Recorded Association Governing Documents do not Create Liens on Their Own

Date: November 14, 2017

By: Anthony Clark, Esq.

The Maryland Court of Appeals (Maryland's highest court) has specified that in order for a lien to be effective, the procedures of the Maryland Contract Lien Act (§14-201 et seq. of the Maryland Code, Real Property Article) (the “Act”) must be followed. In Select Portfolio Servicing, Inc. v. Saddlebrook West Utility Company, LLC, et al., No. 71, September Term 2016, the main issue the Court reviewed was whether a lien could be created on a property by a declaration without following the procedures of the Act.

The subject declaration was recorded prior to the conveyance of any property to a new owner from the developer, and prior to any mortgages or deeds of trusts being secured against properties subject to the declaration. The disputed lien in this case was for annual assessments to be paid by each respective property owner over the course of time in accordance the provisions of the declaration for the financing, construction, and installation of water and sewer infrastructure within the subject community association.

The Respondent, Saddlebrook West Utility Company, LLC (the “Utility”) argued that a lien was created by a recorded declaration, pursuant to §14-202 of the Act, simply by virtue of the existence of a contract that provides for the creation of lien, and pursuant to §14-203 of the Act, by virtue of a breach of contract, if the procedures set forth in that section are followed.

The Court rejected these notions, and provided that the declaration did not create an enforceable lien by mere virtue of its recording in the Land Records. As noted above, the Court affirmed that a lien is only effective if all procedures in the Act are complied with.

How does this effect my Association?

Many community association governing documents provide that a lien exists on a property for assessments and related charges. However, this is no longer the case: a lien for assessments is not effective by the simple fact that a document is recorded. A lien for association assessments only exists if a lien is recorded in conformance with the Act which provides the individual property owner notice and an opportunity to contest the lien being recorded through the courts.

If you would like our office to discuss the effect of the Saddlebrook case on your community association, please feel free to contact any of our Maryland community association attorneys.