Oregon Supreme Court Rules HOA Lien Primes Deed of Trust in Interpreting HOA Lien Statute
Law stated as of 03 Mar 2021
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Oregon
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by Practical Law Real Estate
PRACTICAL LAW
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03 Mar 2021
On February 11, 2021, the Oregon Supreme Court ruled in Bank of New York Mellon Trust Co. v. Sulejmanagic that, under Or. Rev. Stat. § 100.450(7)(c), once a homeowners' association provides notice of unpaid assessments to a lender, the lender must take action within 90 days or the association's assessment lien takes priority over the lender's lien. The court also held that the lender's reinstatement of its previous foreclosure action after the 90-day notice period ran did not undo the association's statutory award of priority. (367 Or. 537 (2021).)
On February 11, 2021, the Oregon Supreme Court ruled in Bank of New York Mellon Trust Co. v. Sulejmanagic that, under Or. Rev. Stat. § 100.450(7)(c), once a homeowners' association provides notice of unpaid assessments to a lender, the lender must take action within 90 days or the association's assessment lien takes priority over the lender's lien. The court also held that the lender's reinstatement of its previous foreclosure action after the 90-day notice period ran did not undo the association's statutory award of priority. (367 Or. 537 (2021).).
Background
In Oregon, when a condominium association has unpaid assessments against a unit, the association is entitled to a lien against the unit for those assessments, and the lien has priority over all other liens except tax liens and a first mortgage or deed of trust (Or. Rev. Stat. § 100.450(1), (2)). However, an association can obtain priority over the mortgage or deed of trust if, among other requirements:
The association gives the lender formal notice of the assessments.
The lender fails to initiate judicial action to foreclose before 90 days after the notice.
Zahid Sulemanagic (Sulemanagic) purchased a condominium in 2003 and gave a first deed of trust to Bank of New York Mellon Trust Co.'s (Lender) predecessor in interest. The unit was subject to assessments by Tanglewood Hills Condominium Association (Tanglewood). In 2011 Sulemanagic began failing to make payments on the loan and in 2013 he began failing to make payments on Tanglewood's assessments.
Tanglewood recorded a lien for the unpaid assessments and a few days later the Lender filed a judicial foreclosure action that did not specifically name Tanglewood as a defendant. The Lender eventually filed an amended complaint specifically naming Tanglewood as a party. However, several months later, the trial court dismissed the action without prejudice as to Tanglewood for failure to prosecute.
On or about October 1, 2014, Tanglewood sent the Lender written notice of Sulejmanagic's default on assessments under Or. Rev. Stat. § 100.450(7)(c). The Lender did not take action during the 90-day notice period, either to reinstate its previously-dismissed foreclosure action, or to file a new one.
On May 4, 2015, several months after the 90-day notice period had run, the Lender moved for the trial court to reinstate the foreclosure action. The trial court granted the motion, and Tanglewood's answer asserted that it now had priority over the Lender under Or. Rev. Stat. § 100.450(7)(c).
The trial court rejected Tanglewood's argument and granted summary judgment for Lender, and the Court of Appeals affirmed (450 P.3d 14 (2019)).
Outcome
After extensive discussion of the debate over priority of condominium assessments and the legislative intent behind Or. Rev. Stat. § 100.450(7)(c), the Oregon Supreme Court reversed.
Specifically, the court held:
The statute establishes a notice period for the lender to act running from the date of the notice until 90 days after the notice and not, as the Lender claimed, only a requirement that it initiate a foreclosure action at any time before expiration of the 90-day period (even if later dismissed).
The statute requires the first lienholder to initiate a foreclosure action, implying that the lender has not already begun a foreclosure proceeding.
The statute's text, context, and history do not show any intent to invalidate or ignore a pending foreclosure action; if a foreclosure action is pending, the association must protect its rights through the foreclosure proceeding.
In the present case, there was no pending foreclosure action at the time Tanglewood provided Lender the statutory notice.
As a result, Tanglewood's notice was effective and required Lender to take action within 90 days of the notice.
Lender's reinstatement of its previously-dismissed foreclosure action after the 90-day notice period ran did not undo Tanglewood's statutory award of priority because it did not make the dismissed foreclosure action "pending" during the 90-day notice period. The court noted that its ruling on this issue might have been different if Lender had obtained an order reinstating its foreclosure proceeding nunc pro tunc.
Practical Implications
This ruling is a clear reminder and warning to lenders in Oregon to take prompt action on receiving notice of unpaid assessments to protect their lien priority.
For information on residential judicial foreclosure procedures in Oregon, see: