Wells Fargo Bank v. Schunck, No. 193-4-10 Wmcv (Wesley, J., Apr. 28, 2011)

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                                                    STATE OF VERMONT
                                                     SUPERIOR COURT

WELLS FARGO BANK                                                    │
Plaintiff                                                           │
                                                                    │           WINDHAM UNIT, CIVIL DIVISION
 v.                                                                 │           Docket No. 193-4-10 Wmcv
Nancy Schunck, Obertal Condominiums,
et al                                │
 Defendant                           │
                                     │
                        ORDER RE DISPUTE AS TO
                          FORM OF JUDGMENT

         Judgment has entered against all defendants in this foreclosure action, as to both
Plaintiff’s complaint and the cross-claim to foreclose its lien for condominium
association fees filed by Defendant Obertal. Having been directed to file a proposed
consolidated decree, Plaintiff and Obertal disagree as to the proper form of judgment.

        Regarding the principal basis for disagreement, Obertal’s proposed decree would
recognize its claim to priority as to the proceeds from any eventual sale based on a six
month period of delinquencies accruing immediately prior to its initiation of this action to
enforce the lien, and all unpaid assessments that have continued to accrue while this
action has been pending. Basing its argument of the plain language of 27A V.S.A. §3-
116(c), Plaintiff disputes that Obertal is due priority as to any amounts beyond the six
month period of delinquencies which accrued prior to the initiation of the cross-claim.

      The statute provides:
              (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.
27A V.S.A. § 3-116(c).

        Relying on elemental principles of statutory construction, see, In re:
Ambassador Insurance Co., Inc., 184 Vt. 40, 418, Plaintiff contends that the
meaning is plain of the face of the statute, limiting any claim for priority of
association assessments over a first mortgage to the six month period described in
Sec. 3-116(c). Obertal responds that the language specifically refers to “the six
months immediately preceding institution of an action to enforce the lien”, and
that logic and fairness requires that, in addition to such specifically designated
retroactive priority, all unpaid assessments which continue to accrue while the
action is pending should be paid first from the proceeds of any sale. The Court
agrees.
        As Obertal argues, the statutory scheme strikes a careful balance between
the secured positions of the first mortgage holder and the condominium
associations, whose interests are intertwined in the success of condominium
developments. First mortgage financing is essential to the sale, resale and long-
term viability of any such project. At the same time, the very units serving as
collateral for a mortgage are subject to waste and deterioration if the
condominium association is unable to sustain its own viability, including
responsibility for the maintenance of the common elements.

         In consideration of this balance of interests, the Court adopts Obertal’s
construction of the statute, inferring that the Legislature meant only to limit the
retroactive priority of unpaid liens over a first mortgage in an enforcement action.
As Obertal urges, Plaintiff’s construction leads to such unjust results as to require
that it be rejected as yielding absurd consequences. Ambassador Insurance, 184
Vt. at 419. From the initiation of the enforcement action until an eventual sale by
judicial decree, a period of between one and two years is typical.1 It is usual and
predictable in foreclosures involving condominiums that the association fees will
remain delinquent throughout this period. Rarely will an association be in a
position to easily absorb this large a delinquency, particularly if several units are
in arrears simultaneously. Thus, the Court concludes that granting the enforcing
association only six months of priority skews the balance the statute was designed
to protect. Plaintiff’s construction would risk the financial viability of the owners
associations, imperiling not only the security for its own mortgage but that of all
other mortgage holders secured by units in the complex.

         As urged by Obertal, its construction of the statute is further supported by
the holding in Town of Weathersfield v. Merchants Bank, 284 F.3d 362, 369 (2d
Cir.,2002), stating that “a foreclosure judgment vest full legal and equitable title
to the property with the mortgagee” subject only to the equity of redemption.
Indeed, the Court recognizes this legal status as a separate grounds, independent
from its statutory construction, for charging Plaintiff with satisfying the
assessments for the unit to which it is asserting equitable title by the claims raised
in its foreclosure action, and which have accrued unpaid during after the filing of
the complaint.

        In a matter unrelated to lien priority for Obertal’s assessments, Plaintiff
objects to Obertal’s proposed order as it conflates amounts under Plaintiff’s first

1
  The Court takes judicial notice that many nationally-based institutions holding assignments of mortgage
notes have declared moratoriums as to pending foreclosure actions, a fact well-known to Plaintiff’s
counsel. Furthermore, the recent enactment of the amendment to V.R.C.P.80.1(g) has prompted requests
for delay, even after the issuance of a decree and order of sale, in order that plaintiffs may gather the
information and documents necessary to the required certifications. In an unrelated case, involving different
parties and counsel, the Court recently denied a request by Plaintiff’s counsel for an indefinite stay of the
obligation to conduct the judicially decreed sale until such time as “it becomes clear that such a sale will be
necessary”. In short, in the current climate, the expectation embodied in Rule 80.1 that foreclosure is a
summary remedy allows for far less predictability than in the past regarding the length of time necessary to
the disposal of a foreclosure action.
and second mortgages. Obertal did not respond to this objection, and the Court
acknowledges its validity.

         WHEREFORE it is hereby ORDERED: The Court APPROVES the
proposed decree submitted by Obertal as relates to the priority of condominium
association assessments, provided that the proposed decree shall be submitted in
amended form, approved by both parties, to properly state amounts due under
Plaintiff’s first mortgage, and also afford it a redemption period for its second
mortgage.

       Dated at Newfane this             day of                        , 2011.


                                             _____________________________
                                             John P. Wesley
                                             Superior Court Judge
