In the world of condominium management, understanding the implications of a lien registration is crucial for ensuring that a condominium corporation's financial interests are protected. A lien, as outlined in Section 85 of the Condominium Act, offers a legal mechanism for a condominium corporation to secure unpaid common expenses or special assessments owed by unit owners.
However, registering a lien isn’t the end of the process—it's just the beginning of its legal impact. This blog will explain the essential consequences of a registered lien and what condominium corporations need to know to navigate this important process.
Read our blog about Understanding the Condo Lien Process: A Quick Guide For Applying Prudent Enforcement, not "Payable Punishment" >
What Happens When a Lien is Registered
The Lien Process
Before diving into the legal impacts, it's essential to understand how the lien process works. If a unit owner fails to pay their common expenses or special assessments, the condominium corporation may register a lien against the owner’s unit for the amounts owed. This typically occurs after the corporation has provided formal notice and given the unit owner a specific amount of time to pay the arrears.
Once the lien is registered, it secures the debt owed to the condominium, including the principal arrears, interest, and any costs incurred during the collection process, such as legal fees. The lien attaches to the unit, and if the unit is sold, the lien follows the unit, remaining enforceable even in the event of a sale.
Lien's Priority Over Mortgages and Other Claims
One of the most significant legal impacts of a registered lien is its priority. A lien filed against a unit takes precedence over most other financial claims, such as the unit owner's mortgage. This means that in the event of a sale, the lien must be satisfied before the mortgage lender receives payment. However, it's important to note that realty taxes owed to the municipality will always have priority over the condominium’s lien.
This priority feature gives condominiums a powerful tool in securing unpaid debts. However, condo boards must also be aware of the competing claims, particularly municipal taxes, when deciding on their next steps. For instance, if there are outstanding taxes, they may affect the condominium's ability to recover all the money owed through the lien.
Lien's Duration: How Long It Remains Enforceable
Once a lien is registered, it remains on title to the unit for a minimum of 10 years, provided the arrears remain unpaid. This means that the lien stays attached to the unit until the debt is cleared, and if the unit is sold, the new owner will inherit the lien.
If the condominium corporation receives payment of the amounts owed, the lien must be removed. However, if the arrears are not paid, the corporation can proceed with enforcement actions, such as a power of sale, to recover the debt.
The Legal Effect on Unit Owners
For unit owners with a lien registered against their property, the legal impact can be severe. First, the lien may affect their ability to sell or refinance the unit. Since the lien remains on title until the debt is paid, prospective buyers and lenders will be aware of the outstanding debt. This can delay the sale of the unit or affect its marketability.
Moreover, while the lien is registered, the unit owner will not be entitled to vote at condominium meetings. This restriction further underscores the importance of resolving arrears promptly, as unit owners can lose their voice in condominium governance until the matter is resolved.
Enforcement of the Lien: Power of Sale
If no payment is made and the arrears persist, the condominium corporation can initiate power of sale proceedings. This is a legal process where the corporation can sell the unit to recover the outstanding debt. Before proceeding with a power of sale, however, it’s important for the corporation to ensure that all proper legal procedures have been followed, including confirming that the lien is valid and properly registered.
Additionally, the condominium corporation must be mindful of any realty tax arrears that might take priority over the lien. This makes it essential for condo managers and legal counsel to monitor competing claims before moving forward with the power of sale.
Partial Payments and Payment Plans
In some cases, a unit owner may attempt to settle their arrears through partial payments or propose a payment plan. Condominium corporations must exercise caution when accepting partial payments. These payments should only be accepted if they cover the arrears in full, including any legal fees or other charges incurred during the collection process.
Payment plans, if agreed to, should be documented thoroughly, and the terms should be clear to prevent future disputes. It's also advisable to have legal counsel involved in setting up these arrangements to ensure that the lien is not inadvertently compromised.
Further Resources: Condo Lien
Need help in navigating Condo Lien? Find more condo lawyers on our vendor directory, My Condo Vendor.
Our blog also offers a wealth of information on relevant condo law topics, making it a valuable resource for property managers and boards alike. Or, explore Stak’d, our library with over 10,000 hand-curated condo-related resources for additional summaries and tools, or dive deeper into our blog for more detailed discussions on topics that matter to you and your community.
The Importance of Timely Action and Legal Guidance: In Conclusion
In conclusion, the legal impact of a lien registration is substantial. Condominium corporations must follow the correct process, from providing proper notice to registering the lien within the required timelines, to ensure that they can enforce their rights and recover any unpaid amounts. By understanding the implications of a lien, condominium managers and boards can better navigate the complexities of debt recovery while protecting the corporation’s financial stability.
If you’re managing a condominium and dealing with arrears, it’s essential to consult with legal counsel to ensure you’re taking the right steps and following the proper procedures for lien registration and enforcement.
Have you experienced challenges with lien enforcement in your condominium? Share your experiences and questions in the comments below!
-Stratastic Inc.
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