Klahanie Assoc., Resp v. Sundance At Klahanie Condominium Assoc., App

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IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
KLAHANIE ASSOCIATION, )
) No. 76106-4-1
Respondent,
)
V. ) DIVISION ONE
)
SUN DANCE AT KLAHANIE ) PUBLISHED OPINION
CONDOMINIUM ASSOCIATION, )
)
Appellants,
)
)
KRYSTLE MCCORD; RICHARD E. )
MILLER & EVELYN E. MILLER, and the )
marital community comprised therein; ,)
BANK OF AMERICA, N.A., ,)
,)
Defendants. 1) FILED: December 26, 2017
')
APPELWICK, J. — The trial court concluded that the condominium
association's lien for assessments was not entitled to statutory priority over similar
assessments made pursuant to the covenants of the homeowners association
within which the condominium was organized. We affirm.
FACTS
Krystle McCord and Evelyn Miller owned real property in Issaquah. That
property is part of two separate associations, Klahanie Association (Klahanie) and
Sundance at Klahanie Condominium Association (Sundance). Klahanie is a
homeowners association (HOA) created in 1985. Sundance is a condominium
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association created pursuant to the Washington Condominium Act(WCA), chapter
64.34 RCW, in 1995. Sundance is a condominium association on property that is
within Klahanie.
McCord and Miller fell behind on their assessments owed to both
associations. On March 12, 2015, Sundance obtained an $8,559.73 judgment
against them.
Two months later, on May 12, 2015, Klahanie filed a complaint to foreclose
on its lien for $3,596.09 in assessments owed. Klahanie moved for summary
judgment on the basis that its lien was senior to Sundance's lien. Klahanie
reasoned that its priority date was established When its covenants, conditions, and
restrictions (CC&Rs) were recorded in 1985 (as opposed to when the owner
defaulted in 2014), while Sundance's priority date was when Sundance's
declaration was recorded in 1995. The trial court agreed. It granted summary
judgment in favor of Klahanie, and, pursuant to the CC&Rs awarded attorney fees
in Klahanie's favor.
Sundance appeals.
DISCUSSION
When reviewing a summary judgment order, this court engages in the same
inquiry as the trial court. Hertoq v. City of Seattle, 138 Wash. 2d 265, 275, 979 P.2d
400 (1999). Summary judgment is proper when there are no genuine issues of
material fact and the moving party is entitled to judgment as a matter of law. Id.
All facts and reasonable inferences are considered in the light most favorable to
the nonmoving party. Id. Questions of law are reviewed de novo. Id.
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I. Competing Claims of Lien Priority
Sundance, like all condominiums created in this state after July 1, 1990,
organized under the Washington Condominium Act (WCA). RCW 64.34.010(1).
The WCA provides for assessments to be levied against association members.
See RCW 64.34.360. The WCA also gives WCA associations a statutory lien for
unpaid assessments. RCW 64.34.364(1). As to those liens' priority date, RCW
64.34.364(7) states that "Necording of the declaration constitutes record notice
and perfection of the lien for assessments." And, the WCA gives statutory
superpriority to condominium association assessment liens over other liens, with
limited exceptions. See RCW 64.34.364(2).
Klahanie was created upon the recording of its CC&Rs in 1985.1 The
CC&R's bind owners within Klahanie to pay assessments. The master plan
included plans for both single family and multifamily development. Section 1.6 of
the CC&Rs contemplates that later condominiums, referred to as "Living Units,"
may be created on the property. Section 4.3 requires that assessment obligations
pass through to each individual living unit, rather than the lots themselves. And,
the CC&Rs state that the consequence of not paying assessments is a lien against
the living unit "in the nature of a mortgage in favor of the Association."
1 Washington has multiple acts that govern condominiums, the WCA and
the Horizontal Property Regimes Act'(HPRA), ch. 64.32 RCW,which was enacted
in 1963. WASH. BAR ASS'N, REAL PROPERTY DESKBOOK § 22.2(3d ed. 1996). HPRA
applies to all condominiums created prior to July 1, 1990. Id. at § 22.3(1)(a). "It is
a typical 'first generation' condominium statute." Id. at § 22.2. It does not provide
significant statutory guidance on the rights and responsibilities of the owners'
association. Id.
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Unlike Sundance, Klahanie has no statute comparable to RCW
64.34.364(2) to rely upon for superpriority for its lien claim. But, within the WCA,
RCW 64.34.364(2)(a) creates an exception to superpriority for "[Tens and
encumbrances recorded before the recording of the declaration." The priority of
the respective liens here turns on whether Klahanie's non-WCA lien is a lien or
encumbrance that falls within this exception for previously recorded liens or
encumbrances.
II. Exception to Superpriority
The WCA does not contain a definition for either "lien" or "encumbrance."
RCW 64.34.020. This presents a question of statutory interpretation, which this
court reviews de novo. Port of Seattle v. Pollution Control Hearings Bd., 151
Wash. 2d 568, 587, 90 P.3d 659 (2004).
Our Supreme Court has defined encumbrances as follows:
An "encumbrance" has been defined by this court to be any
right to, or interest in, land which may subsist in third persons, to the
diminution of the value of the estate of the tenant, but consistent with
the passing of the fee; and, also, as a burden upon land depreciative
of its value, such as a lien, easement, or servitude, which, though
adverse to the interest of the landowner, does not conflict with his
conveyance of the land in fee.
Hebb v. Severson, 32 Wash. 2d 159, 167, 201 P.2d 156 (1948).
The Klahanie CC&Rs are an encumbrance within this definition. They are
a burden on the property adverse to the owner. They subsist in a third party: the
association and its members. They limit types of acceptable uses of the property.
They do not interfere with conveying the subject property in fee, but bind all
successive owners. They include an affirmative obligation on owners to pay
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monthly assessments. And, importantly for this case, they dictate that any failure
to pay assessment obligations gives rise to a lien enforceable by the association.
The CC&Rs are restrictions that diminish the value of the condominium. They are
"encumbrances" on the land within Klahanie, previously recorded. They were not
extinguished by the recording of the Sundance condominium declaration.2
But, Sundance points to the language of the Klahanie CC&Rs in arguing
that no lien arises until the assessments are past due. Specifically, the CC&Rs
state that "[i]f any assessment payment is not made in full within 30 days after it
was first due and payable, the unpaid amounts shall constitute a lien against the
Lot." Thus, it argues that the terms of Klahanie's own CC&Rs dictate that no lien
exists until 30 days after the assessment was due.
However, other portions of the Klahanie CC&Rs cut against this reading.
Section 4.10 of the Klahanie CC&Rs states that "any such lien when created, shall
be a security interest in the nature of a mortgage in favor of the association." And,
the general rule is that a mortgage for future advances becomes an effective lien
as to subsequent encumbrances from the time of its recording. John M. Keltch,
Inc. v. Don Hoyt, Inc., 4 Wash. App. 580, 581, 483 P.2d 135 (1971). Applying this
2 Sundance also argues that RCW 64.34.435 dictates that the Klahanie lien
could not have been a lien or encumbrance in place at Sundance's 1995 priority
date. The statute states that every lien or encumbrance affecting the property shall
be paid or released prior to the first conveyance. RCW 64.34.435(1). Sundance
did not rely on this statute in either its summary judgment response, or in its own
motion for summary judgment, and under RAP 2.5(a) we therefore need not
consider it. But, even so, we have no trouble observing that this statute does not
contemplate the types of encumbrances at issue here.
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general rule to the CC&Rs, we conclude that the Klahanie lien for assessments
relates back to the date of the recording of the CC&Rs.
Doing so is analogous to and consistent with the treatment of WCA
assessment liens as future advances on mortgages in BAC Home Loans
Servicing, LP v. Fulbright, 180 Wash. 2d 754, 767, 328 P.3d 895 (2014). There, the
court noted the similarity between WCA liens and liens for future advances. Id. at
763. It reasoned that "[t]his is, in essence, a particular application of a lien for
future advances, which secures the obligations the obligor has not yet incurred."
Id. Second, the court noted that RCW 64.34.364(7)'s plain language supports the
analogy to future advances. BAC, 180 Wash. 2d at 763. RCW 64.34.364(7) states
that recording of the declaration constitutes record notice and perfection for a lien
for unpaid assessments. As a result, the assessment lien related back to the filing
of the declaration and had priority over the mortgage lien which would otherwise
have had statutory priority under RCW 64.34.364(2)(b). BAC, 180 Wash. 2d at 764,
767. We find the reasoning in BAC persuasive as to non-WCA assessment liens.
The Klahanie CC&Rs were an encumbrance recorded before the 1995
Sundance CC&Rs. Therefore, consistent with the CC&Rs and BAC, the Klahanie
lien—which arises out of that encumbrance—should be treated as a mortgage for
future advances. It relates back to the recording date of the CC&Rs, and pursuant
to the exception found in RCW 64.34.364(2)(a), has priority over the Sundance
lien. The trial court properly granted summary judgment.
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III. Attorney Fees
Sundance challenges the trial court's award of attorney fees in favor of
Klahanie. Washington generally follows the "American rule" on attorney fees.
Leingang v. Pierce County Med. Bureau, Inc.,'131 Wn.2d 133, 143, 930 P.2d 288
(1997). That rule provides that attorney fees are not recoverable by the prevailing
party as costs of litigation unless the recovery is permitted by contract, statute, or
some recognized ground of equity. Id.
Klahanie argues that it is entitled to attorney fees under the CC&Rs.
Specifically, the CC&Rs state that:
In the event of a suit or action to enforce any provision of this
Declaration or to collect any money due hereunder or to foreclose a
lien, the unsuccessful party in such suit or action shall pay to the
prevailing party all costs and expenses. . . and all attorney's fees
that the prevailing party has incurred in connection with the suit or
action.
Sundance argues that, because it is merely a creditor, and not the debtor,
it is not liable for fees under this provision. Sundance makes numerous analogies
to third party creditors. It argues that, if an HOA can claim attorney fees under
CC&Rs against any creditor who is not a party to the CC&Rs, it will send a chilling
message to any potential creditors.
But, Sundance is not a typical third party creditor, because it is a
development within Klahanie. And, the Klahanie CC&Rs state they are "binding
upon all parties having or acquiring any right, title, or interest in Klahanie or any
part thereof. . . and shall in all respects be regarded as covenants running with
the land." As a governing entity of property that was already subject to the
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Klahanie CC&Rs, Sundance has an "interest" in Klahanie property, and therefore
assented to the Klahanie CC&Rs'terms.
The trial court properly found that Sundance was in privity with Klahanie
because Sundance is within the Klahanie property and subject to the CC&Rs.
Klahanie therefore was entitled to attorney fees. Klahanie also requests attorney
fees on appeal on the same basis. The CC&Rs entitle Klahanie to appellate
attorney fees in a suit to collect assessments. We affirm the trial court's award of
attorney fees and also award appellate attorney fees to Klahanie.
We affirm.
WE CONCUR:
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