G.L. c. 183A § 6 provides a well-worn path for the collection of unpaid common expense assessments in Massachusetts. The steps required under § 6, (60-day notice, 30-day notice, etc.) are spelled out in the statute and, in the typical circumstance, the process is rote. When the delinquency hits 60 days, the account is sent to the lawyer for collection, and counsel puts the wheels in motion. The customary and usual result of the undertaking is a check from the unit owner or bank in due course. However, as discussed in further detail below, the process, for any number of reasons, can run into complications and roadblocks. It is simply not possible to effectively manage the receivables of a condominium association without access to a team of experienced attorneys’ each of whom can respond to unique developments which might otherwise stop the collection effort in its tracks.
The customary and usual result of the undertaking is a check from the unit owner or bank in due course. However, as discussed in further detail below, the process, for any number of reasons, can run into complications and roadblocks.
Special Assessments and the Priority Lien:
A bit of pre-planning is required to address this concern. Most associations and managers are aware that G.L. c. 183A § 6 allows an association to create a six-month priority lien by recording a complaint. However, pursuant to the statute, special assessments are not included as part of the priority lien. Therefore, in circumstances in which the association is attempting to collect unpaid special assessments the mechanisms provided in Section 6 will be of much less utility because the amounts owed to the association for such assessments will not have priority over a first mortgage. Unfortunately, there is nothing that can be done during the actual collection process to remedy this lack of priority. The time to address this collection complication is at the time of the assessment. While it may not be possible in every situation, the strategic approach in circumstances where there may be a budget shortfall that would otherwise call for a special assessment, is to amend the budget on a prospective basis and increase the regularly monthly common expense assessment. That will give the association the opportunity to claim priority for such amounts.
There are numerous complications that can arise in connection with a collection action when the unit owner declares bankruptcy, but the most common one relates to the automatic stay. The automatic stay prohibits a creditor, which an association would be in connection with its efforts to collect unpaid common expense assessments, from taking any further action to collect the debt without authorization from the Bankruptcy Court. It is important to note that a creditor has an affirmative duty to identify the filing of a bankruptcy which makes it very important that association counsel is diligent in checking the Federal Public Access to court Electronic Records (PACER) system to determine if a unit owner has filed bankruptcy before filing suit. Bankruptcies can last an extended period of time and unless the association takes action to protect itself and extricate its collection action from the tangle of the bankruptcy process, the association would lose months and possibly years of common expense assessments. However, the bankruptcy rules allow an association to seek relief from the restrictions of the automatic stay and proceed with its action to collect in state court. Generally speaking, the association must demonstrate to the Bankruptcy Court that the unit owner is at least 3 months in arrears on post-petition condo fee payments (post-petition being those monthly fees which became due and owing after the filing of the bankruptcy petition), by filing a Motion for Relief from Stay with the Court. If the post-petition arrearages are not cured by the unit owner and the Court allows the Motion, then the association can proceed with its collection action pursuant to c. 183A.
Conflicting “Priority liens”:
Complications arise in connection with the existence of, among other liens, federal, state and local tax liens. Tax liens can arise in connection with a unit owner’s failure to pay federal income tax. In addition, tax liens can arise from a failure to pay state income tax or local property taxes. Generally, the municipality’s tax lien takes priority over the association’s lien by statute. However, there is an odd circumstance created with regard to the federal tax lien. The Federal government does not hold that state condominium collection actions take priority over validly recorded IRS tax liens if the tax lien is recorded prior to the association’s recording of its complaint, unlike that of a recorded mortgage. There is also an issue of venue in that naming the Internal Revenue Service, which is a branch of the U.S. Government, as a defendant party in interest, subjects the collection action to be filed in Federal and not state court. However, for the majority of owners, they also have a mortgage of record, and that mortgage holder will end up paying the priority lien arrearages so that the association can avoid having to file in federal court.
The Rolling Lien:
In Massachusetts, it is possible to perfect multiple six-month periods of priority by filing successive complaints. It was, in fact, MTM’s own Tom Moriarty who successfully argued that principal into law before the Supreme Judicial Court in the matter of Drummer Boy Homes Association, Inc. v. Britton. In order to perfect multiple periods of priority, however, the association must separately perform all the procedural steps required in Section 6 before filing each separate action. In addition, in order to prevent a delinquent unit owner from having any opportunity to dismiss such successive actions, the association should be careful to avoid any language which suggests that any of the separate complaints seek to recover amounts other than the six months of unpaid fees and the costs and attorneys’ fees incurred in connection therewith which are being prioritized by that action.