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House Bill 408 – Keeping Condominium Associations Financially Sound
Condominiums represent a significant segment of the housing market that has been adversely affected by the mortgage foreclosure crisis in recent years. Condominium associations obviously suffer a financial blow when one or more unit owners stop paying their monthly fees or assessments, as their maintenance and operating expenses must then be borne by a lesser number of paying unit owners. In Ohio, this financial blow is often exacerbated by the foreclosure process because, under current state law, the mortgage liens of banks and other lenders are superior in priority to the liens of condominium associations for unpaid assessments. This means that an Association sometimes recovers little or no money when the foreclosure process concludes with a sheriff’s sale of the delinquent owner’s unit. In those situations, the vast majority of unit owners within the Association, who pay both their mortgage and condominium assessment obligations, are unfortunately left “holding the bag.”
In January of 2010, House Bill 408 was introduced in the Ohio General Assembly to alleviate this unfair situation. Under House Bill 408, condominium associations will be granted a “super lien” that is superior in priority to the mortgage liens of banks and other lenders, who more often than not are located out-of-state.
At least 14 other states, including neighboring Pennsylvania and West Virginia, have enacted condominium “super lien” legislation in recent years. In most of those states, “super liens” guarantee that the first six months in overdue assessments would be paid directly to the condominium association, before mortgage lenders and other secured creditors are paid to satisfy their own respective liens.
In Ohio, under the proposed House Bill 408 “super lien” legislation, the first six months in overdue assessments owed to an Association—plus the association’s reasonable attorney’s fees, costs, and expenses related to the foreclosure—will constitute a lien superior in priority to that of mortgage liens and all other liens except those for real estate taxes and other local taxes. As a result, the vast majority of unit owners, who continue to pay their mortgage and condominium assessment obligations, will bear significantly less of the financial burden caused to the Association by a delinquent unit owner’s foreclosure.