By Deborah Goonan, Independent American Communities
Updated Oct. 24, 2019
The New Jersey Legislature recently passed important amendments to condominium and homeowners association lien priority law. Signed by Governor Murphy on April 29, state law now provides condo associations gain greater access to past due assessments. In addition, HOAs in planned communities are now able to claim priority lien status for the first time.
Cooperative associations are not be subject to priority lien status.
Read Assembly Bill A5002. (Senate Bill S3414 merged with A5002; P.L. 2019, CHAPTER 68, approved April 29, 2019)
Renewable priority lien, for HOAs as well as condos
Currently, the NJ Condominium Act gives the Association the right to collect up to 6 months of unpaid assessments when the condo is foreclosed. The limited priority status of the lien allows the condo association to collect the priority portion of its lien ahead of a mortgage lender and other lien holders.
The Legislature also amended all relevant portions of the Planned Real Estate Development Full Disclosure Act (PREDFA). So, for the first time in New Jersey, single family home communities with HOAs have the same priority lien rights as condominium associations.
Both NJ condo and homeowners’ associations are able to renew their 6-month aggregate assessment liens once each year. So if it takes a lender several years to foreclose, the condo association will be able to collect 6-months’ worth of assessments for each year the lien is renewed.
Priority portion of association’s lien includes assessments only
Prior to passage of A5002, New Jersey law permitted an association (HOA or condo) to file a lien for unpaid assessments and “any other moneys duly owed the association.” In other words, the association’s lien could include unpaid fines, late fees, interest, and attorney fees.
However, the priority portion of a lien can only include a “customary condominium assessment” or HOA “assessment.” It cannot include payments for reserve or contingency funds, late charges, interests, penalties, or collection and attorney fees.
Recent amendments continue to give municipal governments and the IRS first dibs on proceeds of a foreclosure sale.
After that, an association can collect a 6-month limited priority lien for each year the lien remains unpaid, as long as the association documents its efforts to makes to first notify the lender of its priority lien claim.
Statute overrides governing documents
Most notably, prior to A5002 amendments, an Association was entitled to a lien only if its governing documents allowed it. Current law overrides governing documents — in other words, the priority lien is allowable, regardless of the lack of authority in HOA governing documents.
The most notable part of this legislation is the fact that all New Jersey association-governed communities will now have the right to file liens — on any HOA or condo association property — for unpaid assessments, fines, or reasonable attorney and collection fees.
Even if your governing documents say nothing about your association’s right to file a lien, your HOA or condo association will be able file one, with the right to foreclose that lien or obtain a money judgment for unpaid assessments or fees.
What does this mean for homeowners in New Jersey?
Enacting A5002 could spell trouble for certain property owners in older HOAs. Many older governing documents do not specifically impose mandatory assessments, and, therefore, do not explicitly provide the HOA’s authority to impose a lien on a home or unit for nonpayment of assessments, fines, or other charges.
For example, certain New Jersey Lake Associations, originally paying assessments on a voluntary basis, but now mandated by the court to pay HOA fees, could run afoul of the new language in PREDFA.
The most outrageous thing about A5002 is that it violates Constitutional property rights by overriding the so-called “contractual” restrictive covenants and bylaws that homeowners agreed to when purchasing or taking title to their association-governed home.
The law will limit the rights of New Jersey homeowners, even if they didn’t sign up for mandatory assessments, fees, and fines, subject to lien and foreclosure.
Priority lien limited in NJ
The new provisions of A5002 allow homeowners and condo associations to collect a limited portion of unpaid assessments, ahead of the lender, when a home is foreclosed.
However, unlike, other parts of the U.S., such as Nevada and District of Columbia, New Jersey law limits its priority lien to collection of moneys owed. The law does not permit foreclosure of an HOA lien to wipe out a buyer’s or investor’s liability for the remainder of an unpaid mortgage.
But with renewable liens, lenders in the Garden State will give up more of their foreclosure sale proceeds, if they wait years to sell their property at auction.
That might encourage lenders to liquidate foreclosed homes more quickly. More likely, lenders will simply increase lending costs for future borrowers. ♦
Updated Lien Priority Law Benefits Condominium and Homeowners Associations in New Jersey
Written by: Ronald L. Perl, Esq., CCAL | March 29, 2019