Article from Community E-ssentials

The Colorado Common Interest Ownership Act (“CCIOA”) creates two liens on behalf of associations. The first is a statutory lien for any delinquent assessments, late fees, interest, fines and attorney fees. This lien is subordinate to the first deed of trust and governmental liens but has priority over all other encumbrances of record regardless of when the lien is recorded. The statutory lien is automatically perfected by the recording of the declaration. However, the recording of an actual notice of assessment lien is generally recommended so that an actual document exists.

The second lien is often called the “super” lien. Unlike the lien for delinquent assessments which is subordinate to the first deed of trust, the super lien has priority over the first deed of trust. The super lien amount is equal to the amount of the regular assessments that came due during the six-month period immediately prior to commencement of a foreclosure action by the first mortgage holder or the association. The super lien does not include late fees, interest, fines or attorney fees incurred during the six-month period.

Effect of a Foreclosure on the Association’s Liens

If there is completed foreclosure action by the first mortgage holder and there is no redemption then an association’s lien for delinquent assessment is extinguished and is no longer an encumbrance against the property. The association cannot collect the delinquent assessments from the new owner of the property. However, the prior owner does remain personally liable for the delinquent assessments and can be pursued through legal action.

The super lien is NOT extinguished and continues to be a valid encumbrance against the property. This lien is generally paid upon transfer of the property to a new owner. However, if it is not paid, it may be foreclosed on by the Association. Associations should be cautious when giving status letters to title companies on properties that have been through a foreclosure. The status letter should always include the super lien balance, in addition to assessments that came due after the end of the redemption period.

Future Steps to Take

In order to monitor the foreclosure process and determine responsibility for assessments we recommend that the following steps be taken:

1.         Obtain the legal description of the property.

2.         Verify the current ownership of the property.

3.         Contact the Public Trustee's office, in the county where the property is located, to verify that a foreclosure has been commenced and obtain the scheduled sale date. Sale dates are occasionally continued or postponed by the lender to a later date.

4.         Determine the projected date of expiration of the owner's redemption period by counting seventy-five days from the date of sale.

5.         Determine if priority and date of the deed of trust being foreclosed is the first deed of trust. Was it executed after July 1, 1992?

6.         Pursue collection of the assessments accruing prior to the expiration of the owner's redemption period from the party being foreclosed upon.

7.         Pursue collection of the assessments accruing after the expiration of all redemption periods from the entity that ends up owning the property after the foreclosure (typically from the first mortgage holder). The Public Trustee can provide the name and address of the party who is issued a deed.

8.   Pursue the six-month CCIOA super lien from the new owner.

The foreclosure process can become even more complicated if there are redemptions or if the owner files bankruptcy. Therefore, assistance of legal counsel is generally recommended to explain the association’s options and assist in best protecting the association’s interests.

Published by HindmanSanchez P.C.
Copyright © 2009 HindmanSanchez P.C.. All rights reserved.
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