Windfalls Ahead for Condo Associations?
In the recent case Summerhill Vill. Homeowners Ass’n v. Roughley, the Washington Court of Appeals decided the foreclosure redemption statute does not allow a first position lender to redeem following a judicial foreclosure by a condominium association.
This means the following easily-envisioned scenario is possible: Person P buys a condo for $250,000, owns it for two years, then stops paying the homeowners’ dues and mortgage payments. The association (“A”) has a statutory lien for six months of dues (say $2,000 for this example), and that lien is superior even to the security interest of the bank (“B”) from which P borrowed money to purchase the condo. A files a lawsuit to foreclose its lien while B is still in the early stages of a nonjudicial foreclosure of its deed of trust. A serves the suit on a low-level employee of B, and the suit gets temporarily lost in the shuffle. On the 21st day after service on B, A takes its Decree of Foreclosure by default, foreclosing B’s deed of trust. P and all other junior lienholders are foreclosed out shortly thereafter, either by default or at summary judgment. On day 28, bank realizes its error and appears, but by then it is too late. For a time, P has the right to pay A all outstanding amounts owing to essentially buy back (“redeem”) his condo, but the Summerhill court said B has no such right.
What does this mean? If bank employees are not diligent at passing lawsuits “up the chain” to the lawyers who will appear and prevent defaults, skookum condo associations will wind up buying (and inevitably flipping) $250,000 condos for extinguishment of four-figure claims. A creative means of filling the many empty coffers out there, but probably a consequence the legislature did not intend and ought to remedy.
