June 4, 2020
Memorandum of Association Assessment Lien
HOAs and condominiums continually chase after their members for unpaid assessments imposed for maintenance of common areas and amenities. Normally, a creditor who wants to go after a defaulting “customer’s” property or assets needs to sue them for a judgment if they want to record a lien in the land records. Association boards grew tired of paying law firms to file multiple little collection suits taking months or over a year to resolve. Assessments, when proper, represent a share of common expenses, set annually, and paid monthly. Through lobbying efforts, community associations convinced state legislatures to grant them statutory liens for assessments that they may perfect against a lot or unit by fulfilling procedural requirements. These statutes allow associations to bypass the ordinary requirements to file a lawsuit and obtain a money judgment if they want a lien for certain things. Recordation of an assessment lien allows the association to then foreclose on the owner’s property to satisfy the lien amount.
Use of foreclosure to collect on assessment liens is controversial. Numerous news articles and lawsuits illustrate the abuses or harshness of the HOA lien-and-foreclosure process. In some examples, unscrupulous debt collectors deprive people of their homes to satisfy a few hundred or thousand dollars of assessments, all without the owner understanding what is happening, and speculators receive valuable property at a discount. To borrow a catchphrase of a slick-looking guy in a popular internet meme, “it’s free real estate”. Owners need for boards to spend money to maintain common areas, such as roads, retaining walls, drainage systems, elevators, et cetera to protect access and use of their own homes. Some items in association budgets are questionable, many are not, most have inadequate reserves. The necessity of repairs does not mean that all collections methods are just (or even necessary). I question whether HOA and condo boards ought to be able to lien-and-foreclosure without proof or process in court. Owners need to engage with their legislators about which collection remedies associations ought to enjoy. I would like to focus today on how the memorandum of association assessment lien works in Virginia, how this legal device is misused, and how owners can protect themselves from improper attempts to lien or foreclose their property by the debt collectors. Without understanding how existing legislation fails to protect people (and solve cashflow problems), it is not possible to figure out how to solve a specific owner’s dilemma or to have an informed “big picture” policy discussion.
Black’s Law Dictionary defines a “lien” as, “A legal right or interest that a creditor has in another’s property, lasting usually until a debtor or duty that secures it is satisfied.” A payment obligation may be owing without the existence of a lien. Assessment liens arise by the effect of statute. The Virginia Condominium Act grants a lien on each condominium unit for unpaid assessments levied by the board in accordance with the Condo Act and the association’s governing instruments. Assessment liens are subordinate to recorded tax liens, prior liens, and first mortgages. To preserve the lien, the association must file a proper memorandum of association assessment lien in the land records. The Condo Act requires the association president to swear or affirm the details of the memorandum. In 2004, the Circuit Court of Fairfax County found that this duty was non-delegable and invalidated a lien signed only by the association’s attorney. These kinds of liens do not exist in the common law.
The condominium association must record the lien before the expiration of 90 days from the time the first assessment identified in the lien became due. This is a short “lookback” period for perfection of the statutory lien. This requires the association’s representative to establish an effective system for tracking assessment payments and collections if they want to use the statutory lien remedy without waiver.
The lien memo must adequately describe the property encumbered by the lien. Its easy for the manager or debt collector to put in the wrong address or lot number.
The memorandum must state, “The amount of unpaid assessments currently due or past due together with the date when each fell due.” There is a debate in Virginia over what assessments or other charges may be included in a lien memorandum. Monthly assessments or special assessments whose due dates fell within 90 days preceding the filing of the memorandum easily fall within the statute. However, association debt collectors frequently try to throw additional claims into these lien memoranda. For example, some governing instruments allow boards to “accelerate” the remaining assessments due by an owner in a fiscal year if the owner defaults on a monthly payment. Some governing instruments require the board to decide to accelerate the remaining future unpaid monthly payments and provide the owner with a letter specifying the future effective date (perhaps two weeks or one month in the future) when the remaining assessments become due in a lump sum. Acceleration of assessments is an attractive idea to debt collectors. Acceleration allows the association to consolidate its debt collection activities. It is more difficult for an owner to crawl out of default when the reinstatement amount is larger. The Condo Act does not specifically authorize the addition of accelerated assessments into recorded lien memoranda. In 1994, the Circuit Court for the City of Alexandria observed that a board cannot collect accelerated assessments in a lien memorandum because of the statute. Even if the governing instruments provide some sort of mechanism for acceleration, the association may not have properly followed such procedures by conducting a proper meeting and sending a notice. An association may have the right to accelerate assessments but the inability to include it in the lien memorandum.
This is confusing to many people, including some law school graduates. A unit owner may be liable to the association for a fee, a charge, or some other amount that the association can obtain a money judgment for but cannot add to a memorandum of lien. The statutory lien is a narrower remedy than what an association may be able to hold a unit owner accountable for in a civil suit. The statutes of limitation are different.
In addition to looking back beyond 90 days or looking forward past the day the lien is recorded, sometimes associations will try to throw attorneys fees or other costs into the amount of the lien. This is another source of confusion, because the association may have the right to make claims for attorney’s fees, filing fees, costs, etc. under the declaration or other sections of the condominium act. The lien statute provides that the association may obtain an award for attorney’s fees and costs when suing to enforce the lien. That is different from including the fees and costs in the lien instrument itself.
Debt collectors easily make errors in a memorandum of association assessment lien. When an association appoints a substitute trustee to foreclose on the lien, many owners are unaware that the trustee relies upon an improperly perfected lien. A condo unit or subdivision lot cannot be foreclosed upon by use of an invalid lien memorandum, but where the process is non-judicial, the owner must stick up for themselves. It is necessary to carefully review the memorandum, governing instruments, statement of account, and the statute to determine if the lien is enforceable. Even if the foreclosure sale takes place, the owner may have legal means to void the sale and come current on the assessments. Sometimes this does not require going to trial.
For owners in a HOA or condominium that validly imposes assessments on its owners, its best to pay such in full and on time, whenever possible. Once the association records the lien, the owner may need qualified legal counsel to help untangle the situation before the foreclosure goes through.
Va. Code § 55.1-1966, formerly, Va. Code § 55-79.84 (Va. Condo. Act)
Va. Code § 55.1-1833, formerly, Va. Code § 55-516 (Va. Property Owners Ass’n Act)
Wilburn v. Pinewood Lawns Condo. Phase I, 65 Va. Cir. 372 (Fairfax 2004).
Unit Owners Ass’n of Buildamerica-1 v. Gillman, 223 Va. 752, 292 S.E.2d 378 (1982).
In re Chen, 351 B.R. 355 (E.D. Bankr. 2006).
English v. Parkfairfax Condo Ass’n, 34 Va. Cir. 114 (Alexandria 1994).