Is a Foreclosure Crisis Looming in Our Nation's Capital?

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Is a Foreclosure Crisis Looming in Our Nation’s Capital?

Is a Foreclosure Crisis Looming in Our Nation’s Capital?

Lexology-

The District of Columbia Court of Appeals recently sent a new set of shockwaves through the mortgage industry in the nation’s capital when it released its decision in Andrea Liu v. U.S. Bank National Association. Having held over three years ago that condominium associations have “super-priority” liens for unpaid assessments and can wipe out first mortgages by foreclosing on those liens, the Liu decision went an unexpected step farther: An association’s foreclosure would wipe out the first mortgage even if the association expressly stated that it intended for the foreclosure to be held subject to that mortgage.Secured lenders who thought they might have dodged the bullet now find themselves fighting for the validity of their security interests.

In 2014, the D.C. Court of Appeals issued its decision in Chase Plaza Condominium Ass’n v. JPMorgan Chase Bank, N.A., which addressed the effect of a condominium association’s foreclosure sale in the District of Columbia. The Chase Plaza court explained that D.C. Code § 42-1903.13 entitled a condominium association to foreclose and then apply the sale proceeds first to the six months of assessments considered a “super-priority” lien under D.C. law. Moreover, the court reasoned that because the super-priority lien had seniority over a lender’s first mortgage on the same property, the association’s foreclosure would wipe out that mortgage. If the sales proceeds were insufficient to pay the outstanding balance of the mortgage, then the secured lender would be left with a potentially hefty unsecured debt.

[LEXOLOGY]

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