Personal Liability Looms as Condo Market Continues to Implode

The continuing implosion of the condominium market is not only pushing the unpaid condominium first security deeds [first mortgages] back on the lender, it is leaving an ugly trail of personal liability of unpaid condo assessments following the defaulted unit owners. To add insult to injury, the Georgia Court of Appeals recently ruled that if the condominium association is forced to resort to suit to collect its condo fees an award of reasonable attorneys fees against the unit owner is virtually mandatory.

One lender recently reported to the Wall Street Journal at as of the end of 2008, "only 66 Atlanta units were sold in the second half of 2008, and just 645 were sold in all of last year (2008). That is down from 1,704 units sold in 2007 and a peak of 4,747 condos sold in 2005." Jonathan Karp, In Condo Terms, Atlanta Is the New Miami, Wall Street Journal, Jan 29, 2009. Of the 3,800 condo units that lender has for sale only 1,836 have been sold. Id.

A little watched statute change in the 2004 General Assembly granted condominium associations broad powers to sue the unit owners for unpaid condominium fees. OCGA § 44-3-109.[1] Prior to the 2004 change, it was cumbersome and expensive for condominium associations to sue the unit owners, obtain liens on the units and then foreclose against the units.

The 2004 statute provides a summary type action whereby the association simply affirmatively pleads the existence of the Condominium Declaration, the fact that owner "Y," owns unit "Z," and that owner "Y," is many thousands of dollars behind on condominium assessments due the association.

While the statute speaks for itself and the unit owner may interpose defenses, those defenses are limited to issues surrounding the debt and the legality of the Declaration, and the imposition of correct assessments. If the assessments are not paid, the Association goes to judgment against the unit Owner. The condominium association takes its judgment "subject to," the first security deed, which differs from the prior law. The condominium association is no longer required to conform the First leinholder about priority and possible acceptation and payoff of the first security deed.

While subordinate to county taxes and the first security deed, the condominium association nevertheless has a judgment. That judgment, unfortunately for the unit owner, becomes the "the personal obligation of the unit owner." OCGA § 44-3-109(a).

Not only is it painful in this economy that the unpaid judgment follows the owner as a "personal judgment," the Georgia Court of Appeals has indicated that the trial courts must award reasonable attorneys fees to the Associations if it is forced to collect its fees by suit. The Springs Condominium Association, Inc. v. Harris, Appeal Case No., A09A0297, Court of Appeals of Georgia, Second Division (April 16, 2009).[2]

Because the case is governed by OCGA § 44-3-109(b)(3), which mandates an award of attorney fees when an association is forced to file a statutory lien for condominium assessments and the association's condominium's documents provide for the payment of these fees, we reverse the trial court's order and remand this case for the trial court to determine the reasonableness of the Association's attorney fees. Id.

The old days of sleepy condominium associations are over. The battle for unpaid fees in this economy has now begun. [3] Armed with new state of the art collection weapons, expect to see more filings by condominium associations, until this real estate recession (depression) subsides.

Hugh Wood
Atlanta, GA


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[1]

OCGA § 44-3-109. Lien For Assessments; Personal Obligation Of unit Owner; Notice And Foreclosure; Lapse; Right To Statement Of Assessments; Effect Of Failure To Furnish Statement.
(a) All sums lawfully assessed by the association against any unit owner or condominium unit, whether for the share of the common expenses pertaining to that condominium unit, for fines, or otherwise, and all reasonable charges made to any unit owner or condominium unit for materials furnished or services rendered by the association at the owner's request to or on behalf of the unit owner or condominium unit, shall, from the time the same become due and payable, be the personal obligation of the unit owner and constitute a lien in favor of the association on the condominium unit prior and superior to all other liens whatsoever except:
(1) Liens for ad valorem taxes on the condominium unit;
(2) The lien of any first priority mortgage covering the unit and the lien of any mortgage recorded prior to the recording of the declaration;
(3) The lessor's lien provided for in Code Section 44-3-86; and
(4) The lien of any secondary purchase money mortgage covering the unit, provided that neither the grantee nor any successor grantee on the mortgage is the seller of the unit.
The recording of the declaration pursuant to this article shall constitute record notice of the existence of the lien, and no further recordation of any claim of lien for assessments shall be required.
(b) To the extent that the condominium instruments provide, the personal obligation of the unit owner and the lien for assessments shall also include:
(1) A late or delinquency charge not in excess of the greater of $10.00 or 10 percent of the amount of each assessment or installment thereof not paid when due;
(2) At a rate not in excess of 10 percent per annum, interest on each assessment or installment thereof and any delinquency or late charge pertaining thereto from the date the same was first due and payable;
(3) The costs of collection, including court costs, the expenses of sale, any expenses required for the protection and preservation of the unit, and reasonable attorney's fees actually incurred; and
(4) The fair rental value of the condominium unit from the time of the institution of an action until the sale of the condominium at foreclosure or until the judgment rendered in the action is otherwise satisfied.
(c) Not less than 30 days after notice is sent by certified mail or statutory overnight delivery, return receipt requested, to the unit owner both at the address of the unit and at any other address or addresses which the unit owner may have designated to the association in writing, the lien may be foreclosed by the association by an action, judgment, and foreclosure in the same manner as other liens for the improvement of real property, subject to superior liens or encumbrances, but any such court order for judicial foreclosure shall not affect the rights of holders of superior liens or encumbrances to exercise any rights or powers afforded to them under their security instruments. The notice provided for in this subsection shall specify the amount of the assessments then due and payable together with authorized late charges and the rate of interest accruing thereon. Unless prohibited by the condominium instruments, the association shall have the power to bid on the unit at any foreclosure sale and to acquire, hold, lease, encumber, and convey the same. The lien for assessments shall lapse and be of no further effect, as to assessments or installments thereof, together with late charges and interest applicable thereto, four years after the assessment or installment first became due and payable.
(d) Any unit owner, mortgagee of a unit, person having executed a contract for the purchase of a condominium unit, or lender considering the loan of funds to be secured by a condominium unit shall be entitled upon request to a statement from the association or its management agent setting forth the amount of assessments past due and unpaid together with late charges and interest applicable thereto against that condominium unit. Such request shall be in writing, shall be delivered to the registered office of the association, and shall state an address to which the statement is to be directed. Failure on the part of the association to mail or otherwise furnish such statement regarding amounts due and payable at the expiration of such five-day period with respect to the condominium unit involved to such address as may be specified in the written request therefore within five business days from the receipt of such request shall cause the lien for assessments created by this Code section to be extinguished and of no further force or effect as to the title or interest acquired by the purchaser or lender, if any, as the case may be, and their respective successors and assigns, in the transaction contemplated in connection with such request. The information specified in such statement shall be binding upon the association and upon every unit owner. Payment of a fee not exceeding $10.00 may be required as a prerequisite to the issuance of such a statement if the condominium instruments so provided.
(e) Nothing in this Code section shall be construed to prohibit actions maintainable pursuant to Code Section 44-3-76 to recover sums for which subsection (a) of this Code section creates a lien.
History. Amended by 2004 Ga. Laws 535, § 7, eff. 7/1/2004.

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[2]

THE SPRINGS CONDOMINIUM ASSOCIATION, INC.
v.
HARRIS.
A09A0297
Court of Appeals of Georgia, Second Division
April 16, 2009
JOHNSON, P. J., ELLINGTON and MIKELL, JJ.
Johnson, Presiding Judge.
The Springs condominium association, Inc. (the "Association") appeals the trial court's refusal to grant it an award of attorney fees in this case. Because the case is governed by OCGA § 44-3-109 (b) (3), which mandates an award of attorney fees when an association is forced to file a statutory lien for condominium assessments and the association's condominium's documents provide for the payment of these fees, we reverse the trial court's order and remand this case for the trial court to determine the reasonableness of the Association's attorney fees.
The facts of this case are not in dispute. The Association is an incorporated condominium association duly authorized to levy and collect assessments at The Springs Condominium. Cedric Harris is the owner of a condominium unit located at The Springs Condominium, and he is required to pay assessments to the Association pursuant to its declaration and OCGA § 44-3-70 et seq. The declaration and OCGA § 44-3-70 et seq. also authorize the collection of late charges, interest (at the rate of 10% per annum), reasonable attorney fees actually incurred, and costs and expenses related to the collection of these assessments. It is undisputed that Harris did not pay any required assessments, charges, late fees or interest, and the Association placed a lien on his condominium.
On November 8, 2007, the Association, through its attorney, sent Harris the statutory notice of intent to foreclose on its condominium lien. Harris did not respond, and on February 8, 2008, the Association sued Harris, seeking to recover a statutory lien in the amount of $15,522.90, reasonable attorney fees, costs and expenses. It also requested an order for judicial foreclosure of the statutory lien. On March 10, 2008, Harris answered and paid $15,522.90. However, this amount did not include attorney fees incurred after December 12, 2007, when the complaint was initially drafted. The trial court entered a final order on June 17, 2008, finding that Harris had paid the full amount of the statutory lien and declining to grant the Association an award of attorney fees. We agree with the Association's contention that the trial court was mandated by law to grant an award of attorney fees in this matter.
OCGA § 44-3-109 (b) (3) states as follows: "To the extent that the condominium instruments provide, the personal obligation of the unit owner and the lien for assessments shall also include... [t]he costs of collection, including court costs,... and reasonable attorney's fees actually incurred." Since the undisputed evidence in this case shows that The Springs Condominium declaration provides that a delinquent unit owner shall be liable for reasonable attorney fees actually incurred, an award of attorney fees was mandated under the statute. Where a statute's language as to an award of attorney fees is mandatory, the trial court is required to award attorney fees. [1] The trial court, therefore, erred in refusing to enter an award for attorney fees actually incurred subsequent to December 12, 2007. [2] We reverse the trial court's order and remand this case for the trial court to determine the reasonableness of the Association's attorney fees.
Judgment reversed.
Ellington and Mikell, JJ., concur.
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Notes:
[1] See Preece v. Turman Realty Co., 228 Ga.App. 609, 610 (492 S.E.2d 342) (1997).
[2] See Casey v. North Decatur Courtyards Condominium Assoc., 213 Ga.App. 190, 192 (3) (444 S.E.2d 361) (1994).
[Many thanks to my good friend Ned Blumenthal, Esq., for his helpful emails in this curious area of the law]



Hugh Wood, Esq.
Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta, GA 30084

www.woodandmeredith.com
hwood@woodandmeredith.com
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Phone: 404-633-4100Fax: 404-633-0068