There has been much conversation in recent years, and considerably more in recent months, about the association’s limited priority lien, or “superlien.” What was it intended to be, what is it, and where is it going?
What was it intended to be?
The superlien was created in order to protect associations against loss of assessments when a foreclosure occurs on a unit. The Colorado Common Interest Ownership Act (CCIOA) gives associations a lien above the first deed of trust for “an amount equal to the common expense assessments [w]hich would have become due [d]uring the six months immediately preceding the institution of a foreclosure by either the association of the holder of a lien senior to the association.”
What is it?
Under the superlien statute, the total amount an association can claim is limited to an amount equal to six times the monthly assessment. For example, if the association’s monthly assessments are $100.00, the superlien amount would be $600.00 (even if nothing is owed at the time the foreclosure is initiated, also known as the Notice of Election and Demand Date, or NED). This also means that if, at the time of the NED, an owner owes the association an amount more than six times the monthly assessment, the association is limited to recovering only the six months worth of assessments.
Additionally, late charges, attorney fees, fines and interest can be included in the superlien amount as long as the total amount claimed does not exceed an amount equal to six months of assessments. Including these amounts is helpful when an owner is delinquent in an amount less than six times the monthly assessment. Consider the following example, where the NED is July 10, 2010:
|February 2010 Assessment||$100.00||$100.00|
|Payment by Owner||($100.00)||$0.00|
|March 2010 Assessment||$100.00||$100.00|
|March Late Fee||$20.00||$120.00|
|April Late Fee||$20.00||$240.00|
|May 2010 Assessment||$100.00||$340.00|
|May Late Fee||$20.00||$360.00|
|June 2010 Assessment||$100.00||$660.00|
|June Late Fee||$20.00||$680.00|
|July 2010 Assessment||$100.00||$780.00|
In this example, the amount due as of the NED is $780.00. The superlien amount is $600.00 and includes some of the late and legal fees. Had those fees not been included, the balance due would be $500.00 as the owner had made payment of the assessment in February of 2010. Although it is our position that regardless of the amount that is due and owing at the time of NED, the association is entitled to collect an amount equal to six months of assessments. It is easier to obtain payment if a ledger can be produced evidencing a balance at least equal to the superlien amount.
Where is it going?
In 2011, Colorado legislators introduced a bill that would have amended an association’s rights concerning the superlien. House Bill 11-1197, as originally introduced, would have bifurcated the existing superlien into two portions: (1) the six months assessment portion discussed above; and (2) a portion representing all costs of collection including interest, penalties, attorney fees, court costs, etc.
The bill would require associations to pursue (and pay for) two foreclosure proceedings to collect the two portions and those foreclosure actions could not be consolidated (nor could an association collect costs and attorney fees as part of the first foreclosure).
Additionally, a senior lien holder (typically a bank) which foreclosed on the property would only be required to pay the assessment portion of the lien, and would have a grace period of six months in which to pay interest, on the super priority portion of the lien.
This bill was postponed indefinitely in committee (effectively killed for this session) on February 24, 2011. For now, the superlien as we know it remains intact. The matter, most certainly, will arise again for a couple of reasons: (1) foreclosures are taking more time to be completed and associations are losing out on more money because homeowners stop paying assessments; and (2) banks are being subjected to more judicial foreclosure actions by associations (after taking ownership) to force them to pay both the superlien and their assessments.
For questions and answers to some frequently asked questions about the association’s superlien, please reference our website, contact one or our attorneys at 303-432-9999, or send us an email to [email protected].