Facts
A unit owner stopped paying assessments. The condominium association properly recorded and perfected a lien against the unit for those assessments. Under the applicable Oregon statute, the condo association lien is prior to all other liens, except tax liens and a first mortgage or deed of trust. An exception exists, such that the condominium association can gain priority over the first mortgage if (among other things) “the association gives the first lienholder formal notice of the unpaid assessments, and the lienholder ‘has not initiated judicial action to foreclose the mortgage * * * prior to the expiration of 90 days following the notice[.]’” In this case, five days after the association recorded its lien, the bank filed a judicial foreclosure action against the unit, but did not name the association as party, and therefore the foreclosure suit would not have terminated the lien rights of the association. To correct this issue, the bank filed an amended complaint naming the association as a party. Five months later the trial court issued a dismissal of the claim against the association, without prejudice, for failure to prosecute. Five months after that the association sent the bank notice of the unit owner’s default on assessments. The bank took no action in the next 90 days to reinstate the dismissal or file a new action against the association. The bank did move the court, nine months later, for the previously dismissed foreclosure action to be reinstated. The trial court granted the motion and the association alleged its lien now had priority regardless of the reinstatement. The bank alleged that the statute only required it to “initiate a foreclosure action” and that it had already done so. The trial court agreed with the bank and granted it judgment. The association appealed.
Appeals Court
Affirmed the trial court judgment in favor of the bank. The association sought review before the Oregon Supreme Court. That petition was granted.
Oregon Supreme Court
The Court spent a fair amount of time discussing the debate that has existed “for decades” in this country over lien priority and citing various relevant articles as well as providing some history back to 1962. The Court recognized the competing interests of the bank and association stating: “[o]n the one hand, a condominium association imposes assessments on the unit owners so as to maintain the public spaces and other amenities of the units. If one unit owner is not paying those assessments, then an increased burden falls on the other unit owners, who must make up the shortfall through increased assessments. A shortfall in assessments can also harm the value of all the condominium units, in that necessary maintenance and upkeep may not be done. [citation omitted]. On the other hand, the first lienholder for a condominium unit is typically a bank or other lender who had financed the owner’s purchase of the unit. Laws that impair the value of the lender’s security will impair lending itself, making condominium units more difficult to build, sell, and resell. That, in turn, harms the value of condominiums generally. [citations omitted].”
The Court then set forth Oregon’s law specifically referencing the 90-day notice provision and the duties of the first lienholder. The Court disagreed with the bank’s argument that it complied with the law by initiating suit, because that suit was in the past and “no longer pending” when the association filed its notice. Therefore, the Court reversed the decision of the trial court and court of appeals and held in favor of the Association, finding that the bank had not complied with the statute because “a foreclosure action that has been filed and dismissed is functionally identical to a foreclosure action that was never filed.”