The question posed above is one that has been litigated a number of times and the simple answer to it is “it depends.”
RPL Section 339-z provides that first mortgages recorded prior to condominium liens for unpaid common charges (and other excepted encumbrances), hold absolute priority over such liens. Typically, unless excepted by the statute or in certain situations, condominium liens are superior to junior mortgages regardless of which encumbrance was recorded first.
Confusion arises when a junior mortgage enters the picture for the purpose of satisfying a first mortgage via consolidation. In such a fact pattern, the answer to the priority question is not always the same. The weight of the authority on the issue holds that so long as the recordation of the condominium lien does not intervene between the first mortgage and the consolidation of the two mortgages, and the consolidation agreement expressly provides that the purpose of the junior mortgage is to satisfy and be consolidated with, the first mortgage to form a single lien, then that junior mortgage will enjoy priority over a condominium lien. i
In 1993, the Court took a strayed approach in answering the question of the effect of consolidation on the priority of a condominium lien. In the case of Societe Generale v. Charles & Co. Acquistion, ii the Court held that despite the completion and recordation of the consolidation of a first and junior loan for the express purpose of forming a single lien, prior to the recordation of the condominium lien, only the first mortgage held priority over the condominium lien, and the junior loan remained inferior. iii While it appears the Court was strictly construing the language of RPL Section 339-z in its holding, it failed to appreciate the lack of practicality of its application.
The disquieting “split priority” theory created in the Societe Generale case was quickly clarified and reinterpreted in a more rational manner in two later cases. In 1994, in the Dime Savings case, the Court agreed with the “split priority” theory insofar as it applied only to situations involving an intervening condominium lien. iv
In such case, the condominium lien would maintain its priority status over the junior lien. The Court’s rationale behind this more practical holding was that “a consolidation and extension agreement is an instrument of convenience for the contracting parties only and cannot adversely affect, impair or derogate the priorities of any lien which has intervened between the respective dates of execution and delivery of the two consolidated mortgages…“. v
The Court went on to explain that the legislative intent behind the enactment of RPL Section 339-z was “to grant middle-income people the opportunity to afford housing and to avoid the inability of them to be able to refinance due to the existence of a lien for unpaid common charges.” Therefore, “[t]o hold otherwise is tantamount to compelling condominium owners to execute a new first mortgage, with the attendant costs, even where, as here, the refinance involves but a small percentage of the mortgage debt.” vi
The Court in both the Dime Savings case and later in 2000 in the Greenpoint Bank casevii which followed Dime Savings holding, both considered the timing of the recordation of the liens as well as the express purpose of the borrowing of the junior mortgage in their decisions on the lien priority issue. In both cases, the facts pointed to a finding that the junior mortgage trumped the condominium lien.