23 July 2024
/ Benjamin N. Hoen
Does an HOA Lien in Pennsylvania Have Priority Over a First Mortgage?
A recent court decision from Delaware County, Pennsylvania, could raise concerns for mortgage lien holders. The court found that a homeowners association (HOA) foreclosure could extinguish a first mortgage lien on a property. In the case, the court ruled that the first mortgagee’s interest was divested following the HOA foreclosure sale because it failed to appear at the sale, despite having actual notice. This decision suggests that in certain circumstances, an HOA lien may take precedence over a first mortgage lien, potentially impacting the priority and security of mortgage interests in Pennsylvania.
The case of Foxfield at Naaman’s Creed vs. Raechelle Eventoff, involved a default judgment in favor of the HOA, related to the foreclosure and sale of property. The property was struck off by the sheriff to a third party bidder. Following the sale, the Delaware county sheriff proposed a schedule of distribution, which listed that a senior mortgage lien was not divested at the sale. The plaintiff, and the purchaser, filed exceptions to the sheriff's sale schedule of distribution, arguing that the senior mortgage was divested during the sale because it was not a purchase money mortgage. The court agreed with the plaintiff, ruling that the senior mortgagee's interest was divested due to its failure to appear at the sale and ordered the sheriff to amend the schedule of distribution accordingly.
The mortgagee filed a reconsideration motion, requesting the court to reconsider its order that granted the plaintiff's exceptions. The mortgagee argued that the term "first mortgage" in the Pennsylvania Uniform Planned Community Act does not necessarily mean "purchase money mortgage."
The court addressed this argument by interpreting the term "first mortgage" according to its common and approved usage, which refers to the earliest mortgage on a property. In this case, the earliest mortgage was the purchase money mortgage filed prior to the current first mortgage, even though it had been previously paid and satisfied. Consequently, the current senior mortgage was not the senior first mortgage per the statute, and was subordinate to the association's lien. The court clarified that the earliest mortgage need not be a purchase money mortgage, and even if it had mistakenly equated "first mortgage" with "purchase money mortgage," the outcome remained the same: the current senior mortgage was not the first mortgage per the statute. Therefore, the mortgagee’s interest was properly divested following the sheriff's sale due to its’ failure to appear.
The court’s decision is currently up on appeal. If affirmed, the impact of the decision could be widespread and perilous for mortgage holders, while presenting a windfall for HOA’s across the state of Pennsylvania.
Until the law is settled by the court of appeals, mortgage lenders must carefully watch for HOA foreclosure notices, and get those to counsel as soon as possible to make sure that your interests are properly protected at the sale.
If you have any questions on this topic or would like to learn more about Weltman’s real estate default recovery solutions, contact shareholder Ben Hoen at any time.
This blog is not a solicitation for business, and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.
The case of Foxfield at Naaman’s Creed vs. Raechelle Eventoff, involved a default judgment in favor of the HOA, related to the foreclosure and sale of property. The property was struck off by the sheriff to a third party bidder. Following the sale, the Delaware county sheriff proposed a schedule of distribution, which listed that a senior mortgage lien was not divested at the sale. The plaintiff, and the purchaser, filed exceptions to the sheriff's sale schedule of distribution, arguing that the senior mortgage was divested during the sale because it was not a purchase money mortgage. The court agreed with the plaintiff, ruling that the senior mortgagee's interest was divested due to its failure to appear at the sale and ordered the sheriff to amend the schedule of distribution accordingly.
The mortgagee filed a reconsideration motion, requesting the court to reconsider its order that granted the plaintiff's exceptions. The mortgagee argued that the term "first mortgage" in the Pennsylvania Uniform Planned Community Act does not necessarily mean "purchase money mortgage."
The court addressed this argument by interpreting the term "first mortgage" according to its common and approved usage, which refers to the earliest mortgage on a property. In this case, the earliest mortgage was the purchase money mortgage filed prior to the current first mortgage, even though it had been previously paid and satisfied. Consequently, the current senior mortgage was not the senior first mortgage per the statute, and was subordinate to the association's lien. The court clarified that the earliest mortgage need not be a purchase money mortgage, and even if it had mistakenly equated "first mortgage" with "purchase money mortgage," the outcome remained the same: the current senior mortgage was not the first mortgage per the statute. Therefore, the mortgagee’s interest was properly divested following the sheriff's sale due to its’ failure to appear.
The court’s decision is currently up on appeal. If affirmed, the impact of the decision could be widespread and perilous for mortgage holders, while presenting a windfall for HOA’s across the state of Pennsylvania.
Until the law is settled by the court of appeals, mortgage lenders must carefully watch for HOA foreclosure notices, and get those to counsel as soon as possible to make sure that your interests are properly protected at the sale.
If you have any questions on this topic or would like to learn more about Weltman’s real estate default recovery solutions, contact shareholder Ben Hoen at any time.
This blog is not a solicitation for business, and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.
