Bank of America, N.A. v. Morganbesser, et al, no. 675-10-10 Wrcv (Eaton, J., Jan. 18, 2013)

[The text of this Vermont trial court opinion is unofficial. It has been reformatted from the original. The accuracy of the text and the
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                                                VERMONT SUPERIOR COURT

SUPERIOR COURT                                                                                         CIVIL DIVISION
Windsor Unit                                                                                           Docket No. 675-10-10 Wrcv

                                                                         │
Bank of America, N.A.                                                    │
 Plaintiff                                                               │
                                                                         │
 v.                                                                      │
                                                                         │
Kenneth Morganbesser, et al.                                             │
 Defendants                                                              │
                                                                         │

        DECISION ON MOTION FOR DEFAULT AND PROPOSED JUDGMENT ORDER

        This is now a consolidated action involving the prior claim for foreclosure brought by
BAC Home Loans on November 1, 2010 in this docket seeking foreclosure on a condominium
unit owned by the Morganbessers. The Mountain Edge Condominium Association (MECA) was
named as a defendant in the action. MECA did not assert a cross claim against Morganbesser
seeking foreclosure. MECA filed for partial summary judgment in that action seeking to
establish priority of its lien over that of the Plaintiff pursuant to 27A V.S.A. § 3-116. Judge
DiMauro, in a brief decision, denied the motion holding that MECA had not instituted an action
to enforce its lien as required under the statute.

        Thereafter, MECA instituted an action in docket number 604-9-12 Wrcv on September
27, 2012 seeking foreclosure against the Morganbessers due to unpaid condominium fees. BAC
Home Loans was named as a defendant. A motion to consolidate the two actions was granted
and the claims have continued under this docket number. At issue at present is a motion for
default by MECA against Morganbesser and the form of judgment to be issued.

        MECA has established it is entitled to default against the Morganbessers. Its motion for
default is GRANTED.

       The question of the extent of lien priority by a condominium association is one upon
which trial courts in Vermont have reached different conclusions. This Court is aware of four
decisions, evenly divided, on whether the “superpriority” of condominium association dues
encompasses only the six months reach-back prior to filing or whether the priority continues for
unpaid dues accruing after the association has brought an action.

           The statute in question, 27A V.S.A. § 3-116(c) states:

           (c) A lien under this section is also prior to all security interests described in subdivision
           (b)(2) of this section 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. Subsections (b) and (c)
       of this section do not affect the priority of mechanics' or materialmen's liens, or the
       priority of liens for other assessments made by the association. A lien under this section
       is not subject to the provisions of chapter 3 of Title 27.(emphasis added).

        In its motion concerning the proposed judgment order, MECA attempts to revive its
argument, previously decided by Judge DiMauro, that the filing of its answer in this docket
before consolidation constituted the institution of an action to enforce its lien. MECA argues that
the attorney for MECA thought he was taking “action” to enforce its lien by filing an answer to
the foreclosure, adding that the filing of a cross claim or a new complaint is a waste of judicial
economy and creates an additional financial burden on the property owner.

         The institution of an action requires more than the mental state of counsel. The institution
of an action is the commencement of an action. Perdue v. Hess, 484 S.E. 2d 182 (W.Va. 1992).
The commencement of an action has established requirements, namely that a complaint or claim
for relief has been served or filed. V.R.C.P. 3. In filing an answer, MECA did not institute
anything. Even a cross claim in the view of the Court would have constituted the institution of an
action as it is a claim for relief, but MECA elected not to file one. The statute does not speak to
“action” by counsel, it requires the “institution of an action to enforce the lien”. The
commencement of an action for foreclosure by the lender, standing alone, has nothing to do with
enforcement of a condominium association’s lien.

        The statutory requirement that an action be instituted to enforce the lien is an important
one given that by doing so certain charges of the condominium association are elevated to a
priority they would not otherwise enjoy. Whatever minimal additional burden is placed upon the
condominium association by commencing an action, or by filing a cross claim, is vastly
outweighed by the elevation in lien priority gained by so-doing. The answer to why bringing an
action or a cross claim is required is straightforward: the statute, by its wording, requires it.

        MECA points to the lack of any reasoning in Judge DiMauro’s decision. One
explanation, perhaps, may be that she felt the statute, as to the initiation of an action, was clear
on its face. As was said in Dustin v. Cowdry, 23 Vt. 631, 636-7 (1851):

       The very words of our statute, copied almost literally from the English statutes, show the
       sense of the legislature upon this subject; --“No person shall make any entry into any
       lands, or other possessions, but where entry is given by law; and in such case, not with
       strong hand, or with multitude of people, but only in a peaceable manner;” and if any one
       do either, it is provided, that he shall be fined, restitution shall be made to the one thus
       thrust out of possession, and he shall be entitled to recover treble damages. All this is so
       explicit, as scarcely to admit of question; and it seems wonderful, that any doubt should
       ever have arisen, especially when we advert to the occasion and the object of passing the
       English statute upon this subject. And, as is said by ERSKINE, J., in Newton v. Harland,
       1 Man. & Gr. 644, [39 E. C. L. 581,] “It seems remarkable, that a question so likely to
       arise should never have been directly brought before any court in banc, until that case”
       (1840.) We can only conjecture, that the reason must have been, that the very great
       explicitness of the statute, and the manifest absurdity of the old common law rule upon
       the subject, as a rule of law, in regard to the title and possession of real estate in a free
       country, must have so commended itself to the minds of the English people, that no man
       was found to possess sufficient hardihood to attempt so bold an innovation until these
       days of speculation and experiment.

        MECA did not institute an action to enforce its lien until it filed suit on September 27,
2012. Under the reach-back provision of 27A V.S.A. § 3-116, MECA is entitled to priority over
the Plaintiff for common assessments which became due 6 months prior to that date.

       The other question presented by the form of judgment is whether MECA’s lien on
common assessments is given priority over the Plaintiff’s mortgage interest for only the 6
months prior to the institution of the action by MECA or whether, once the action is instituted,
the “superpriority” continues. Trial courts in Vermont are divided on this issue. This Court is
aware of four decisions, two of which hold there is no on-going superpriority and two which
hold there is.

        The statute itself is silent as to the issue of continuing priority. In all likelihood this
specific issue was not considered by the Legislature when it adopted the statute. Nothing in any
of the prior trial court decisions suggest any consideration of this issue when the Uniform
Common Interests Ownership Act (“the Act”) was adopted.

         At issue here is the balance of interests between those of the mortgage lender and those of
the condominium association, which represents the common interests of the condominium
community. The granting of a “superpriority” with a 6 month reach-back is a recognition of the
need of the common interest community to have some protections, that is some ability to recover
some common assessments, when the sale of the property at foreclosure results in insufficient
proceeds to pay all lienholders. In this regard the common assessments within 6 months of
institution of an action are grouped with taxes and other government assessments as moving
ahead of the first lender’s position.

        The answer to the competing interests regarding the “superpriority” in this Court’s view
is found in the ability of a condominium association to continue to extend its superpriority
merely by filing a new action for unpaid assessments which have come due every six months. It
can not be gainsaid that by doing so a condominium association could expand its superpriority
over and over while at the same time creating a morass of actions in many condominium
foreclosures. Courts are to avoid constructions of statutes which lead to unjust, unreasonable, and
absurd consequences. O’Brien v. Island Corp., 157 Vt. 135 (1991). Requiring a condominium
association to repeatedly file new actions simply to extend its priority position serves no purpose.

         Lenders are aware of the limited superpriority of condominium association liens by
virtue of the Act and the Condominium Declaration. Banks lend money to condominium buyers
knowing that a priority is provided by statute to certain common assessments just as with taxes.
To a condominium association the common assessments serve the same purpose as taxes, i.e.
providing funds for the common good. Extending the superpriority from 6 months prior to
institution through to the end of the action also provides the mortgage lender with an incentive,
albeit a small one, to proceed as expeditiously as permitted in their foreclosure actions.
       Comment 2 to the Uniform Act provides, in part, as follows:

       A significant departure from existing practice, the six
       months' priority for the assessment lien strikes an equitable balance between the
       need to enforce collection of unpaid assessments and the obvious necessity for
       protecting the priority of the security interests of lenders. 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.

        The Court believes the reasoning in Chase Home Finance, LLC v Steven Maclean, et al.,
No. 424-6-10 Rdcv (Vermont Super Ct. Jan. 31, 2012)(Teachout, J.), concerning the ability of
the mortgage lender to take steps to protect its interests as discussed therein and the
interpretation of the Act as guided by Uniform Law Comment 2 are persuasive. That reasoning
provides further support for the outcome here. The comment suggests a starting point for the
priority of the assessment lien, not a period of confinement of that priority.

        MECA’s Motion for Issuance of Proposed Judgment Order is GRANTED to the extent it
provides for priority of MECA’s lien from 6 months before September 27, 2012 and through to
the end of the action. MECA is to prepare a new Consolidated Judgment Order consistent with
this decision and reflecting the consolidation of the actions, together with any additional
affidavits of sums due should they be necessary for issuance of the consolidated judgment. The
new consolidated judgment order shall be submitted by February 4, 2013. Plaintiff shall have
until February 15, 2013 to object to the form of the judgment for reasons not previously raised.


                                             Dated at Windsor this 16th day of January, 2013.



                                                     _____________________________
                                                     Harold E. Eaton, Jr.
                                                     Civil Division Judge
