Question from MARA member Jim Bunting, Thomas Pond Terrace Association

The topic is foreclosures and how they impact statutory road associations such as ours.  In response to a question from the floor, the other attorney (Mary Denison, Lake & Denison, Winthrop) said, pretty emphatically, that a foreclosure action trumped any pre-existing back road association dues, even if Notices of Claims had been timely filed. 

On the other hand, I am enclosing a recent question and answer from the MARA Discussion Forum.  The answer was provided by Peter Dunn, a long-standing and well respected member of MARA.

As you can see from Mr. Dunn’s answer (see below), he and his road association have collected every penny of dues owed in their multiple foreclosure situations.  We are in the same situation as Mr. Dunn’s road association but have been told by the person (not an attorney) running our foreclosure auction last week that we cannot collect, despite providing written evidence, including the two Notices of Claims we filed with the Cumberland County Registry of Deeds.

Can you please provide some clarification? In particular, can you please provide a reference to statutory provisions or case law that may conflict with the language of section 3104 that states these debts “run with the land.”  We are anxious to pursue this matter, not only because of the debt owed in this instance but because we likely have another foreclosure situation coming up soon.

Answer from Cliff Goodall, Ret. Atty.

What are commonly know as “foreclosures" generally get resolved in one of two ways. These are simplified explanations to complex matters.

The first is the full court judicial foreclosure. In this process the mortgage holder (often not the original lending bank) after the default by the debtor and the required statutory notices, files a complaint for foreclosure in superior court and frequently gets a default judgment.  This court judgment is the operative element. It allows the mortgage holder to sell it (usually at auction) to get paid what is owed plus the foreclosure costs. All other secured debts such as second mortgages, liens,  road association fees, etc are wiped out by the judgment. This process is controlled by statute. It is the common process when the “property is under water”, has no equity and the debtor has no assets.  Most often the mortgage was bundled and sold to investors with the original lending bank no longer having anything to do with it. The mortgage was serviced by a unheard of corporation and the mortgage holder cares nothing about the debtor or the property. Sometimes they will walk away from the property and allow it to go to ruin and finally go to the town for taxes. The foreclosure judgment only wipes out the road association fees owed on the date of the judgment. Any later fees are owed and are subject to the statutory notice of claim provisions. Also the judgment does not void the former owner’s obligation but it is not worth the effort of trying to collect the fees as a personal debt. The judgment does not wipe out the mortgagor’s personal obligation to pay the loan but most mortgage holders do not attempt the collection.

The second way a foreclosure is resolved is by the use of a "deed in lieu” of foreclosure.  This is commonly also called “foreclosure” without distinguishing it from a foreclosure that has gone to a court judgment. At anytime between the default to the entering of a foreclosure judgment, the debtor and mortgage holder can agree to a settlement wherein the debtor conveys to the mortgage holder the property with an agreement that the foreclosure court proceedings not be started or be dismissed and that there will be no personal debt if the property sells for less than is owed. This can save money for both.  This is common when the local bank is still the mortgage holder and the property is not loaded with liens,taxes, etc.  The bank with its “deed in lieu of foreclosure” then hires a real estate agent to sell the property and pays off any taxes due plus liens and road association fees. The bank gets the benefit of any equity profit and the debtor is free and clear.

This second type of “foreclosure” sounds like the kind of foreclosure you cite as resulting in the payment of of road association fees.  To a lawyer the second type is not a “foreclosure” and that is why the question got the answer it did.  The question was does a foreclosure void and wipe out the road association’s recorded notice of claim? Mary Denison, an excellent real estate lawyer said yes. I agreed but now I understand why that short answer caused some confusion. I hope this more detailed answer explains the different results that can happen in what many will just simply call foreclosure.

You also asked about the statutory words that say the fees “run with the land”.  This means that road association fees are not just a personal debt of the then owner but are also an obligation that encumbers the property no matter who owns it after the notice of claim has been recorded in the registry.  However there are several statutory processes that will wipe out the debt and stop it from running with the land. As described above, a court entered foreclosure judgment will do it. Also a property tax foreclosure will do it, and bankruptcy may also.