Unfortunately, mortgage foreclosure actions are a regular occurrence in many of our communities. You may receive a notice of mortgage foreclosure on behalf of the Association or learn that a bank is and/or has foreclosed against a unit in your community. Generally speaking, a mortgage foreclosure sale extinguishes all liens which are second and/or junior to the foreclosing party's lien unless specifically preserved by statute. Fortunately, the Pennsylvania Uniform Condominium Act and the Uniform Planned Community Act are two of those statutes.

The Pennsylvania Uniform Condominium Act and the Uniform Planned Community Act each contain provisions which protect at least a portion of the Association's lien against a unit when the unit is the subject of a mortgage foreclosure action. The assessments which come due during the six-month period immediately preceding the date of the mortgage foreclosure sale are not extinguished and continue as a lien against the property unless such assessments are paid out of the proceeds of the foreclosure sale. Accordingly, the Association is entitled to the collection of those amounts incurred during such six-month period despite the Sheriff's Sale of the property.

As part of the collection of the Association's lien against the unit, we typically prepare appropriate notices to the Sheriff and the foreclosing attorney prior to the scheduled sale putting such parties on notice of the Association's potential lien against the unit being foreclosed upon. Once the foreclosure sale has been completed, the Association needs to reconcile the account history and determine the amount of the outstanding lien against the unit. Reconciliation of the account history can be complicated and requires careful attention to make certain that the Association is not misrepresenting the amount owed to it.

The collection of the outstanding lien depends upon whether the property was sold to a third party or taken back by the bank. Careful attention should be given in determining the new owner of record after the Sheriff's Sale to ensure that the Association is communicating with the proper party in connection with the collection of the outstanding lien against the unit. To the extent the property is sold to a third party, the Association may look to the Sheriff's office to collect the lien through the distribution process. To the extent the property is taken back by the bank, the Association may pursue the collection of the lien via the foreclosing attorney and/or directly against the bank as the new owner of the unit.

With respect to the balance of an Association's lien which is not protected by statute, such lien is extinguished against the unit only. However, the prior unit owner remains personally liable for such amount. This means that the Association may be entitled to pursue an action against the prior unit owner for the balance of the lien (i.e., the difference between the total outstanding delinquency and the six-month portion of the lien). At the very least, the Association should consider securing a judgment against such former unit owner for the balance to preserve its right to collect the same in the future.

The answer is that the association already has an automatic lien against the unit.  Pursuant to the Pennsylvania Uniform Condominium Act and the Uniform Planned Community Act, the association has a lien against a delinquent unit which is always equal to the actual amount of delinquent assessments, late fees, fines, interest, costs and attorney fees owed from the time such amounts become due.  The lien exists by virtue of the recording of a declaration against the property at the time the condominium or planned community was formed.  The recording of the association's declaration constitutes the filing and perfection of a lien against all units to the extent that there are delinquent assessments due and owing to the association.  The lien is in place against a delinquent unit without the need to file anything with the Court.

So why does the association have to file a complaint against the unit owner if they already have a lien against the unit?  While the automatic lien protects the association with respect to a third party buyer's purchase of the unit from the unit owner, the association cannot execute on this lien.  The lien must be reduced to a judgment in order for the association to collect the delinquent assessments which it is owed outside the context of a sale of the unit to a third party buyer.  In other words, in order to attach a unit owner's bank account, execute against their personal property or foreclose upon their unit, the association must secure a judgment against the unit owner by the filing of a complaint in Court.  After securing a judgment, the association can proceed with the execution and collection of the delinquent assessments by the methods described above.

Notwithstanding the information above, it is important to note that the automatic lien for delinquent assessments is extinguished unless proceedings to enforce the lien are commenced within three years after the assessments become payable.  This means that the association must file a complaint within three years after the assessments become due.  Associations should be careful to pursue the enforcement of the lien by filing a complaint before the expiration of the three year period so that the association's lien is not extinguished.

Under both the Pennsylvania Uniform Condominium Act and the Pennsylvania Uniform Planned Community Act, an Association has the right to foreclose upon the Association's statutory lien in a manner similar to a mortgage foreclosure.  The provisions set forth in both of these Acts are retroactive and, therefore, apply to all condominiums and planned communities in Pennsylvania.

While the foreclosure process may be complex, it can be a useful tool under certain circumstances. Foreclosure may be an appropriate remedy where an Association has exhausted all other remedies, where collection efforts have been frustrated and/or past due assessments are significant.  Therefore, careful consideration should be given to the facts of each case in order to determine if foreclosure is an appropriate remedy.  The analysis includes a determination of the equity in the property and the priority of the Association's statutory lien in connection with any other liens, judgments, or mortgages against the property.  In addition, the Association's potential ownership of the property raises a host of other considerations which must also be addressed, including:  Is the Association responsible to satisfy the first mortgage lien or tax liens, if any, against the property?  What is the condition of the property?  Will an action in ejectment be necessary to evict the current occupant of the property?  What are the Association's responsibilities in terms of any prior liens to which the property remains subject?

We recommend a careful review of all of these issues by the Association's Board and legal counsel to determine if foreclosure is an appropriate remedy.