Delaware HOA Foreclosure Needs 3 Months Owed and a Board Vote

Two Delaware statutes create community associations and they do not carry the same collection machinery. The Delaware Uniform Common Interest Ownership Act, 25 Del. C. ch. 81, governs common interest communities created on or after its effective date, which Section 81-116(b) fixes at September 30, 2009. The older Unit Property Act, 25 Del. C. ch. 22, governs condominiums created before that date and, under Section 81-116(a), continues to govern the declarant obligations and the future phases of any condominium whose declaration provided for expansion. The important point for collections is that the split is not clean. Section 81-119 lists Section 81-316 among the DUCIOA sections that apply to all common interest communities created in Delaware before the effective date, for events and circumstances occurring after it, so a 1985 condominium is normally collected on under the modern lien section rather than under the Unit Property Act. Where a preexisting declaration expressly conflicts with DUCIOA and is not itself in conflict with the Unit Property Act, the declaration controls. Section 81-120 carves out small preexisting cooperatives and planned communities of no more than 20 units, or whose average annual common expense liability per residential unit does not exceed $500 as escalated by up to 3 percent each July 1; those communities get only Sections 81-105, 81-106 and 81-107 and no statutory lien at all. Section 81-102 does the same for similarly small planned communities created after 2009.

Where a Unit Property Act condominium is still on the older track, its route is narrower. Section 2234 says a charge assessed against a unit may be enforced by an action at law brought by the council on behalf of the unit owners, with the filing required to refer to the chapter, the unit and its owner, and any judgment enforceable as otherwise provided by law. Section 2236 then tells a buyer at sheriff's sale that the purchaser and the unit are not liable for common expenses that became due before the sale, and lets the council instead notify the sheriff so unpaid assessments are paid from surplus proceeds ahead of any balance returning to the former owner. Section 2237 makes a voluntary grantee jointly and severally liable with the seller for unpaid assessments, subject to a treasurer's statement that caps exposure at the figure disclosed.

Under DUCIOA the lien needs no separate recording to exist: Section 81-316(d) makes recording the declaration record notice and perfection, and says no further recordation of any claim of lien is required. Recording still matters for priority. Section 81-316(b) subordinates the association to liens recorded before the declaration, to a first or second security interest recorded before the assessment became delinquent, and to real estate taxes and other governmental charges. The association can leapfrog that first or second mortgage for an amount not exceeding 6 months of customary common expense assessments under the adopted periodic budget, but only if it has recorded, in each county where the community sits, a document giving the association's name, address, contact telephone number, contact e-mail address and website address if any, and only if it also records a statement of lien at least 30 days before the sheriff's sale describing the unit, naming the record owner, stating the amount and date due, the recording cost and the cost of filing a termination, signed and notarized by an officer. Those recorded liens expire on the first day of the sixtieth month after recording. The lien is not subject to homestead or other exemptions.

The restrictions in subsection (m) are the heart of the page. The 3-month arrears threshold is measured at the time the action is commenced and against the periodic budget last adopted under Section 81-315(a), so an association cannot manufacture standing by inflating a special assessment. The express board vote must name the specific unit, which makes a blanket collections policy insufficient. Subsection (m)(2) then dictates how payments are credited: first to unpaid assessments, then late charges, then attorney's fees and other reasonable collection charges and costs, and only last to other fees, charges, penalties, interest and late charges. That ordering matters because it keeps a partial payment reducing the assessment arrears that the 3-month test measures, rather than being swallowed by fees. Subsection (m)(3) is the fines firewall: where the only sums due are fines and related sums, no foreclosure may begin until the association has secured a judgment on those fines and perfected a judgment lien against the unit under state law.

Timing and cost round it out. Section 81-316(e) extinguishes a lien for unpaid assessments unless proceedings are instituted within 3 years after the full amount becomes due, tolled where the owner files for bankruptcy until 30 days after the automatic stay under 11 U.S.C. Section 362 is lifted. Section 81-316(j)(1) requires a condominium or planned community lien to be foreclosed in like manner as a mortgage on real estate, by equitable foreclosure or by other lawful procedures provided for in the declaration, with Section 81-316(j)(4) requiring reasonable notice to all affected lien holders. Cooperatives run on a different track under Sections 81-316(i) and (k), including eviction in the manner of a commercial holdover, a public or private sale that may not be held until 5 weeks after notice, and a right to cure at any time before disposition. Section 81-316(l) lets a court appoint a receiver to collect rents during the action, and Section 81-316(f) preserves both a personal action against the owner and a deed in lieu of foreclosure.

Section 81-316(g) requires a judgment or decree in any action brought under the section to include costs and reasonable attorney's fees for the prevailing party, which cuts both ways: an owner who defeats a premature foreclosure recovers fees from the association. An association that files without meeting the Section 81-316(m)(1) conditions, or that forecloses on fines alone without first obtaining a judgment and perfecting a judgment lien under Section 81-316(m)(3), has commenced an action the statute forbids. Owners should also use Section 81-316(h): on written request the association must furnish a statement of unpaid assessments within 10 business days, in recordable form where the unit is real estate, and it is binding on the association, the executive board and every unit owner.

The charge for that statement may not exceed $25 except where the account has been referred to the association's legal counsel, and the association's liability for an error or omission in it is limited to the fees paid for the statement unless the error was fraud or gross negligence. That limitation does not protect a managing agent acting for the association.