HOA: Just Because You Can Doesn’t Mean You Should

Just because you can doesn’t mean you should, and just because it’s not required doesn’t mean you shouldn’t. 

                Different associations have different practices when it comes to filing notices of lien for unpaid assessments and other amounts due to the association. 

                Under Vermont law, an association has a statutory lien against a unit for amounts due, including assessments, fines and other charges imposed against the owner.  That lien is prior to all other liens and encumbrances except those recorded before the declaration, a first mortgage or deed of trust recorded before the delinquency, and, of course, liens for real estate taxes and other governmental assessments or charges. 

No notice of lien needs to be filed in the land records to perfect this lien:  the statute expressly provides that “recording of the declaration constitutes record notice and perfection of the lien.”    

                Some associations file notices of lien anyway.  There’s probably nothing wrong with that, other than the cost of doing so.  But is there any benefit to the association from recording?  Good question.

                The association’s goal in filing a notice of lien is ultimately, presumably, to get paid.

                When an owner sells their unit, they’re almost always required to provide the purchaser with a resale certificate disclosing, among other things, any unpaid assessments and other fees against the unit being sold. 

                “Almost always” is the key here.  No resale certificate is required in the case of:

(1) a gratuitous disposition of a unit;

(2) a disposition pursuant to court order;

(3) a disposition by a government or governmental agency;

(4) a disposition by foreclosure or deed in lieu of foreclosure;

(5) a disposition to a dealer;

(6) a disposition that may be canceled at any time and for any reason by the purchaser without penalty; or

(7) a disposition of a unit restricted to nonresidential purposes.

                In those circumstances, the transferee of a unit may not be aware of the association’s lien or the amount it secures.  The Official Comment to the section requiring resale certificates describes the information provided in them as “important facts which  purchaser should have in order to make a rational judgment about the advisability of purchasing the particular unit.”  The provision is thus not to increase the likelihood that the Association will be paid upon transfer of the unit, but to protect purchasers.  Indeed, the article where it appears is entitled “Protection of Purchasers.” 

                The drafters did not explain why they carved out exceptions to the resale certificate and public offering statement requirements.  It may be that the transferees to which the exceptions apply are likely to be related to the transferor, understand that they are acquiring a unit with outstanding indebtedness, or are sufficiently sophisticated that they don’t require protection.  In those cases, a specific notice in the land records disclosing the association’s lien might provide notice to the transferee that it would not otherwise receive, and the amount claimed in the lien might be paid at closing.  Whether       the full amount of the transferor’s indebtedness would be paid at closing, however, is another matter.

                In the end, an association isn’t required to record a notice of lien against a unit with unpaid amounts due to the association, but it can.  Whether it should is a conversation to have with counsel.