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Liu v. U.S. Bank National Association

Court of Appeals of The District of Columbia

March 1, 2018

Andrea Liu, Appellant,
U.S. Bank National Association, Appellee.

          Argued January 31, 2017

         Appeal from the Superior Court of the District of Columbia (CAR-6539-14) (Hon. Ronna L. Beck, Motions Judge)

          Robert C. Gill for appellant.

          S. Mohsin Reza for appellee.

          Before BLACKBURNE-RIGSBY, Chief Judge, [*] and GLICKMAN and THOMPSON, Associate Judges.

          Blackburne-Rigsby, Chief Judge.

         In the District of Columbia, condominium associations are granted a "super-prioritylien" over first mortgage lienholders, which permits an association to collect up to six months of unpaid assessments upon foreclosure on a condominium unit.[1] In Chase Plaza Condominium Ass'n v. JPMorgan Chase Bank, N.A., 98 A.3d 166, 172 (D.C. 2014), this court was asked to determine whether a condominium association's foreclosure on its super-priority lien could extinguish an otherwise first-priority deed of trust or mortgage when the proceeds of the foreclosure sale were insufficient to satisfy the deed of trust or mortgage. We held in the affirmative- that "a condominium association is permitted to foreclose on [its] six-month [super-priority] lien and [to] distribute the proceeds from the foreclosure sale first to satisfy [its super-priority] lien and then to satisfy any remaining liens in order of lien priority." Id. We clarified that in such circumstances "[a]ny liens [including a first mortgage or first deed of trust] that are unsatisfied by the foreclosure-sale proceeds are extinguished, and the foreclosure-sale purchaser acquires free and clear title." Id.

         The present case requires this court to determine a similar issue. We must decide whether, prior to the 2017 amendment to D.C. Code § 42-1903.13, [2] a condominium association could choose to sell the condominium unit "subject to the first mortgage or first deed of trust" on the property, while at the same time enforcing its super-priority lien. We conclude that a condominium association could not foreclose on its super-priority lien while leaving the property subject to the unsatisfied balance of the first mortgage or first deed of trust-to find otherwise would contravene our holding in Chase Plaza. Accordingly, we reverse the trial court's order granting summary judgment to U.S. Bank, which concluded that a condominium could foreclose on its super-priority lien while leaving the underlying mortgage lien intact, and remand for further proceedings consistent with this opinion.

         I. Factual Background

         On March 9, 2007, Jon Michael Lucas obtained a mortgage loan in the amount of $589, 750 to finance his purchase of condominium unit 1003, located at 301 Massachusetts Avenue, N.W., in the Sonata Condominium complex. Mr. Lucas also executed a deed of trust and promissory note, which secured the loan on the condominium. Mr. Lucas's mortgage loan was originally from Vanguard Mortgage and Title, Inc. ("VMT") and the deed of trust and note were executed in VMT's favor. The deed of trust was recorded in the land records of the District of Columbia. Mr. Lucas's mortgage loan was later assigned to U.S. Bank ("Bank"), which also took possession of the note.

         In 2009, Mr. Lucas stopped paying both his monthly mortgage payments and his condominium assessments, the latter of which prompted the Sonata Condominium Unit Owners Association ("Sonata") to seek foreclosure on the condominium, pursuant to D.C. Code § 42-1903.13 (a)(2), which entitles condominium associations to a super-priority lien for the most recent six months of unpaid condominium assessments. Between 2011 and 2014, Sonata scheduled several foreclosure sales for the condominium, but the sales were all cancelled after the Bank paid Mr. Lucas's unpaid assessments. The Bank paid the assessments on Mr. Lucas's behalf in order to preserve its lien on the condominium. These payments were secured under Mr. Lucas's loan by the deed of trust.[3]

         On May 1, 2014, Mr. Lucas was in default for unpaid condominium assessments, prompting Sonata to file a "Notice of Foreclosure Sale of the Condominium Unit for Assessments Due" with the District's Recorder of Deeds. The notice stated that Mr. Lucas was in arrears to Sonata for $11, 503.67.[4] Sonata sent the notice of the foreclosure sale to Mr. Lucas and all other interested parties, including the Bank; the notice stated that the foreclosure sale would not be held until thirty-one days past the date on which the notice was mailed, and that if the past due amounts were not paid in full by that time, the condominium would be sold at a public auction on June 4, 2014. On May 23, Sonata also sent the Bank a letter stating the amount that needed to be paid in order to stop the scheduled foreclosure sale.

         Sonata publicly advertised the sale of the condominium in the Washington Post on May 23, May 28, and June 3, 2014. The advertisement stated that the condominium would be sold pursuant to D.C. Code § 42-1903.13, and that it would be "[s]old subject to a deed of trust for approximately $589, 750.00 (as of 03/09/2007)[, ]" referencing the Bank's deed of trust for Mr. Lucas's mortgage loan.

         On June 4, Sonata held a public auction for the foreclosure sale and the condominium was sold to appellant Liu, the highest bidder at the auction, for $17, 000. An accounting of the foreclosure sale, included in the record, demonstrates that, of the $17, 000 purchase price for the condominium, Sonata deducted almost six months of unpaid condominium assessments, totaling $5, 195.28, as well as interest on the assessments, attorney's fees, and other expenses from the foreclosure sale.[5]

         The Bank attempted to pay the assessments owed to Sonata in order to stop the foreclosure sale. Sonata, however, did not receive the check from the Bank until June 5, 2014, the day after the foreclosure sale. Accordingly, the Bank's check was returned with a letter indicating that the condominium had already been sold to a third-party purchaser. Ms. Liu recorded the deed of trust, dated July 1, 2014, which included a provision inserted by Sonata, stating: "The hereinafter described property is sold subject to a deed of trust recorded in the Office of the Recorder of Deeds at Instrument Number 2007035647."

         On October 16, 2014, the Bank filed a claim for judicial foreclosure against Mr. Lucas, as the mortgagor in default under the note, and later joined Ms. Liu, the new record owner of the condominium, as a defendant in the action. In its claim, the Bank asserted its rights as the beneficiary of the deed of trust, and also notified the court that Mr. Lucas's loan had been accelerated, and that he owed $799, 034.23 under the note.[6] In her defense, Ms. Liu maintained that she purchased the condominium at the foreclosure sale, free and clear of the Bank's mortgage lien, pursuant to both D.C. Code § 42-1903.13 (a)(2) and this court's decision in Chase Plaza.[7] Both Ms. Liu and the Bank moved for summary judgment before the trial court.

         On February 3, 2016, the trial court granted the Bank's motion for summary judgment and denied Ms. Liu's motion for summary judgment. The trial court acknowledged that, at the time of Sonata's foreclosure sale, the law was unclear regarding the effect of a condominium association's foreclosure sale, pursuant to its super-priority lien, on a bank's first-priority mortgage lien.

         Despite this lack of clarity in the law at the time of Ms. Liu's purchase, the trial court emphasized that the advertisements, the memorandum of sale to Ms. Liu, and the deed of trust all specified that the property was sold to Ms. Liu subject to the Bank's mortgage lien. Thus, it was "abundantly clear" that Ms. Liu was purchasing the property subject to the Bank's lien. Furthermore, the court noted that Ms. Liu had testified at a deposition that the property was worth between $700, 000 and $750, 000, and that the District of Columbia Office of Tax and Revenue assessed the condominium at a value of $719, 930. The court stated that the $17, 000 purchase price "obviously reflected the understanding that the Property was subject to [the Bank's] lien." Accordingly, the trial court concluded that "[i]t would be an inequitable windfall and contrary to the parties' expectations to permit Ms. Liu to disavow [the Bank's] mortgage . . . and would impose an enormous foreclosure deficiency on [] [Mr.] Lucas if Ms. Liu's purchase is not subject to [the Bank's] lien, as was contemplated at the foreclosure sale." This appeal followed.

         II. ...

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