Indiana Condominium Association Liens, Part I: Foreclosure

I’ve previously written about the priority of homeowner’s association (“HOA”) liens.  Today’s post relates to similar, but not identical, liens arising out of unpaid condominium association (“CA”) fees/assessments.  Like HOAs, CAs also can foreclose their liens.  Because a lender/mortgagee may, in its own foreclosure case, discover a recorded CA lien on the subject real estate, mortgagees and their foreclosure counsel should be mindful of the distinctions between the HOA and CA statutes and how the CA laws affect priority in title. 

Different laws.  In Indiana, different statutes govern the operation of HOAs (Indiana Code § 32-28-14) and CAs (I.C. § 32-25).  I.C. § 32-25-6 specifically deals with liens of CAs. 

Priority of unrecorded liens.  Unlike an HOA lien, a CA, or a so-called “association of co-owners,” maintains a continuous lien against the subject real estate from the date of the assessment of fees, without regard to whether the CA has recorded a lien notice with the county recorder’s office.  By statute, this CA lien “has priority over all other liens except tax liens and all sums unpaid on a first mortgage of record.”  I.C. § 32-25-6-3(a).  Indiana’s recording statute, I.C. § 32-21-4-1(b), does not apply to these liens, which is to say a lender’s mortgage does not take priority according to the date of its filing, but rather takes senior priority automatically by operation of Indiana Code § 32-25-6-3(a)(2).  This means that, when a lender forecloses, the lender will always enjoy priority over any unrecorded claim for past-due charges owed to a CA.  Further, it would not appear that a foreclosing lender needs to name the CA as a defendant to answer as to its unrecorded lien.   

Priority of recorded liens.  The CA has the authority per I.C. § 32-25-6-3(b) to record a lien on the subject real estate and then foreclose upon it, which foreclosure is governed by Indiana’s mechanic’s lien statute.  (In instances where a CA has recorded a lien, a foreclosing mortgagee should include the CA as a defendant in the foreclosure suit to ensure the CA’s lien is terminated by virtue of the sheriff’s sale.)  If the mortgage’s recording date precedes the recording of the CA’s lien, then the mortgage will have priority over the CA’s lien.  But if a CA records a lien notice before a lender records its mortgage, the priority rule becomes less clear.  The statutory language contains some contradictions on this point.  In the final analysis, I and my colleague Sierra Bunnell, who assisted with this post and the client’s case giving rise to it, believe that the CA’s prior recorded lien will maintain priority over a subsequently-recorded mortgage.  We believe this conclusion is reasonable given the policy of the recording statute, and recommend that a potential lender regard a prior recorded CA lien as an encumbrance on title.  Please comment below or email me if you have a different point of view.

Sheriff’s sale purchaser’s exposure.  I.C. § 32-25-6-3(a) provides that “if the mortgagee of a first mortgage of record or other purchaser of a condominium unit obtains title to the unit as a result of foreclosure of the first mortgage, the acquirer of title . . . is not liable for the share of the [CA charges applicable to that unit] due before the acquisition of title to the unit by the acquirer.”  While that language would seem to provide that the pre-sheriff’s sale charges disappear, the statute goes on to state that the unit’s charges fall back into a pool collectible from all co-owners, including the sheriff’s sale purchaser.  We read this to mean that, although a foreclosing mortgagee will not be on the hook for the full extent of the borrower’s unpaid CA charges, the mortgagee may be responsible for its pro rata portion as a new co-owner.

Next week, in Part II, we will address how to approach CA liens when a lender is considering a deed in lieu of foreclosure.  Thanks to my colleague Sierra Bunnell for her research and input.