Bulletin: RI2016002

Date:
April 12, 2016
To:
All Rhode Island Issuing Offices
RE:
UNDERWRITING - Foreclosure of Condominium Lien Extinguishes Mortgage

Dear Associates:

The Rhode Island Supreme Court in Twenty Eleven, LLC v. Botelho, 127 A.3d 897 (RI 2015) has held that a condominium lien foreclosure sale extinguishes a prior-recorded first mortgage on the unit following the mortgagee’s failure to exercise its right of redemption.   

The facts of this case are all too familiar. Botelho purchased a condominium unit in 2004 and secured a purchase money mortgage. In 2011, Botelho became delinquent on his condominium assessment fees, and the condominium association conducted a statutory foreclosure of its lien for unpaid condominium assessments, selling the unit to Twenty Eleven, LLC. The mortgagee-by-assignment of the Botelho purchase money mortgage did not exercise its right of redemption as provided by RIGL § 34–36.1–3.21(c), which provides, in pertinent part, as follows: 

Any foreclosure sale held by the association pursuant to subsection (a) above, shall be subject to a thirty (30) day right of redemption running in favor of the holder of the first mortgage or deed of trust of record. The right of redemption shall be exercised by tendering payment to the association in full of all assessments due on the unit together with all attorney's fees and costs incurred by the association in connection with the collection and foreclosure process within thirty (30) days of the date of the post-foreclosure sale notice sent by the association pursuant to subdivision (a)(4) above. Otherwise, the right of redemption shall terminate thirty (30) days from the date of the post-foreclosure sale notice sent by the association pursuant to subdivision (a)(4) above.

Botelho also became delinquent on his mortgage payments, and the mortgagee commenced a mortgage foreclosure. Twenty Eleven, LLC, after being notified of the mortgagee’s intent to foreclose, brought an action to quiet title and enjoin the mortgage foreclosure. 

The Court, in holding the mortgage was extinguished by the condominium association’s “super-priority” lien for assessments, relied upon RIGL § 34–36.1–3.16(b)(2), which provides as follows:

The lien is also prior to any mortgage or deed of trust described in subdivision (b)(1)(ii) of this section to the extent of the common expense assessments based on the periodic budget adopted by the [condominium] association * * * which would have become due in the absence of acceleration during the six (6) months immediately preceding the foreclosure of the interest of the unit owner including any costs and reasonable attorney’s fees not to exceed two thousand five hundred dollars ($2,500), incurred in the collection of any delinquent assessment or other charges by legal proceedings or otherwise and all costs of foreclosure held pursuant to section 34–36.1–3.21, including, but not limited to, publication, advertising and auctioneer costs, said foreclosure costs not to exceed five thousand dollars ($5,000) (for a total aggregate of attorney’s fees and costs of seven thousand five hundred dollars ($7,500).

This case highlights the importance of the requirement that, in all instances where Stewart will issue either loan or owners policies, agents and approved attorneys must verify that all condominium fees and assessments are paid and current. Further, the ALTA Endorsement 4.1-06 must be used on all policies insuring condominium units provided that the condominium association charges and assessments are paid to date. The ALTA Endorsement 4-06 may no longer be issued when insuring a Rhode Island condominium.

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THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER  AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.

References

Bulletins Replaced:
None
Related Bulletins:
None
Underwriting Manual:
None
Exceptions Manual:
None
Forms:
ALTA Endorsement 4.1-06 (Condominium - Current Assessments) Revised 10-16-08 Technical Correction 12-01-16