4700 Conn 305 Trust v. Capital One, N.A.

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DISTRICT OF COLUMBIA COURT OF APPEALS
No. 16-CV-977
09/13/2018
4700 CONN 305 TRUST, APPELLANT,
V.
CAPITAL ONE, N.A., APPELLEE.
Appeal from the Superior Court of the
District of Columbia
(CAR-593-15)
(Hon. Ronna Lee Beck, Trial Judge)
(Argued January 18, 2018 Decided September 13, 2018)
Anthony R. Champ, with whom Benny L. Kass was on the brief, for
appellant.
Anand Ramana, with whom Phillip C. Chang was on the brief, for appellee.
Before BECKWITH and MCLEESE, Associate Judges, and FARRELL, Senior
Judge.
FARRELL, Senior Judge: This appeal requires us to decide an issue left open
by our recent decision in Liu v. U.S. Bank Nat’l Ass’n, 179 A.3d 871 (D.C. 2018),
which concerned a foreclosure sale initiated by a condominium association to
recover on its super-priority lien for unpaid assessments on a condominium unit.
The issue is whether, under the controlling language of D.C. Code § 42-1903.13
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(a)(2) (2012 Repl.) at the time of the sale in question, “a lien [foreclosed on]
covering a period in excess of six months [of arrearage] . . . is properly
conceptualized as a split-lien, which includes a six-month portion entitled to super-
priority status [under the statute], or as one lien, all of which is considered to be
lower in priority to the first mortgage or deed of trust” encumbering the unit. Liu,
179 A.3d at 879 n.9. The question is one of law that we decide de novo. See
Chase Plaza Condo. Ass’n v. JP Morgan Chase Bank, N.A., 98 A.3d 166, 172
(D.C. 2014).
I.
In 2007, Anusha Putty executed a note for $308,750 to finance the purchase
of condominium unit 305 at the Parker House, 4700 Connecticut Avenue, N.W.
(“the Unit”). Appellee Capital One, N.A. (“Capital One”) is the current holder of
the note (on which Putty later defaulted) and the beneficiary of the related first
deed of trust. By December 2012, Putty had fallen into arrears to the Parker House
Condominium Association (“the Association”) for some eleven months of unpaid
condominium assessments, and in December 2012 the Association recorded a lien
on the property in the amount of $6,108.75. The Association’s Notice of
Foreclosure Sale advertised as one term of sale that the Unit would be sold
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“subject to the first deed of trust, for the original amount of approximately
$308,000.00 (as of 12/10/07).” The sale, in which the Association sought to
recover the eleven-month balance of unpaid assessments, took place in January
2013. Appellant 4700 Conn 305 Trust (“the Trust”) was the successful bidder at
the sale, buying the Unit for $11,000. The Memorandum of Purchase
memorializing the sale, as well as the Trustee’s Deed from the Association to the
Trust, explained that the Unit had been sold subject to Capital One’s first deed of
trust.
In January 2015, Capital One filed a complaint for judicial foreclosure on
the Unit in Superior Court. The Trust filed counterclaims to quiet title and for
slander of title, asserting that the Association’s foreclosure on the Unit to enforce
its lien for unpaid assessments had extinguished Capital One’s first deed of trust.
On Capital One’s motion for summary judgment, the trial court determined that,
whatever the language of D.C. Code § 42-1903.13 (a)(2) might dictate, “the only
equitable result” was to require the Trust “to abide by the agreement by which it
agreed to be bound,” namely to purchase the Unit subject to Capital One’s original
mortgage and deed of trust.
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II.
As our prior decisions have explained, § 42-1903.13 (a)(2) provides District
of Columbia condominium associations with a “super-priority lien” over first
mortgage lienholders that permits an association to collect up to six months of
unpaid condominium assessments by way of foreclosure on a defaulting unit. In
Chase Plaza, supra, where the condominium association had sought and obtained
six months of unpaid assessments from foreclosure, 98 A.3d at 168, we held that
the effect of this enforcement of the “super-priority lien” is that (a) the association
may “distribute the proceeds from the foreclosure sale first to satisfy the
condominium-assessment lien and then to satisfy any remaining liens in order of
lien priority”; and (b) “[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. at 172. In the more
recent case of Liu, supra, the issue was whether that result changed when, unlike in
Chase Plaza, a condominium association expressly sold the condominium unit
“subject to the first mortgage or first deed of trust” on the unit, while at the same
time enforcing its super-priority lien. Liu, 179 A.3d at 874. We held that the anti-
waiver provision of D.C. Code § 42-1901.07, by “expressly stat[ing] that any right
conferred under the Condominium Act may not be waived,” “precludes a
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condominium association from exercising its super-priority lien while also
preserving the full amount of the [first mortgage-holder’s] unpaid lien.” Id. at 878.
Because in Liu the condominium association had “collected on only the most
recent six months of unpaid assessments,” we concluded that it had “enforced its
super-priority lien at the sale” and that, “if the proceeds of the sale are insufficient
to cover the first deed of trust, then the first deed of trust must be considered
effectively extinguished,” despite the express effort to preserve it. Id. at 878-79.
As stated earlier, Liu did not decide whether the analysis and result would be
otherwise if a condominium association sought to recover more than the “six-
month portion [of the arrearage] entitled to super-priority status.” Id. at 897 n.9.
We now conclude that the result is the same in either case. As we explained
in Chase Plaza, § 42-1903.13 (a) makes condominium assessment liens prior in
enforceability to any other lien or encumbrance except, among other things, a
previously recorded first mortgage or first trust; but it then “provides the highest
priority to liens relating to the most recent six months of condominium
assessments,” 98 A.3d at 173, by stating:
The lien shall also be prior to a [first] mortgage or [first]
deed of trust . . . to the extent of the common expense
assessments . . . which would have become due in the
absence of acceleration during the [six] months
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immediately preceding institution of an action to enforce
the lien.
D.C. Code § 42-1903.13 (a)(2) (emphasis added). Here, Capital One’s reading of
this provision is as stark as it is simple: The condominium assessment lien, in its
view, retains its super-priority status “to the extent” – meaning only if – the
foreclosure sale seeks recovery of the most recent six months’ arrearage; but if it
seeks to recoup more in assessments owed, the super-priority is lost and the
association has, in effect, enforced only its lien junior to a first mortgage or deed of
trust. Appellee Br. at 13 (“[T]he plain language of the statute limits super-priority
liens to six months of assessments. Therefore, [the] Parker House [Association’s]
lien for eleven months of unpaid assessments does not qualify for super-priority
status.”).
That reading, in our view, engrafts a limitation on subsection 13 (a)(2) that
its language will not bear. The provision certainly qualifies how much of the
condominium assessment lien enjoys super-priority, but it implies nothing about
retention or loss of that priority if the foreclosure seeks to enforce the lien for a
greater amount of assessments owed. Rather, as we stated in Chase Plaza, the
statute “effectively splits condominium-assessment liens into two liens of differing
priority,” 98 A.3d at 173, which in turn dictates how the proceeds of a sale to
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recover the most recent six months’ and additional assessments will be distributed,
but reflects no intent to nullify the super-priority lien just because both liens are
enforced in the same sale.
Creation of the super-priority lien, as we pointed out in both Chase Plaza
and Liu, was intended by the District of Columbia Council to give condominium
“associations the maximum flexibility in collecting unpaid condominium
assessments.” Chase Plaza, 98 A.3d at 174 (quoting D.C. Council, Report on Bill
8-65, at 3 (Nov. 13, 1990)). That flexibility would be hamstrung if an association
were put to the choice of foreclosing to recoup more than six months of
assessments (with attendant loss of its super-priority lien) or limiting the forced
sale to the most recent six-months of arrearage. Indeed, on Capital One’s
reasoning, the same result would obtain if the association accidentally included in
its notice of sale an additional month or more of arrearage; the effect still would be
erasure of its super-priority lien as to any part of the sale proceeds. Also, the sums
an association may recover via foreclosure include “any late charge or interest due
and reasonable attorney’s fees and costs incurred in connection with the
enforcement of the lien.” § 42-1903.13 (c)(2). On Capital One’s understanding,
an attempt to recover any of these items from the sale proceeds would have the
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same drastic effect of reducing the super-priority lien to one junior to the first
mortgage or deed of trust.
Finally, and perhaps most significantly, if by foreclosing for more than the
most recent six months of assessments an association relinquished its super-
priority lien, this would be tantamount to what the court in Liu held a
condominium association may not do expressly or by agreement, namely,
“subordinate its super-priority lien to a first deed of trust during a foreclosure
sale.” 179 A.3d at 879. That, we stated in Liu, “would effectively constitute a
waiver by the . . . association of its super-priority lien, which is not permitted under
D.C. Code § 42-1901.07.” Liu, 179 A.3d at 879. Even less, we think, should a
relinquishment of the super-priority lien that may not even have been intended, i.e.,
just by seeking to recoup in foreclosure assessments beyond a six-month arrearage,
be viewed as compatible with the no-waiver provision we strictly enforced in Liu.
We are also unpersuaded by Capital One’s argument, advanced in its
Supplemental Brief, that a 2017 amendment to § 42-1903.13 by the Council
“clearly indicate[s]” the legislature’s understanding that the statute always “gave
super-priority status only to those liens [foreclosed on] that did not exceed the six-
month . . . period of unpaid assessments.” That amendment, which we took note of
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in Liu as well, now “require[s] that the foreclosure sale notice expressly state
whether the . . . sale is for the six-month priority lien and not subject to the first
deed of trust, or for more than the six-month priority lien and subject to the first
deed of trust. D.C. Code § 42-1903.13 (c)(4)(B)(ii).” Liu, 179 A.3d at 874 n.2.
The present sale, however, took place in 2013, and as Capital One must concede,
“ordinarily, the views of a subsequent legislature form a hazardous basis for
inferring the intent of an earlier one.” Hargrove v. District of Columbia, 5 A.3d
632, 637 (D.C. 2010) (brackets and internal quotation marks omitted). Just as in
Liu, we do not take the 2017 amendment here as an invitation to revise our
understanding of § 42-1903.13 (a)(2). The amendment, on its face only a notice
provision, presents interpretive challenges of its own as to the Council’s current
understanding of whether a super-priority lien can be foreclosed on while
preserving junior liens, but it falls well short of demonstrating that under the
statute as applied to this 2013 sale, an assessment lien forfeits its super-priority
merely because additional arrearages (or fees and costs) are sought in the
foreclosure. We leave construction and application of the amendment to another
day.
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III.
The net result of this analysis, in keeping with Chase Plaza and Liu, is that the
Association’s enforcement of its super-priority lien by foreclosure sale of the Unit
to the Trust extinguished Capital One’s first deed of trust. But because, as in Liu
also, (a) the sale price was greatly below the amount of the mortgage and apparent
value of the Unit, and (b) the sale by its terms was erroneously conditioned on
assumption of the first deed of trust, we are confronted with the issue, left open in
Liu, of whether the sale should be invalidated on equitable or other grounds.
Although the answer to that question would ultimately be subject to our de novo
review, see Chase Plaza, 98 A.3d at 172, we conclude that it should properly be
addressed by the trial court in the first instance, not least because we need the
benefit of that court’s judgment as to issue preservation. We therefore hold that
the order granting summary judgment to the Trust must be vacated and the case
remanded for the trial court, aided by the parties, to resolve these issues:
Was the sale invalid under traditional contract or
equitable principles, see Chase Plaza, 98 A.3d at 178 &
n.8 (stating that a “valid” foreclosure sale terminates
lower priority liens and remanding for determination of
whether the sale there should be invalidated because the
sale price “was unconscionably low”); and
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Did Capital One sufficiently preserve a challenge to the
sale’s validity in the trial court?
Following resolution of these issues and re-entry of judgment by the trial court,
either party may seek review of that decision by this court.
IV.
The judgment of the Superior Court is vacated and the case is remanded for
further proceedings in accordance with Part III of this opinion.
So ordered.