American Holidays, Inc. v. Foxtail Owners Ass'n
Annotate this Case
American Holidays, Inc. v. Foxtail Owners Ass'n
1991 WY 156
821 P.2d 577
Case Number: 91-41
Decided: 12/09/1991
Supreme Court of Wyoming
AMERICAN HOLIDAYS, INC., A MISSOURI CORPORATION, APPELLANT (DEFENDANT),
v.
FOXTAIL OWNERS
ASSOCIATION, A WYOMING NONPROFIT CORPORATION, APPELLEE
(PLAINTIFF)
Appeal from the
District Court, TetonCounty, D. Terry Rogers,
J.
Frank Hess, Jackson, for
appellant.
Phelps H. Swift, Jr.
of Mullikin, Larson & Swift, Jackson, for
appellee.
Before URBIGKIT,
C.J., and THOMAS, CARDINE, MACY and GOLDEN, JJ.
CARDINE,
Justice.
[¶1.] Appellant, mortgagee of
a shared interest in a time-share condominium, challenges the trial court's
decree of foreclosure which subordinated its mortgage to appellee's lien for
unpaid condominium assessments. We affirm the decision of the trial
court.
[¶2.] Appellant states the
issue to be resolved as follows:
"Did the court err in
holding as a matter of law that the homeowner's assessment lien had priority
over a previously filed mortgage?"
[¶3.] Condoshare Jackson
Limited Partnership recorded a Declaration of Condominium for the Foxtail
Condominium Project on January 6, 1981. This Declaration created appellee, the
Foxtail Owners Association (Association). The Association was given numerous
responsibilities for maintenance and upkeep of the Foxtail condominium units and
common areas. It was empowered to levy assessments against the shared interest
of each of the Foxtail condominium owners in order to pay its expenses. These
assessments were to be secured by a lien on each shared interest and would bear
interest and court costs if not paid.
[¶4.] On September 16, 1984,
Edward L. Meier and Clara Zo Meier (Meiers) executed a note and mortgage deed
secured by a shared interest in one of the Foxtail units in favor of The Time
Store, Inc., a Colorado corporation (Time Store). This mortgage deed was
recorded on March 8, 1985. The mortgage deed contained a legal description which
made the shared interest "subject to the terms, covenants, conditions, and
restrictions contained in the Declaration." The Time Store's mortgagee interest
passed by assignment and is now held by appellant American Holidays, Inc.
(American Holidays).
[¶5.] The Meiers defaulted on
the mortgage with American Holidays on December 1, 1985. They also failed to pay
Association dues as required by the Declaration. On October 10, 1989, the
Association filed two Notices of Lien for unpaid dues with the Teton County
Clerk. Then, on January 30, 1990, the Association filed this complaint for
foreclosure, which named the Meiers and American Holidays as
defendants.
[¶6.] The trial court entered
a Summary Judgment and Decree of Foreclosure on January 3, 1991. Both the
Association and American Holidays were given judgment against the Meiers. The
court further found that American Holidays' interest was subordinate to the
Association's lien for unpaid assessments, interest, costs and attorney fees,
"even if the mortgage [had been] filed [for record] prior to the time the lien
mature[d]." The decree of foreclosure provided that upon foreclosure sale the
proceeds would be applied: First, to the costs of the sale; second, toward
satisfaction of the Association's assessment lien; and third, toward
satisfaction of the mortgage held by American Holidays. Any surplus would be
paid to the Meiers. American Holidays filed a timely notice of appeal from this
decision.
[¶7.] All issues in this case
were resolved by summary judgment.
"We review a summary
judgment in the same light as the district court, using the same materials and
following the same standards. Summary judgment is proper only when there are no
genuine issues of material fact and the prevailing party is entitled to judgment
as a matter of law." Zmijewski v. Wright, 809 P.2d 280, 282 (Wyo.
1991).
There is no real
dispute about the facts here, only about the legal conclusions the trial court
reached.
[¶8.] Wyoming Statute
34-1-121(a) (July 1990 Repl.) provides in part that
"[e]ach and every
deed, mortgage, instrument or conveyance touching any interest in lands, made
and recorded, according to the provisions of this chapter, shall be notice to
and take precedence of any subsequent purchaser or purchasers from the time of
delivery of any instrument at the office of the register of deeds (county
clerk), for record."
Appellant's mortgage
was recorded prior to the recordation of appellee's lien statement, but
subsequent to the recordation of the Declaration of Condominium for the Foxtail
Condominium Project. The question to be resolved is that of appellant's priority
status relative to that of appellee, considering the recording dates and the
subordination clauses contained in the Declaration and in the Meiers'
mortgage.
[¶9.] It is undisputed that
American Holidays' interest is subject to the provisions of the Declaration,
which by its terms are made covenants running with the land binding on "any
person acquiring, leasing, or owning an interest in the real property and
improvements comprising the Project, and to their respective administrators,
personal representatives, heirs, successors, and assigns." The mortgage, whose
mortgagee interest was assigned to American Holidays, also describes the
property as being subject to the terms of the Declaration.
[¶10.] Our review of authority connected with
this issue shows no previous Wyoming cases on point. Cases from other
jurisdictions show that the issue of priority has been resolved, generally, in
either one of two ways. First, many jurisdictions have applied a statutory
scheme governing condominium assessment priority. See e.g., Towne Realty, Inc.
v. Edwards, 156 Wis.2d 344, 456 N.W.2d 651 (1990); First Federal Savings Bank v.
Eaglewood Court Condominium Ass'n, Inc., 186 Ga. App. 605, 367 S.E.2d 876
(1988); Brask v. Bank of St. Louis, 533 S.W.2d 223 (Mo. Ct. App. 1975).
Wyoming has no
such statute, and so we do not find these cases to be
helpful.
[¶11.] Second, some jurisdictions have held, in
the context of homestead exemption priority, that an association's lien for
assessments is a contractual lien which relates back to the time of filing the
declaration. See Bessemer v. Gersten, 381 So. 2d 1344 (Fla. 1980); Accord, Inwood North
Homeowners' Ass'n, Inc. v. Harris, 736 S.W.2d 632, 636 n. 1 (Tx. 1987); In re
Lincoln, 30 B.R. 905 (Bankr.D.Colo. 1983). For reasons stated below, we think that the Bessemer rule properly
applies to this case, and that the lien for assessments which attached when the
mortgagee's interest was created relates back to the time of filing of the
Declaration.
[¶12.] The Bessemer case gives no rationale for its
holding that an association's lien relates back to the time of recording. We
follow it in this case because we believe it reflects the intent of the original
covenantor as revealed in the terms of the Declaration.
[¶13.] We consider first the language of the
Declaration itself to determine its effect on the interests of the parties. In
interpreting the covenants contained in a condominium declaration, we will
follow our general rule that we seek to discern the intent of the parties, and
especially that of the grantor. Cf. Dawson v. Meike, 508 P.2d 15, 18 (Wyo. 1973) (court seeks
to discern intent in interpreting covenants contained in warranty deed). See
also 20 Am.Jur.2d Covenants, Conditions, and Restrictions § 5
(1965):
"The courts have
consistently adhered to the view that in their interpretation or construction of
covenants, the cardinal principle, or most persuasive guide for them to follow,
is the intention of the parties as it may appear or be implied from the
instrument itself. * * *
"The intention of the
parties is to be gathered from the entire context of the agreement, and not from
a single clause." (footnote omitted)
Where the plain terms
of a covenant are sufficiently clear, we construe it without reference to
attendant facts and circumstances or extrinsic evidence. Revelle v. Schultz, 759 P.2d 1255, 1258 (Wyo. 1988).
[¶14.] The Declaration contained a provision,
quoted in part above, subjecting the property to its terms and creating a
covenant running with the land:
"2.01 Submission to
Condominium Ownership. * * * All of said property and all Common Facilities and
Unit Furnishings are and shall be subject to the covenants, conditions,
restrictions, uses, limitations, and obligations set forth herein, each and all
of which are declared and agreed to be for the benefit of said Project and each
Condominium therein and in furtherance of a plan for improvement of said
property and division thereof into Condominiums. Each and all of the provisions
hereof shall be deemed to run with the land and shall be a burden and a benefit
to the Declarant, and to any person acquiring, leasing, or owning an interest in
the real property and improvements comprising the Project, and to their
respective administrators, personal representatives, heirs, successors, and
assigns."
[¶15.] Any subsequent mortgage or encumbrance
was made subject to the terms of the Declaration:
"4.05 Separate
Mortgages. * * * Any mortgage or other encumbrance of any Shared Interest shall
be subject [to] and subordinate to each and all of the provisions of this
Declaration and, in the event of foreclosure, the provisions of this Declaration
shall be binding upon any Shared Owner whose title is derived through
foreclosure by private power of sale, judicial foreclosure, or
otherwise."
[¶16.] The Declaration provided for assessments
to be made by and paid to the Association:
"9.01 Agreement to
Pay Assessments. * * * [E]ach Shared Owner by the acceptance of instruments
of conveyance and transfer of his Shared Interest, whether or not it be so
expressed in said instruments, shall be deemed to covenant and agree with each
other and with the Association to pay to the Association all assessments made by
the Association for the purposes provided in this
Declaration."
[¶17.] These assessments would bear interest at
the rate of one percent per month. Finally, the Declaration provided that such
assessments would constitute a lien on the property:
"9.04 Lien for
Assessments. All sums assessed to the Shared Owner of any Shared Interest in
a Condominium within the Project pursuant to the provisions of this Article IX,
together with interest thereon as provided herein, shall be secured by a lien on
such Shared Interest in favor of the Association. To evidence a lien for sums
assessed pursuant to this Article IX, the Association may prepare a written
notice of lien setting forth the amount of the assessment, the date due, the
amount remaining unpaid, the name of the Shared Owner of the Shared Interest,
and a description of the Shared Interest. Such a notice shall be signed and
acknowledged by a duly authorized officer of the Association and may be recorded
in the office of the County Clerk of Teton County, State of Wyoming. No notice
of lien shall be recorded until there is a delinquency in payment of the
assessment. Such lien may be enforced by judicial foreclosure by the Association
in the same manner in which mortgages or trust deeds on real property may be
foreclosed in the State of Wyoming. In any such foreclosure, the Shared Owner
shall be required to pay the costs and expenses of such proceeding (including
reasonable attorneys' fees) and such costs and expenses shall be secured by the
lien being foreclosed."
[¶18.] The trial court found that this language
was plain and unambiguous and that it subjected any interest of a mortgagee to
the Association's lien for assessments, interest, costs and attorney fees, even
if the mortgage was recorded prior to the time that the lien matured. We agree
that the Association's lien has priority because the Declaration subordinated
all subsequent encumbrances to its provisions.
[¶19.] Section 4.05 of the Declaration has the
effect of a subordination agreement, to which appellant became a party when it
took assignment of the mortgage interest. A subordination agreement controls
even over real property priorities established by law. Arundel Federal Savings
& Loan Ass'n v. Lawrence, 65 Md. App. 158, 499 A.2d 1298, 1302 (1985). Thus,
sellers of unimproved land routinely subordinate their prior purchase money
mortgage to a mortgage lien for construction purposes in order that land may be
improved. Cf. 2 G. Glenn, Glenn on Mortgages § 352 (1943); G. Osborne, Handbook
on the Law of Mortgages § 212 at 387 (2nd ed. 1970). And prior condominium
subscription agreements creating a vendee's lien are frequently made subject to
a lien for a building loan mortgage. G. Nelson & D. Whitman, Real Estate
Finance Law § 13.3 at 947-49 (2nd ed. 1985).
[¶20.] The scope of the subordination is
described in Section 4.05 of the Declaration. This section provides that any
mortgage or other encumbrance is subject to and subordinate to "each and all" of
the provisions of the Declaration. No exception is made for the Association
assessment provisions of Article 9. Since these assessment provisions are to be
enforced by the existence of a lien, the lien provision itself should also take
priority.
[¶21.] Appellant notes that Section 9.04
provides for recordation of a written notice of lien once default occurs. It
argues that the lien has the priority date of this recordation. However, this
provision for recording written notice of lien is designed only to provide
recorded notice once the payments are in default. It differs from the underlying
lien created by the terms of the Declaration itself, which comes into being as
soon as the owner of the shared interest takes his interest subject to the
Declaration. See Bessemer, 381 So. 2d at 1348.
[¶22.] Furthermore, the only way to give effect
to the subordination clause, which should control over the result achieved under
a pure application of the recording statute, is to hold that the Association's
lien relates back to the time the Declaration was recorded. That way, any
subsequent encumbrance of the shared interest would have a later priority than
the Association's lien for assessments, as implicitly provided for in the
Declaration. Therefore, we hold that the priority date of the Association's lien
relates back to the time that the Declaration was recorded and, as a covenant
running with the land, binds the holders and assignees of a subsequent mortgagee
interest.
[¶23.] Appellant cites a case which achieved a
contrary result based on facts similar to those of this case. St. Paul Federal
Bank for Savings v. Wesby, 149 Ill. App.3d 1059, 103 Ill.Dec. 390, 501 N.E.2d 707 (1986), cert. denied 114 Ill. 2d 557, 108 Ill.Dec. 425, 508 N.E.2d 736
(1987). We distinguish Wesby in that the declaration in that case expressly
provided that the assessment did not become a lien until the unit owner failed
to make payment. Also, the declaration specifically provided that the lien for
unpaid assessments was subordinate to the lien of a prior recorded first
mortgage. Thus, we are not persuaded by the Wesby case.
[¶24.] Our decision affirming the trial court is
correct as a matter of law. We note also that it is fair and reasonable and
benefits both parties. The assessments are used by the Association for
insurance, repairs, maintenance, and upkeep of the condominium unit. The benefit
to the mortgage holder is that the condominium unit is maintained in good repair
and condition and its value maintained. The Association benefits in that all
units are kept in good repair and condition and total property values are
enhanced.
[¶25.] Because American Holidays' mortgage
interest was subordinate to the Declaration, including the provision for the
Association's lien, the lien took priority over the mortgage when the
Association foreclosed. Therefore, the trial court properly ordered that the
proceeds of the foreclosure sale be apportioned to pay off the lien and expenses
connected thereto prior to payment of the mortgage.
[¶26.] The order of the trial court is
affirmed.
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