Unpaid condominium fees can never be stripped off in New Jersey, thanks to an opinion by District Judge Freda L. Wolfson of Trenton.
The New Jersey Condominium Act allows a condominium to file a notice and obtain a lien for unpaid charges. State law provides that the lien is generally subordinate to mortgages and taxes. However, the statute gives the condominium a “limited priority” over mortgages equal to assessments for six months before the filing of the notice.
The case on appeal involved a condominium worth less than the first mortgage debt. Bankruptcy Judge Christine M. Gravelle of Trenton confirmed the chapter 13 plan, in which six months of charges, about $1,500, were deemed secured and paid in full while the remainder of the $19,000 secured claim was stripped off and treated as unsecured.
Judge Wolfson reversed in an opinion on Feb. 17, saying that the lower court’s ruling conflicted with the plain meaning of the state’s statute.
Judge Wolfson said that New Jersey law gave the condominium a limited first-priority lien, with the remainder retaining subordinated but secured status. Seeing the unpaid charges as covered by one lien with different priorities, the lien could not be stripped off because it was not wholly unsecured.
Judge Wolfson relied in part on the purpose of the statute to ensure that the cost of common-area charges is not shifted to solvent homeowners. Her decision, however, gives condominiums more protection than the state legislature may have intended because only the first-lien portion would have been paid were the property foreclosed.