IMPRESSION: A recent Minnesota Court of Appeals ruling served as a stiff reminder to investor-purchasers of condominium units: request of association resale disclosure certificates should be undertaken as a matter of course (in Wisconsin this is essentially the Section 703.165(4) Wis. Stat. statement of the amount of unpaid assessments).
DETAILS: In Bridge Investments, LLC v. Lowry Ridge Townhomes Assoc., LLP, A17-1221 (Minn. Ct. App. 2018) the owner of a condo unit in the Lowry Ridge Townhomes community defaulted on association payments owing over $3,500.00 in assessments. After foreclosure proceedings, the condo was purchased by the owner’s bank at a sheriff’s sale. Later, the defaulting owner reacquired the condo via redemption and on the same day sold the unit to Bridge Investments (“Bridge”)—a venture capital and private equity firm. Bridge recorded its purchase with no knowledge of Lowry Ridge’s assessment lien; which was junior to the bank’s mortgage, but not eliminated by the redemption, and remained attached to the condo when sold. By this time, the outstanding balance reached over $9,000.00 prompting Lowry Ridge to record a lien for the unpaid balance, late fees, attorney’s fees, and costs. Lowry Ridge attempted to amicably collect its debt rather than foreclose on the unit; however, Bridge felt it was not responsible for payment since it had no notice of the preexisting lien prior to purchasing the condo.
In an ironic and aggressive twist, Bridge filed suit against Lowry Ridge to, inter alia, block foreclosure sale until the lien dispute was resolved. However, the trial court ordered the sale to proceed; Lowry Ridge purchased the unit for the assessment amount owed and expeditiously sold the condo to another buyer. Interestingly but bittersweet, the trial court held Bridge was not liable for unpaid assessments (or any associated costs or fees) because it “was a good-faith purchaser” safeguarded by the Minnesota Recording Act (“MRA”)—affording it priority over prior lienholders who fail to record liens before a buyer records their deed.
On appeal, Bridge contended Lowry Ridge violated the Minnesota Common Interest Ownership Act’s (“MCIOA”) due process requirements. Lowry Ridge opposed, arguing that its prior recorded declaration provided Bridge with constructive notice of the preexisting lien—regardless of if the lien was recorded or if no additional notice was given. The court of appeals agreed, holding MCIOA requires no further lien notice, consequently rendering the MRA inapplicable to the parties’ dispute; and further explained, specifically, MCIOA required the original unit owner/seller to “ensure that Bridge Investments had notice of the preexisting assessment lien against the unit and to ensure that Bridge Investments received the necessary documents[,]” including a resale disclosure certificate giving notice of assessment amounts imposed.
In a last ditch effort, Bridge argued it never received any documents evidencing preexisting and accruing amounts owed, much less a resale disclosure certificate. Moreover, Lowry Ridge denied preparing a resale certificate or receiving a request for same by the original unit owner; and further was unaware of Bridge’s purchase of the condo until after closing. Be that as it may, the court of appeals held that Lowry Ridge was not responsible for ensuring Bridge received the resale certificate, mainly because Lowry Ridge had no knowledge the condo unit at issue was pending sale. In addition—and maybe more important—the court ruled Lowry Ridge was entitled, under MCIOA, to recover attorney’s fees and costs from Bridge relating to the collection, foreclosing, and litigation surrounding its assessment lien.
Lesson Learned for Condo Unit Purchasers: adopt the practice of requesting resale certificates BEFORE executing purchase agreements. This messy, contentious, and expensive exchange can be avoided by holding condo unit sellers accountable for providing necessary documents evidencing any preexisting assessment liens. Such documents are: copies of the declaration; association articles of incorporation, bylaws, rules, regulations, and amendments; and, the resale disclosure certificate. Do not assume sellers will automatically adhere to statutory requirements and voluntarily furnish these documents prior to sale. Condo buyers should assertively protect their investments on the front-end and rest easy, rather than roll the dice and later pray no preexisting association assessment liens fell through the cracks.
If you are representing a buyer of condominium, make sure you contact the association and the seller and demand from each the amount owed or allegedly owed the association by the seller.
If you have any questions, please feel free to contact the Husch Blackwell LLP Condominium and HOA Law Team.