t practice there. There can be significant differences in our state laws on condo liens and foreclosures, so your best bet will be to find an attorney in CO to answer your questions. Good luck to you.

  25. Jonathan Rosen
    September 4, 2013 | 10:46 pm

    I am currently involved in purchasing a short sale where the 1st lien holder (the bank) has initiated a nonjudicial foreclosure proceeding. At the same time, the homeowner’s association is in court about to file for summary judgement on a judicial foreclosure proceeding. What happens in cases like this, when there are two competing foreclosure actions? Which one wins? Also, the HOA declaration appears to be under the old condominium act.

  26. kool kinkajou
    October 22, 2013 | 6:18 am

    Your interpretation of super priority liens under RCW 64.34 as to the applicability to Old Condo Act HOA’s is slightly off base. In fact, there is no requirement to include priority lien language whatsoever in the CCR or Bylaws to take advantage of priority liens. Old Condo Act condos are automatically able to use “Super Priority Liens” if they did not have inconsistent language to the contrary in their documents.

    RCW 64.34.010:
    “to the extent necessary in construing any of those sections, apply to all condominiums created in this state before July 1, 1990; but those sections apply only with respect to events and circumstances occurring after July 1, 1990, and do not invalidate or supersede existing, inconsistent provisions of the declaration, bylaws, or survey maps or plans of those condominiums.”

    So if you are lucky enough to not have inconsistent language in your Old Condo Act governing documents, then you are already covered. If your documents are inconsistent with “Priority Liens”, then you can simply remove the “inconsistent language”. There is no requirement to include “lien priority language”. In fact, I would suspect it is better (and simpler) to leave it out entirely. Since if the RCW’s are modified to give some greater protection to the HOA at a future date such as nine months super priority as is the case in some states, then you will be automatically covered.

  27. Valerie Farris Oman
    October 25, 2013 | 4:47 pm

    Hello there. You are correct; however, in my experience, nearly all old act declarations contain language that is directly contrary to the priority lien language in the new act. So for the vast majority of old act condos, an amendment is necessary to take advantage of the priority lien protections.

  28. Jonathan Rosen
    October 29, 2013 | 9:42 pm

    What happens in a situation where there are multiple bank liens on a property, and the homeowner’s association has only named the bank that holds the first lien position. If the first lien holder is foreclosed, is the property still subject to the second lien?

    Can you point to the statute where it says that the bank must be named on the lawsuit in order for its lien to be wiped out?

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