Maryland Developer Declaration Does Not Establish Assessment Lien

A developer’s Declaration notifies the purchaser of the property of a potential lien for unpaid assessments, but is not sufficient to create an assessment lien, according to a recent decision of the Maryland Court of Appeals–the top state appeals court.  A lien based on the contractual obligation to pay assessments is valid only if the party asserting the lien complies with the notice procedures of the Maryland Contract Lien Act.

At issue, in Select Portfolio Servicing, Inc. v. Saddlebrook West Utility Company, LLC, was a claimed lien as part of a deferred financing arrangement for the construction of the water and sewer infrastructure for a new home development in Prince George’s County, Maryland.  To recover the construction cost, the developer executed  a Declaration of Deferred Water and Sewer Charges which imposed an annual assessment of $700 for 23 years to be paid to a developer-affiliated utility financing company and stated the purchaser of each residential lot granted a lien to secure payment by accepting a deed to the lot.  The Declaration was recorded in the land records before initial conveyance of the lot and before the purchaser obtained a mortgage loan secured by the lot.

When the utility financing company commenced a foreclosure proceeding for delinquent water and sewer assessments, the owner of the mortgage loan secured by the property filed suit to obtain a judicial determination as to priority of interests of the lien asserted by the utility financing company and the mortgage company.

Although the trial court and intermediate appeals court ruled that the Water and Sewer Declaration created a lien for assessments which was superior to the mortgage loan lien, the Maryland Court of Appeals disagreed and ruled that an assessment lien can be created only after there is a default in payment of the obligation established by the Declaration.  Before the lien can attach to the property, the Maryland Contract Lien Act requires that the property owner must be given notice of the intent to create the lien and an opportunity to contest the lien.

In the context of condominium and homeowner association covenants which require owners to pay assessments, it is common for the covenants to state that there is a lien on the property for the amount of the annual assessments and related charges.  As with the water and sewer assessments at issue in Select Portfolio, no lien is created by the covenants.  In order for an association assessment lien to attach,  a lien must be recorded in the land records after the owner is provided notice and an opportunity to contest the lien in conformance with the procedures of the Maryland Contract Lien Act.

Posted by Thomas Schild Law Group, LLC, attorneys for condominiums, homeowner associations and housing cooperatives in Maryland -– including Montgomery County, Prince George’s County, Howard County, Frederick County, and Baltimore County; and in Baltimore City and Washington, D.C.

This entry was posted in Assessment Collection, Condominiums, Covenants and Bylaws, Homeowner Associations, Maryland Condominium Associations, Maryland Homeowner Associations and tagged , , , , by Tom Schild. Bookmark the permalink.

About Tom Schild is written by Thomas C. Schild. Tom focuses his practice in the representation of community associations. Since 1985, he has represented condominiums, homeowners associations, and housing cooperatives throughout Maryland and Washington D.C. He is recognized locally and nationwide as a leader in the field of community association law. Tom has written numerous articles and presented many seminars concerning various aspects of condominium and homeowners associations operations. He has recently presented programs regarding community associations insurance, contracts, leasing restrictions, tips for avoiding litigation, and community governance. He is a long-time member and past Chair of the Maryland Legislative Action Committee of the Community Associations Institute (CAI), which represents community association interests before the Maryland General Assembly. Tom is also a member of CAI's National Faculty and teaches a Community Governance course for community association managers in cities nationwide. And, he is a member of the College of Community Association Lawyers (CCAL) which is comprised of fewer than 150 lawyers nationwide recognized for their leadership and contributions in the field of community law. He previously served on the Board of Directors of CAI's Washington Metropolitan Chapter. Tom is a 1976 graduate of Northwestern University and a 1980 graduate of the George Washington University Law School. He is admitted to practice before the state and federal courts in Maryland and the District of Columbia.

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