Connecticut HOA Foreclosure: Two Months Owed and 60 Days' Notice

Conn. Gen. Stat. Sec. 47-258 is the Common Interest Ownership Act's lien and foreclosure section, and it does two opposite things at once: it gives Connecticut associations one of the stronger priority liens in the country, and it puts three hard preconditions and a sixty-day waiting period in front of any foreclosure.

The lien arises automatically. Subsection (a) gives the association a statutory lien on a unit for any assessment attributable to it or fines imposed on its owner, and makes attorneys' fees, costs, other fees, charges, late charges, fines and interest charged under Sec. 47-244(a)(10), (11) and (12) enforceable in the same manner. Subsection (d) provides that recording the declaration is itself record notice and perfection, so no separate certificate of lien has to be filed on the land records for the lien to exist.

Subsection (b) is the priority rule Connecticut lenders watch. In any action to foreclose either the association's lien or a first or second security interest, the association's lien takes priority over that mortgage to the extent of an amount equal to the common expense assessments, based on the periodic budget adopted under Sec. 47-257(a), that would have become due in the absence of acceleration during the nine months immediately preceding the institution of the action, plus the association's costs and reasonable attorney's fees. Late fees, interest and fines assessed during that nine-month period are expressly excluded from the priority amount. The figure has moved: P.A. 91-341 raised it from six months to twelve, P.A. 91-359 put it back to six later the same year, and P.A. 13-156 set it at nine months effective June 24, 2013 and applied that to actions then pending as well as later ones. Real property tax liens, other governmental charges and encumbrances recorded before the declaration still outrank the association.

Subsection (m)(1) is the gate. An association may not commence a foreclosure action unless three things are all true at once. First, the owner must owe at least two months of common expense assessments on the last adopted periodic budget at the moment the action is commenced. Second, the association must have made a demand for payment in a record and simultaneously provided a copy to the holder of the first or second security interest. Third, the executive board must have either voted to commence foreclosure specifically against that unit or adopted a standard policy providing for foreclosure against it. The Appellate Court has held that a board authorization to send unpaid common fees for certain units to "collections" is inadequate to satisfy the third requirement, which demands a board decision aimed at foreclosure of those units, 197 Conn. App. 226.

Subsection (m)(2) adds a waiting period aimed at the lender rather than the owner. Not less than sixty days before commencing the action, the association must send written notice by first class mail to the holders of all first and second security interests stating the unpaid common expense assessments as of the date of notice, the attorney's fees and costs incurred in enforcing the lien as of that date, the association's intention to foreclose if those amounts are not paid within sixty days, the association's contact information including the name of the individual handling the matter and its mailing address, telephone number and any email address, and instructions on acceptable means of payment. The notice is effective when sent. Under subsection (m)(3) the association may rely on the last-recorded security interest to identify the holder, unless that holder is already a plaintiff in a Superior Court action to enforce it, in which case notice goes to the attorney appearing for the holder. P.A. 23-119 added subsection (m)(4), which provides that giving this notice is not an unauthorized communication with a third party under Sec. 36a-645 to Sec. 36a-648a, Connecticut's creditors' collection practices statutes.

Skipping the notice does not defeat the lien, but it costs the association money. Subsection (m)(5) preserves the nine-month priority even where the notice was not given, while stripping costs and attorney's fees out of the priority amount in that action.

Deadlines and mechanics round it out. Subsection (e) extinguishes a lien for unpaid assessments unless proceedings to enforce it are instituted within three years after the full amount of the assessments becomes due, tolled during a bankruptcy until thirty days after the automatic stay under Section 362 is lifted. Subsection (j) provides that the lien is foreclosed in like manner as a mortgage on real property, which in Connecticut means the association can seek strict foreclosure, and a deficiency judgment under Sec. 49-14 is available in a condominium lien foreclosure, 255 Conn. 379. Subsection (n) requires every aspect of a foreclosure, sale or other disposition, including method, advertising, time, date, place and terms, to be commercially reasonable. Subsection (k) allows the court to appoint a receiver under Sec. 52-504 to collect sums from the owner during the case. Subsection (f) preserves the association's alternatives of suing the owner personally or taking a deed in lieu of foreclosure, and subsection (g) awards costs and reasonable attorney's fees to the prevailing party, which can be the owner.

One scope check before relying on any of this. Sec. 47-216(a) applies Sec. 47-258 to common interest communities created in Connecticut before January 1, 1984 as well as after. But Sec. 47-217(a) excepts a pre-1984 community that has no more than twelve units and is not subject to development rights, one restricted to nonresidential use, or a limited expense liability planned community under Sec. 47-215(a)(3) whose declaration caps annual average residential common expense liability at three hundred dollars as adjusted under Sec. 47-213. Those communities are subject only to Sec. 47-204, Sec. 47-205 and Sec. 47-206, so they have no CIOA statutory lien and none of this procedure applies to them.

The consequence for an owner is a Superior Court foreclosure of the unit, prosecuted like a mortgage foreclosure under Sec. 47-258(j), with the court able to appoint a receiver under Sec. 52-504 to sweep rents and other sums during the case and a deficiency judgment available under Sec. 49-14. The consequence for an association that skips a step is the loss of the case or of money. Filing before the owner owes two months of assessments, without the demand in a record copied to the lender, or without the specific board vote or standard policy required by Sec.

47-258(m)(1) is a failure of a statutory condition on commencing the action, and the Appellate Court has treated a generic referral to collections as not satisfying it. Filing without the sixty-day lender notice does not destroy the nine-month priority under Sec. 47-258(m)(5), but the priority amount in that action then excludes all costs and attorney's fees, which is often the larger number. Waiting more than three years after the full amount becomes due extinguishes the lien altogether under Sec. 47-258(e). A prevailing owner recovers costs and reasonable attorney's fees under Sec. 47-258(g), the same provision associations rely on.