Bulletin: CO000045

Dear Associates:

This Bulletin addresses a recurring issue involving the assignment of assessment liens by Homeowner's Associations to third party assignees. 

Background Facts

In 1992 the Colorado Legislature enacted the "Colorado Common Interest Community Act" which is codified in Colo. Rev. Stat. §38-33.3-101 et seq.  A "Common Interest Community" is defined as real estate described in a declaration in which a unit owner is obligated to pay taxes, insurance, maintenance or improvement of other real estate described in the declaration.  A Common Interest Community can include condominiums, cooperatives, planned unit developments, subdivisions or any other real property where assessments are made.  The determining factor is whether individual unit owners are responsible for costs associated with other property within the described area.  The term "unit" as used herein includes any real property interest held by an owner.

As part of the Common Interest Community Act, an owner's association is given a statutory lien against the individual units within the common interest community for assessments levied against the unit or fines assessed against the unit owner.  The lien is created by the recording of the declaration and perfected at the time the assessment is due. No additional recording is required in order to perfect the lien.  Per existing Stewart Title Guaranty Company requirements, if a declaration creates a lien for assessments or fines, all assessments and fines outstanding prior to the time of a closing must be paid in full or specifically assumed by the purchaser.  In addition, if a statement of lien has been filed in the land records where the property is located, a release of the lien must be recorded.  In order to comply with these requirements, agents are expected to request a written statement from the association in which the association states the amount of unpaid assessments and fines levied against the unit.

Because the right to receive money is a right that can be assigned to third parties, owner's associations can and do assign their right to receive assessments to other parties.  These assignments may be made by a general assignment of accounts receivable or by a specific assignment of a lien. We have experienced losses in instances where owner's associations have assigned their right to receive unpaid assessments to third parties.  When presented with the title company's request for the current status of unpaid assessments, the association supplies only the amounts currently due to the association and fails to mention that they have previously assigned all or a portion of prior assessments to a third party or to set forth amounts owed to the assignee.  Relying on the association's statement of the amount due, the closing agent tenders the recited amount.  Believing that all assessments have been paid in full, the issuing agent issues policies without taking exception to the prior assessments that are now held by the assignee of the owner's association.  Later the assignee becomes known; usually by a demand to be paid off for the lien rights that it purchased from the association and may threaten to foreclose their assessment lien based upon prior amounts owing.

This chain of events seems to be prevalent in regard to properties going into a foreclosure.  By purchasing rights to an assessment lien, the assignee also gains the right of redemption in the foreclosure process.  It appears that the possibility of obtaining title to the foreclosed property is the underlying motivation to purchase the assessment lien.  If the assessment lien purchaser fails to obtain title to the foreclosed property, they seek to recoup the price that they paid to the association to purchase the assessment lien; often by threatening to foreclose and looking to the title insurance company to pay off the assessment.

What you can do to protect yourself

I. When requesting current amounts due for assessments and fines from the owner's association, include a request for all information concerning prior assignments or transfer of assessment liens to others.  Insert an affirmative statement from the owner's association that it has not assigned, sold or transferred any liens for assessment to other parties and require that the association check a box yes or no.  Create an area on your requests where the association can tell you to whom they assigned the prior assessments, the date assigned and amount due under the lien(s) assigned.  If the owner's association provides its own form, confirm that the association's form includes the above information or seek a written statement from the association regarding any assignments that it may have made which includes the above information. 

     If you are aware that an assessment lien has been assigned, either by information received from the owner's association or by a search of the public record, contact the assignee for payoff information for the lien rights held by the assignee. 

II.  Title commitments should contain the following requirement:

"The Company requires a satisfactory statement from the Association or its agent stating the amount, if any, of the unpaid common or maintenance charges against the land to the date of closing and that no liens or rights to a lien for unpaid common or maintenance charges have been sold, assigned or transferred to other parties.  At that time, the Company may make additional requirements or exceptions." 

       If the proposed insured is taking title specifically subject to outstanding assessments, a separate exception must be added to Schedule B of the commitment and policies to be issued.

III.  When preparing Foreclosure Guarantees or Commitments, it is important to consider whether the record discloses an assignment of amounts owing, either a general assignment of accounts receivable or a specific assignment of a lien.  If the record does reveal an assignment, the assignee will need to be added as a party to receive notice of the default and notice of trustee sale.