As has been previously mentioned, the Tennessee Condominium Act of 2008, Tenn. Code § 66-27-101, et seq. (the “Act”), applies in certain instances to all condominiums in Tennessee (even those created prior to January 1, 2009), but only with respect to events and circumstances that occur after January 1, 2009. See Tenn. Code § 66-27-202(a).
One of the provisions that applies to all condominiums in Tennessee is found in Tenn. Code § 66-27-415(b)(2)(A). The statutory framework provides in its entirety from Tenn. Code § 66-27-415(b) that:
(1) A lien [being the association’s lien for delinquent assessments] under this section is prior to all other liens and encumbrances on a unit, except:
(A) Liens and encumbrances recorded before the recordation of the declaration;
(B) A first mortgage or deed of trust on the unit recorded before the date on which the assessment sought to be enforced became delinquent;
(C) Liens for real estate taxes and other governmental assessments or charges against the unit.
(2) (A) The lien is also prior to the mortgages and deeds of trust described in subdivision (b)(1)(B) to the extent of the common expense assessments based on the periodic budget adopted by the association pursuant to § 66-27-414(a) that would have become due in the absence of acceleration during the six (6) months immediately preceding institution of an action to enforce the lien.
What this statute is addressing is the priority of the lien of a condominium association versus the priority of the lien of other liens, such as real estate taxes and recorded deeds of trusts and mortgages. Generally, what it provides is that the lien of the Association has priority over all other liens except those recorded before it, a first mortgage or deed of trust recorded prior to the date on which the assessment became delinquent, and real estate taxes. These provisions are logical and reasonable.
What is interesting is the language in Tenn. Code § 66-27-415(b)(2)(A). This provision gives condominium associations a super lien for six (6) months of regular assessments in certain specific situations. Effectively, this provision provides that the lien of the condominium association for assessments primes first mortgages and deeds of trust for six (6) months of regular assessments. But, this lien would not come into effect, pursuant to the terms of the master deed or declaration unless there was a default in the payment of assessments. Further, it would not be an issue as to the holder of the mortgage or deed of trust unless such holder had foreclosed on the property. Thus, this provision provides condominium associations (and note, it is condominium associations and not homeowners associations governing PUDs) a six (6) month reach back for assessments in the event of a foreclosure by a lender. The six (6) month reach back is for regular assessments only. Thus, if a lender forecloses on a condominium unit in Tennessee, the lender is responsible for all on-going assessments prorated from the date of foreclosure and six (6) months of regular assessments prior to the foreclosure.
Given that lender foreclosures have hurt Tennessee condominiums ability to collect delinquent assessments, the six (6) month reach back provided by this statute should not be overlooked. We have used this statute to benefit of condominium associations we represent.