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Bedminster Hills Housing Corp. v. Timberbrooke at Bedminster Condominium Association


March 11, 2008


On appeal from the Superior Court of New Jersey, Chancery Division, Somerset County, C-12057-06 and F-1396-02.

Per curiam.


Argued February 11, 2008

Before Judges Lintner, Graves and Alvarez.

Plaintiff, Bedminster Hills Housing Corporation, is the quasi-public municipal entity responsible for the administration of Bedminster Township's affordable housing program under the Fair Housing Act (FHA), N.J.S.A. 52:27D-301 to -329. Defendant, Timberbrooke at Bedminster Condominium Association, manages the condominium complex known as Timberbrooke and located in the township. In June 2001, Delinda Fuller purchased an affordable housing unit in the condominium complex for $44,961 financed with a purchase money mortgage from Washington Mutual Home Loan (Washington). Fuller defaulted on her mortgage payments and condominium fees. Defendant recorded a lien for its unpaid fees on the unit. Both Washington and defendant filed actions against Fuller, obtaining separate judgments in July 2002. Thereafter, Fuller filed for Chapter 13 Bankruptcy and obtained a stay pending disposition of the bankruptcy action. The bankruptcy complaint was ultimately dismissed and the discharge of the debts was revoked.

A sheriff's sale was held on April 18, 2006. At the time of the sale, defendant's lien for unpaid assessments and fees amounted to $10,949.47. Plaintiff and a private individual participated in the bidding. Plaintiff ultimately prevailed, bidding the price up to $74,800 to keep the unit in its affordable housing inventory. Plaintiff's successful bid was approximately $14,000 in excess of Fuller's mortgage obligation to Washington plus costs. Following its successful bid, plaintiff contracted to sell the unit for $57,981, the "maximum sale price" under the affordable housing restrictions. Prior to closing of title, defendant notified the purchaser of its lien and advised that it would not permit the purchaser to join the condo association unless the amount was paid in full. The purchaser refused to close.

Defendant filed a motion in the foreclosure action, seeking release of the surplus funds sufficient to pay its lien. Plaintiff filed an Order to Show Cause to extinguish defendant's lien on the property. On October 5, 2006, defendant was granted intervenor status in the mortgage foreclosure action. The matters were consolidated and, following a hearing, Judge Derman issued a written opinion.*fn1 Citing N.J.S.A. 46:8B-22, for "expressly grant[ing] a condominium association the right to any surplus monies remaining after satisfying superior lien holders following foreclosure," Judge Derman found that N.J.S.A. 46:8B-21 "demonstrates a strong public policy of seeing that homeowners associations are compensated for back dues and assessments," thus giving defendant priority over plaintiff's access to the surplus funds under the Council on Affordable Housing (COAH) regulation, N.J.A.C. 5:93-9.14.

On appeal, plaintiff asserts that it is entitled to the surplus funds, notwithstanding defendant's lien, in accordance with N.J.A.C. 5:93-9.14, because to hold otherwise would "creat[e] a windfall situation for the defaulting homeowner and creditors."*fn2 We reject plaintiff's contention and affirm substantially for the reasons expressed in Judge Derman's comprehensive written opinion. Nevertheless, we make the following brief observations.

As the administrative agency created and authorized under the FHA, COAH is authorized to promulgate regulations to ensure that municipalities meet their obligation to provide a fair share of their region's need for low and moderate-income housing. N.J.A.C. 5:93-9.14 provides:

In the event of a foreclosure sale, the owner of the affordable housing unit shall be personally obligated to pay to the administrative entity responsible for assuring affordability, any surplus funds, but only to the extent that such surplus funds exceed the difference between the sales price at the time of foreclosure and the amount necessary to redeem the debt to the financial institution, including costs of foreclosure. [N.J.A.C. 5:93-9.14 (emphasis added).]

The Condominium Act, N.J.S.A. 46:8B-1 to -38 permits, subject to certain limitations, an association to place liens on units for unpaid association fees. N.J.S.A. 46:8B-21 provides in pertinent part:

a. The association shall have a lien on each unit for any unpaid assessment duly made by the association for a share of common expenses or otherwise, including any other moneys duly owed the association, upon proper notice to the appropriate unit owner, together with interest thereon and, if authorized by the master deed or bylaws, late fees, fines and reasonable attorney's fees . . . . Such lien shall be effective from and after the time of recording in the public records of the county in which the unit is located of a claim of lien . . . all such liens shall be subordinate to any lien for past due and unpaid property taxes, the lien of any mortgage to which the unit is subject and to any other lien recorded prior to the time of recording of the claim of lien.

c. Upon any voluntary conveyance of a unit, the grantor and grantee of such unit shall be jointly and severally liable for all unpaid assessments pertaining to such unit duly made by the association or accrued up to the date of such conveyance without prejudice to the right of the grantee to recover from the grantor any amounts paid by the grantee, but the grantee shall be exclusively liable for those accruing while he is the unit owner.

e. If a mortgagee of a first mortgage of record or other purchaser of a unit obtains title to such unit as a result of foreclosure of the first mortgage, such acquirer of title, his successors and assigns shall not be liable for the share of common expenses or other assessments by the association pertaining to such unit or chargeable to the former unit owner which became due prior to acquisition of title as a result of the foreclosure. Any remaining unpaid share of common expenses and other assessments, except assessments derived from late fees or fines, shall be deemed to be common expenses collectible from all of the remaining unit owners including such acquirer, his successors and assigns.

f. Liens for unpaid assessments may be foreclosed by suit brought in the name of the association in the same manner as a foreclosure of a mortgage on real property. The association shall have the power, unless prohibited by the master deed or bylaws to bid on the unit at foreclosure sale, and to acquire, hold, lease, mortgage and convey the same. Suit to recover a money judgment for unpaid assessments may be maintained without waiving the lien securing the same.

N.J.S.A. 46:8B-22(a) provides in pertinent part:

(a) A unit may be sold by the sheriff on execution, free of any claim, not a lien of record, for common expenses or other assessments by the association, but any funds derived from such sale remaining after satisfaction of prior liens and charges but before distribution to the previous unit owner, shall be applied to payment of such unpaid common expenses or other assessments if written notice thereof shall have been given to the sheriff before distribution.

Under subsection (c) of N.J.S.A. 46:8B-21, a voluntary purchaser is liable for the association's validly recorded lien. However, under subsection (e), a purchase money mortgagee or a person obtaining the property at a mortgage foreclosure sale is not liable for common expenses or other assessments chargeable to the former owner that become due prior to the foreclosure. Those expenses and fees are to be shared by all owners, including the person acquiring the property. Subsection (f) allows the association itself to foreclose on the unit by filing a suit in the name of the association unless otherwise prohibited by its bylaws or the master deed, or by suing for money damages without waiving its lien. When a unit is sold on execution at sheriff's sale for common expenses and fees, N.J.S.A. 46:8B-22(a) permits the funds to be used to pay off common expenses and assessments after payment of superior liens. See Micheve, L.L.C. v. Wyndham Place at Freehold Condominium Ass'n, 370 N.J. Super. 524, 531 (App. Div. 2004).

Generally, where a foreclosure and subsequent sale of property takes place, the liens subordinate to the one foreclosing upon the property are extinguished by the judgment of foreclosure. See Highland Lakes Country Club & Cmty. Ass'n v. Franzino, 186 N.J. 99, 112-13 (2006). "[M]ortgage foreclosure actions are designed to bring together for one disposition creditors' claims to the property. Id. at 113. All lien claims are thus disposed of by the court and the "liens transferred from the property to the proceeds of sale" so that the property "is freed of the lien, enabling the purchaser at foreclosure sale to take title unencumbered by the lien." Ibid. (internal quotation marks omitted).

Plaintiff argues that N.J.A.C. 5:93-9.14 requires all monies in excess of the first purchase money mortgage to be remitted to the affordable housing trust fund. It does not contest the legitimacy of defendant's claim but instead reprises the same argument made before Judge Derman that its claim for the surplus should trump defendant's claim. Plaintiff maintains that to deprive it of the full surplus would facilitate the use of "public affordable housing trust money . . . to satisfy the private debts of a defaulting homeowner."

"Interpretation of a statute begins with 'the plain meaning of the provision at issue.'" Lozano v. Frank DeLuca Constr., 178 N.J. 513, 522 (2004) (quoting Burns v. Belafsky, 166 N.J. 466, 473 (2001)). First and foremost, N.J.A.C. 5:93-9.14 restricts the prior owner of an affordable housing unit from collecting a surplus generated by a sheriff's sale that is greater than that needed to pay off the owner's defaulted mortgage obligation. The regulation thus required Fuller to pay plaintiff the amount she might receive as surplus funds over and above her mortgage debt. It does not apply to extinguish defendant's judgment entered prior to the sheriff's sale. Judge Derman correctly noted that 27 N.J.R. 3329(a), Comment 32 recognized "[t]he intent of the foreclosure rule is to allow the owner to recapture some equity which is the difference between the maximum controlled sales price and the net debt to the lender."

Defendant, as a plaintiff in a separate action and as an intervenor in Washington's foreclosure action, was entitled to seek recovery of its common expenses or other assessment fees through execution at the sheriff's sale under N.J.S.A. 46:8B-21 (f) and N.J.S.A. 46:8B-22(a). Plaintiff does not argue on appeal that defendant's claim for common expenses and fees was not intended to be disposed of at the sheriff's sale. Beyond that, reasonably proportionate maintenance charges serve to preserve the very property that plaintiff seeks to retain in its affordable housing inventory. Accordingly, plaintiff's contention, that allowing defendant to collect its lien does not foster the public policy under FHA, simply lacks merit.


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