Rhode Island Judicial Update

Rhode Island Judicial Update

Twenty Eleven, LLC v. Michael J. Botelho, et al., 2015 R.I. LEXIS 112 (DatedDecember 4, 2015)

The Rhode Island Supreme Court recently upheld a law that allows condominium associations to foreclose on homes ahead of first mortgage lenders.

The Rhode Island Condominium Act (the “Act”) provides that a lien for six months of unpaid association fees is higher in priority than the first mortgage or first deed of trust and can extinguish a first lien in certain circumstances.

A section of the Act entitled “Lien for assessments” provides that:

A lien under the section is prior to all other liens and encumbrances on a unit except:

(i) Liens and encumbrances recorded before the recordation of the declaration and not subordinated to the declaration;

(ii) A first mortgage or deed of trust on the unit recorded before the date on which the assessment sought to be enforced became delinquent; and

(iii) Liens for real estate taxes and other governmental assessments or charges against the unit.  (Emphasis added.)

Based on the statutory language, it would appear that a first mortgage recorded “before the date on which the assessment sought to be enforced becomes delinquent,” is senior to a condominium association’s assessment lien.  However, the section further provides that a condominium association’s assessment lien is also prior to any mortgage or deed of trust to the extent of the common expense assessments based on the periodic budget adopted by the [condominium] association … which would have become due in the absence of acceleration during the six months immediately preceding the foreclosure of the interest of the unit owner.

The Act effectively splits condominium assessment liens into two liens of differing priority:  1) a lien for six months of assessments that is higher in priority than the first mortgage or first deed of trust (commonly referred to as a “super-priority” lien); and 2) a lien for any additional unpaid assessments that is lower in priority than the first mortgage or first deed of trust.

The Rhode Island Supreme Court held that the Act permits a first lien to be extinguished by a super priority lien.  The Court did note that the lender could have availed itself of the right of redemption by paying the condominium assessments during the 30 day right of redemption period which the lender in this case did not do.