So, there are the occasional court opinions that I read with admiration for the subtlety of reasoning, the fine but important distinctions drawn by the court, and/or the simultaneous adherence to the concept of judicial restraint while advancing the cause of justice. GMAC v. Summerhill Village Homeowners Ass’n is not one of those opinions. Summerhill Village is more like a brick, thrown through a window, and smacking me upside the head.
Around the watercoolers of bank lawyers’ offices, the scuttlebutt about RCW 64.34.364 had been that perhaps there is an ambiguity in the state. Certainly, the legislature could not have intended substantial (hundreds of thousands of dollars) security interests in condos could simply be wiped out at judicial foreclosure by a junior lien arising out of unpaid condominium dues (couple of thousand dollars)! Even if it did, certainly the senior lienholder that got jumped in priority would have the right to redeem, that is, to pay off the condo association after sale went through to protect its position, right? Well, Division 1 has spoken, loudly, and sorry senior lienholders, you are up the proverbial creek if you fail to respond to the judicial foreclosure. The court says that the phrase “subsequent in time” means just that. Time doesn’t equal “right,” even if the structure of the statute is decidedly first in time, first in right.
Here’s how it works. Bank A loans a large amount of cash to a borrower for the purpose of buying a condo. Part of the deal with a condo is that the borrower/owner then pays dues to an association, and these dues go to maintenance of the common areas. Well, the problem was that when borrowers/owners got into financial trouble, the first thing they stopped paying was these dues. Sure, the association could lien their property, but so what? The association is not going to take an owner into foreclosure when there is a giant lien ahead of it on the priority list. The statute allows them to jump up in priority and to take the property to foreclosure. The hope is that the senior lienholder would see the lawsuit and pay off the condo association to protect their interest.
And hey man, I get it. Occupy the senior lienholders, those greedy banksters! After all, if they were served with a lawsuit, and they sat on their rights, then screw ‘em. Yeah man, screw ‘em. Only, it’s not that simple. The troublesome little detail is that the associations have this sneaky way of serving MERS if it was listed as the “beneficiary” on the senior deed of trust, knowing full well that MERS wouldn’t forward on the summons and complaint the the real party in interest. So the senior is blissfully unaware, until the sheriff’s sale, when its large stake in the property vanishes! The association just bought the property for pennies on the dollar! Only you can’t buy it back because even though your rights were inferior to the association, you acquired them before the condo dues lien attached. Yay, windfall!
Of course, this opinion isn’t really concerned with any of this. The brick through the window is meant for the legislature, so that they will fix this obvious loophole in the statute. Right now, a mortgage banker is choking down some heart pills and calling his lobbyist…