Vt. Hous. Fin. Auth. v. Coffey, No. S0367-11 CnC (Toor, J., Aug. 11, 2011)

[The text of this Vermont trial court opinion is unofficial. It has been reformatted from the original. The accuracy of the text and the
accompanying data included in the Vermont trial court opinion database is not guaranteed.]
                                               VERMONT SUPERIOR COURT
                                                  CHITTENDEN UNIT
                                                   CIVIL DIVISION

                                                                    │
VERMONT HOUSING FINANCE                                             │
AUTHORITY                                                           │
 Plaintiff                                                          │
                                                                    │
    v.                                                              │           Docket No. S0367-11 CnC
                                                                    │
GAIL H. COFFEY; CHAMPLAIN                                           │
HOUSING TRUST, INC. f/k/a                                           │
BURLINGTON LAND TRUST, INC.;                                        │
BUILDING 601 UNIT OWNERS                                            │
ASSOCIATION; DALTON DRIVE                                           │
NEIGHBORHOOD ASSOCIATION,                                           │
INC.; and ANY TENANT RESIDING                                       │
AT 601A DALTON DRIVE, ESSEX, VT                                     │
 Defendants                                                         │
                                                                    │

         RULING ON MOTION FOR PARTIAL SUMMARY JUDGMENT AGAINST
                      BUILDING 601 AND DALTON DRIVE

           Plaintiff/Mortgagee Vermont Housing Finance Agency (VHFA) seeks a decree to

foreclose on its mortgage on condominium unit 601A Dalton Drive in Essex, Vermont

(Unit 601A). VHFA named several defendants as parties possibly holding interests in the

property including the mortgagor, Gail Coffey, as well as Building 601 Unit Owners

Association and Dalton Drive Neighborhood Association, Inc. (the Associations). The

Association(s)1 counterclaimed and cross-claimed against its codefendants, seeking to




1
  It is unclear exactly what the difference is between Building 601 Unit Owners Association and Dalton
Drive Neighborhood Association, Inc. The filings have not been consistent. VHFA filed two separate
returns of service on the same individual. The cross-claim lists both associations as cross-claim plaintiffs
in the caption, but the motion only pertains to the Building 601 Association and Attorney Riley only signs
on behalf of the Building 601 Association. Both associations respond to VHFA’s motion for judgment and
subsequent motion for partial summary judgment, but only the Building 601 Association moves for
judgment against Coffey.
obtain a judgment for unpaid condominium assessments and fees, and to foreclose Coffey

and junior lienholders’ interests in Unit 601A.

        VHFA moved for partial summary judgment against the Associations, arguing

that the Associations are only entitled to a lien with superpriority equivalent to six

months of periodic assessments pursuant to 27A V.S.A. § 3-116. The court (Tomasi, J.)

scheduled the claim for a hearing. The hearing was held before the undersigned on

August 10.

                                              Discussion

        VHFA’s motion for partial summary judgment only raises issues of law and does

not require a factual analysis.          The question presented is whether the portion of a

condominium association’s lien entitled to superpriority over a first mortgage includes

common-expense assessments incurred after the date the condominium association

initiates an action to enforce the lien.2 VHFA argues that (1) the plain language of 27A

V.S.A. § 3-116 necessitates a conclusion that the Associations’ liens are only prior to

VHFA’s mortgage to the extent of six months of periodic assessments, and (2) legal and

equitable title to the property are not merged until confirmation of sale. The Associations

argue that assessments accruing after the filing of the action should also be entitled to

superpriority on the grounds that (1) the court should follow the Windham Superior

Court’s decision in Wells Fargo Bank v. Schunk, No. 193-4-10 Wmcv (Vt. Super. Ct.

April 28, 2011) (Wesley, J.), and (2) policy arguments and equitable considerations

support its position.



2
  Although the parties appear to address the issue with reference to the date VHFA filed its foreclosure
complaint, the relevant date is based on the institution of an action to enforce the condominium’s lien, in
this case, the Associations’ filing of the counterclaim and cross-claim. See 27A V.S.A. § 3-116(b)(3).


                                                    2
       Condominium associations’ liens and their relative priorities are created and

governed by 27A V.S.A. § 3-116. Under that statute, a condominium association “has a

statutory lien on a unit for any assessment levied against that unit or fines imposed

against its unit owner.” 27A V.S.A. § 3-116(a). This lien may include a variety of fees,

charges, and fines. Id.

       While an association’s lien generally enjoys priority over other liens, it is not

prior to “a first mortgage or deed of trust on the unit recorded before the date on which

the assessment to be enforced became delinquent.” Id. § 3-116(b), (b)(2). However, the

association’s lien may have superpriority over a first mortgage “to the extent of the

common expense assessments based on the periodic budget adopted by the association

pursuant to subsection 3-115(a) of this title which would have become due in the absence

of acceleration during the six months immediately preceding institution of an action to

enforce the lien.” Id. § 3-116(b).

       In essence, the superpriority gives the condominium association the power to

recover some sale proceeds ahead of the mortgagee in the event of foreclosure. If the

property is sold at auction, the condominium gets the first bite at the apple: the equivalent

of six months of common-expense assessments that would have become due immediately

preceding the date that it initiates an action to enforce the lien. Then, if there is any

money left, the mortgagee is paid in full or until the money is exhausted. If there is

anything left after that, the condominium association is entitled to proceeds equal to the

remainder of its claim.

       The six-month superpriority is intended to “strike[] an equitable balance between

the need to enforce collection of unpaid assessments and the obvious necessity for




                                             3
protecting the priority of the secured interests of lenders.”         Id. § 3-116—Official

Comment ¶ 2. “As a practical matter, secured lenders will most likely pay the six

months’ assessments demanded by the association rather than having the association

foreclose on the unit.” Id.

       The plain language of the statute is clear and controls this issue. The general rule

is that, except as provided in subsection (c) of § 3-116, a first mortgage recorded before

the date on which the assessment to be enforced became delinquent has priority over the

condominium association’s lien.         27A V.S.A. § 3-116(b)(2).         A condominium

association’s lien is only prior to a first mortgage to the extent of common-expense

assessments for the six months immediately preceding the commencement of the

condominium association’s foreclosure action. This ends the discussion. Assessments

may continue to mount after the filing of a foreclosure action. But in situations where the

mortgage has already been recorded, they are simply not entitled to superpriority status

because they become delinquent after the date of recordation.

       The court does not agree with the Schunck decision from the Windham court.

That court reasoned that condominium associations must be entitled to collect unpaid

assessments accrued after the filing of a foreclosure action to maintain the balance of

interests created by the Legislature. It relied on the policy consideration that, because the

foreclosure process often takes between one and two years, the condominium would

absorb the loss of substantial assessments “particularly if several units are in arrears

simultaneously.” No. 193-4-10 Wmcv at 2. The court disagrees because the language of

the statute is clear, and it “must enforce the statute as written.” In re M.W., 2007 VT 90,

¶ 9, 182 Vt. 580 (mem.).




                                             4
        Furthermore, while the Official Comments adopted do not address the policy

considerations raised by the Windham court, they specifically state that “secured lenders

will most likely pay the six months’ assessments demanded by the association rather than

having the association foreclose on the unit.” 27A V.S.A. § 3-116—Official Comment

¶ 2 (emphasis added). Considering the equitable balance set by the Legislature, it would

be presumptuous to introduce new policy considerations to the mix that could add

significant additional assessments to the secured lenders’ tab.

        The Schunck court also presents another basis for its decision: that “a foreclosure

judgment vests full legal and equitable title in the property with the mortgagee” subject

only to the equity of redemption. Schunck, No. 193-4-10 Wmcv at 2 (quoting In re

Canney, 284 F.3d 362, 369 (2d Cir. 2002)). The court held that this constitutes “separate

grounds, independent from its statutory construction, for charging [the mortgagee] with

satisfying the assessments for the unit . . . .” Id.

        While the court agrees that a foreclosure judgment strips the mortgagor of some

of her interests, it does not mean that common-expense assessments that become due

after the association initiates an enforcement action are given superpriority. The lien

statute makes no reference to title.3 The superpriority only extends to the assessments

that would have become due during the six months immediately preceding the filing of an

action to enforce the lien, irrespective of the mortgagee’s posture. By definition, the

assessments the Associations are seeking become due after this key date.                            The




3
  The court notes that a mortgagee already has legal title to the unit, regardless of whether it holds a
foreclosure judgment. See Canney, 284 F.3d at 369. Nevertheless, a mortgagee is not a “unit owner” under
the condominium statute because its interests in the unit are “solely as security for an obligation.” 27A
V.S.A. § 1-103(31).


                                                   5
Associations do not argue that VHFA is no longer a first mortgagee otherwise entitled to

priority. Therefore, the newest assessments are not entitled to superpriority.

        The Associations’ remaining arguments are unpersuasive. The fact that the court

may appoint a receiver to collect money owed to a unit owner and then intercept sums to

pay for common-expense assessments pursuant to 27A V.S.A. § 3-116(k) is irrelevant to

the issue of priorities and does not modify the plain language of § 3-116(b)(3).

Furthermore, the Legislature has already balanced the equities when enacting the priority

scheme at issue here, and the court sees no compelling reason why it should put its

fingers on the scale in this instance.

                                           Order

        VHFA’s motion for partial summary judgment is granted.

Dated at Burlington this 11th day of August, 2011.



                                              ______________________________
                                              Helen M. Toor
                                              Superior Court Judge




                                             6
