Updated Lien Priority Legislation for NJ Community Associations Becomes Law
On April 29, 2019, Governor Murphy signed new legislation that will enhance and expand the lien priority for condominium associations. It also, for the first time, gives a statutory right of the lien priority to homeowners associations. Prior to this, only condominiums in New Jersey were able to claim limited lien priority. Pursuant to the original statute, condominiums were afforded a six months of “aggregate customary assessments” following a mortgage lender’s Sheriff’s sale, so long as the association had a lien recorded prior to the mortgage lender’s initiation of the foreclosure process. The newly amended law will significantly increase the priority and now would be “cumulatively renewed on an annual basis as necessary.” In short, the amended law allows for an association to seek one half of the annual assessments each year. This means that if the association updates its lien each year, each loan will have its own six month priority, with the exception of priority over municipal and liens for federal taxes. This is an important change because it allows the association to offset the increasing assessment burden for the paying owners.
In addition, the newly-signed law has an important change that removes the language requiring that the lien be authorized by an association’s governing documents. In the past the governing documents had to specifically allow for such an action. The new legislation clarifies that attorneys’ fees added to the lien must be imposed or incurred in the collection of the unpaid assessments. While there are changes to the new legislation, there are also some provisions of importance that will remain the same. For example, liens may not be recorded solely for late fees. Also, in order to be entitled to the priority, the holder of a first mortgage must be notified of the lien unless, after good faith effort, the association cannot ascertain the identity of the first mortgage holder. Lastly, as indicated above, an association’s lien will be subordinate to the existing mortgage and any municipal or tax liens.
The information in this Client Alert is provided solely for information purposes. It should not be construed as legal advice on any specific matter and is not intended to create an attorney-client relationship. The information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based upon particular circumstances. Each legal matter is unique, and prior results do not guarantee a similar outcome.
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