New Case Law Effecting Chapter 13 Plans and the Priority of Lenders/Condominium Association Assessments

Posted on July 9th, 2015

The U.S. Bankruptcy Court for the District of New Jersey recently recognized that a condominium association’s lien is entitled to a limited six-month priority over a first mortgage.  The Court held in the matter, In re: Mark and Ronda Rones (Case No. 14-35899-CMG) that a condominium lien is not a statutory lien but rather a “consensual lien” since it arises from the condominium association’s master deed and bylaws.  The Rones Court determined that the act of purchasing the unit and voluntarily accepting and recording the unit deed  subjects the unit and the unit’s owners to the master deed and bylaws and gives rise to the lien.

The Rones Court also held that the New Jersey Condominium Act (the “Act”) provides a condominium association lien security for the six-month priority window.  However, the Act does not secure the lien beyond that. If the amount due on the first mortgage exceeds the value of the unit, the condominium lien becomes wholly unsecured and in a Chapter 13 Plan may be stripped off.  Therefore, where the first mortgage exceeds the value of the unit, a debtor’s Chapter 13 Plan can strip off the condominium lien and deem the portion of the lien subject to the six-month priority as secured and the remainder as unsecured.

Lenders, condominium associations and individual bankruptcy filers alike should all be aware of this new case law.

 – Pamela A. Mulligan

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