One of the most common questions we receive from Community Association clients is how do we preserve our lien for and recover delinquent assessments?
The frustrating reality is that some owners in Community Associations fail to pay their assessments in a timely manner. These delinquencies can create serious financial issues within the community. There are a few ways for Community Associations to pursue delinquent assessments. In part one of this series on collection remedies, we will discuss one method of collection, or rather, preservation, of a Community Association’s lien: the memorandum of lien.
What is a memorandum of lien?
A memorandum of lien is a document that is recorded in the land records of the Circuit Court Clerk’s Office in the city or county where the real property is located. The memorandum of lien essentially states that the Community Association has a lien encumbering the property for delinquent assessments. The operative statutes require the Community Association to include certain information on the memorandum of lien, including, but not limited to, the name of the development, a description of the lot, the delinquent amounts and their due dates, and the names of the owners. Moreover, the Community Association must provide written notice (sent via certified mail at least ten days prior to the filing of the memorandum of lien) to the delinquent owner that a memorandum of lien will be filed if the amounts remain delinquent.
While this process seems simple enough, it is important to note that a memorandum of lien is entirely a creation of Virginia statute. Accordingly, the applicable statutes must be strictly complied with in order to make the memorandum of lien valid. Failure to strictly comply with the statues may invalidate the memorandum of lien.
How far back can a memorandum of lien go?
A memorandum of lien for a property owners’ association may capture all delinquent assessments that have become due and owing during the last 12 months.
A memorandum of lien for a condominium unit owner’s association may capture all delinquent assessments that have become due and owing during the last 90 days.
What does the memorandum of lien accomplish?
The memorandum of lien does not automatically mean the debt is paid. The memorandum of lien acts a cloud on the title of the real property of the delinquent owner. Sometimes owners will pay the amounts voluntarily after the memorandum of lien is recorded. Should the owner try to sell or refinance a mortgage secured by the property, the title company or lender may well require that the lien be satisfied. This situation usually manifests itself with the lien amount being paid out of a real estate closing. A Community Association may also initiate a non-judicial foreclosure or sue to enforce a recorded memorandum of lien (and may do so within 36 months of the recording of the memorandum of lien). We will discuss these more complex avenues in a future post.
It is important to note that it is not guaranteed that the memorandum of lien will be satisfied in the event of a real estate transaction or foreclosure. Some buyers may purchase the encumbered property subject to (and with the memorandum of lien remaining intact) the Community Association’s lien. Foreclosures are a bit different. Foreclosures on deeds of trust will wipe away any junior liens (usually a Community Association’s memoranda of lien). Any proceeds remaining from the foreclosure (after the costs and debt secured by the deed of trust is satisfied) will be paid according to statute. Practically speaking, if there is no (or very little) equity in the property, then the sums secured by the memorandum of lien will not usually be paid.
Recording a memorandum of lien for delinquent assessments is a rather inexpensive and efficient step to attempt to preserve a Community Association’s lien for delinquent assessments. It does not require the filing of a lawsuit or going to court. However, the process for recording a memorandum of lien can be complicated, time sensitive, and requires the assistance of an experienced Community Associations attorney. In the interests of preserving its financial solvency, it is important for the Community Association to be persistent and adopt a routine practice, consistent with its governing documents, to record and preserve such memoranda of lien.
Part 2 of this series will discuss the foreclosure process for a memorandum of lien.