Board of Directors of the Colchester Towne Condominium Council of Co-Owners v. Wachovia Bank, N.A.

Present: Hassell, C.J., Lacy, Keenan, Koontz, Kinser, and
Lemons, JJ., and Carrico, S.J.

BOARD OF DIRECTORS OF THE COLCHESTER
TOWNE CONDOMINIUM COUNCIL OF CO-OWNERS
OPINION BY
v. Record No. 021741 JUSTICE LAWRENCE L. KOONTZ, JR.
June 6, 2003
WACHOVIA BANK, N.A., ET AL.

FROM THE CIRCUIT COURT OF FAIRFAX COUNTY
Henry E. Hudson, Judge

In this appeal, we consider whether the trial court

correctly determined that Code § 55-79.84, part of the

Condominium Act, Code §§ 55-79.39 through -79.103, requires

that the proceeds from a non-judicial sale of a condominium

unit by a unit owners’ association to satisfy a lien for

unpaid condominium fees must first be applied to satisfy a

prior first deed of trust on the unit sold.

BACKGROUND

In March 2002, the Board of Directors of the Colchester

Towne Condominium Council of Co-Owners (the Association)

recorded a lien, pursuant to Code § 55-79.84, against a

condominium unit owned by Juanita C. James for unpaid

condominium assessments. The Association initiated the

process for a public sale of the unit, as permitted by Code

§ 55-79.84(I), and notified Wachovia Bank, N.A. (the Bank),

the holder of the first deed of trust on the unit. The first

deed of trust had been recorded in 1996. The Association’s
advertisement of the intended sale of the unit at public

auction to the highest bidder reflected that title to the unit

would be conveyed to the purchaser by special warranty deed.

The notice included a statement that the unit was “subject to

a deed of trust” in favor of the Bank and that the sale would

be “subject to all existing liens.” The Association intended

to disburse the sale proceeds pursuant to the provisions of

Code § 55-79.84(I)(5)(c). This subsection makes no express

provision for disbursement of any of the proceeds of the sale

to satisfy a first deed of trust.

The Bank filed a bill of complaint and a motion for

temporary injunction against the impending public sale in the

trial court, seeking a declaratory judgment that the proceeds

of the sale must first be applied to satisfy the lien of the

Bank’s first deed of trust. The Association responded that,

under Code § 55-79.84(I), it was entitled to sell the unit

“subject to” the Bank’s lien without satisfying that lien, and

that the proceeds of the sale were to be applied to the

Association’s lien and other specified encumbrances on the

property. The trial court entered an injunction in favor of

the Bank, concluding that under the provisions of Code § 55-

79.84 the Bank’s lien had priority over the Association’s

assessment lien and that the Association was required to apply

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any proceeds from the sale first to satisfy the bank’s lien.

We granted the Association an appeal.

DISCUSSION

It is a matter of common knowledge and experience that,

as with other forms of land development, purchase money

financing by institutional lenders is the primary fuel that

drives the development engine of a condominium complex. In

turn, the realities of the marketplace require that such

lenders be encouraged to provide the desired financing for

individual condominium units by granting priority to the lien

of their first mortgages or first deeds of trust. It is the

priority of the lender’s lien on a particular unit as well as

the market value of the unit that establishes the lender’s

security for the loan. ∗ Similarly, there is no dispute that

condominium assessments are the recognized and necessary means

by which all owners of a particular condominium development

benefit from the use of such assessments for general

maintenance, security, and other matters.

With this in mind, the General Assembly by its enactment

of Code § 55-79.84 has preserved the desired priority of the

∗
We recognize that the Bank’s deed of trust in this
particular case arises from an “equity line agreement” rather
than from purchase money financing. This deed of trust,
however, clearly qualified for priority over the assessment
lien as established in Code § 55-79.84(A).

3
lien of the instrument securing institutional lenders while

providing for an inferior lien in favor of the unit owners’

association for unpaid assessments on a particular condominium

unit. Code § 55-79.84 addresses the circumstances under which

a condominium association may acquire a lien on a condominium

for unpaid assessments. It also addresses the methods of

enforcing such a lien. When perfected in accordance with the

statute, an assessment lien is prior to all other liens and

encumbrances except real estate tax liens on the unit, liens

and encumbrances recorded prior to the condominium lien, and

“sums unpaid on any first mortgages or first deeds of trust

recorded prior to the perfection of said lien for assessments

and securing institutional lenders.” Code § 55-79.84(A).

Once an assessment lien is perfected against a

condominium unit, Code § 55-79.84(I) authorizes “the unit

owners’ association [to] sell the unit at public sale, subject

to prior liens.” (Emphasis added.) Code § 55-79.84 (I)(5)(c)

recites the order in which the proceeds of the sale are to be

applied:

The unit owners’ association shall receive and
receipt for the proceeds of sale, . . . and apply
the same in the following order: first, to the
reasonable expenses of the sale; second, to the
satisfaction of all taxes, levies, and assessments,
with costs and interest; third, to the satisfaction
of the lien for the unit owners’ assessments;
fourth, to the satisfaction in the order of priority
of any remaining inferior claims of record; and

4
 fifth, to pay the residue of the proceeds to the
unit owner or his assigns . . . .

The focus of the present dispute is on the proper

construction of the phrase “subject to prior liens” in Code

§ 55-79.84(I). The Bank contends that because the priority of

its lien is established in Code § 55-79.84(A), the proceeds of

the sale must be used to satisfy its lien before being applied

to the lien of the unit owners’ association and the other

encumbrances on the unit in the order prescribed by Code § 55-

79.84(I)(5)(c) because the sale is “subject to prior liens.”

The Association contends that the phrase “subject to

prior liens” as used in Code § 55-79.84(I) should be read to

permit a unit owners’ association to sell a unit at public

sale with the understanding that the unit remains encumbered

by any prior superior liens. Thus, the Association contends

that from the proceeds of the sale it may satisfy its

assessment lien, satisfy the other encumbrances on the unit

specifically enumerated in Code § 55-79.84(I)(5)(c), and pay

any residue of the sale proceeds to the former owner of the

unit, without applying the proceeds to the prior liens. In

sum, the Association contends that a forced sale of an

individual unit pursuant to Code § 55-79.84(I) preserves the

priority of the lien of the first deed of trust in favor of

the institutional lender established in subsection (A), by

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permitting the sale to be made “subject to prior liens”

through the continued encumbrances of the property after the

sale.

The Association’s interpretation of the phrase “subject

to prior liens” in Code § 55-79.84(I) creates a conflict

between that subsection and subsection (A) of the statute. In

effect, the Association’s interpretation would render the

priority of liens established in subsection (A) meaningless

with respect to the remainder of the statute. This conflict

is avoided, however, by the application of basic principles of

statutory construction.

Under basic rules of statutory construction, we examine

the language of a statute in its entirety and determine the

intent of the General Assembly from the words contained in the

statute. Cummings v. Fulghum, 261 Va. 73, 77, 540 S.E.2d 494,

496 (2001); Earley v. Landsidle, 257 Va. 365, 369, 514 S.E.2d

153, 155 (1999). In doing so, the various parts of the

statute should be harmonized so that, if practicable, each is

given a sensible and intelligent effect. VEPCO v. Prince

William Co., 226 Va. 382, 387-88, 309 S.E.2d 308, 311 (1983).

Applying these principles of statutory construction, the

priority of the liens in favor of institutional lenders in

Code § 55-79.84(A) is properly viewed as creating a condition

precedent to the disbursement order of the sale proceeds under

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subsection (I). Thus, the “subject to prior liens” language

of the latter subsection may be fairly interpreted as

requiring the satisfaction of those liens from the proceeds of

a forced sale of an individual condominium unit by the unit

owners’ association. In short, we conclude that the General

Assembly intended to balance the interests of the holder of a

first deed of trust and those of a unit owners’ association by

providing in these subsections that the satisfaction of the

institutional lender’s first mortgage or first deed of trust

be a term of the public sale of an individual condominium unit

by the unit owners’ association when seeking to satisfy its

inferior lien for unpaid assessments.

A contrary result permitting the sale proceeds to be used

to satisfy the lien of the unit owners’ association, other

lesser encumbrances, and potentially disbursing the residue of

the sale proceeds to the defaulting former owner, without

applying those proceeds to satisfy the first deed of trust,

would put the institutional lender holding the first deed of

trust at a serious disadvantage with respect to its ability to

protect its security interest in the condominium unit. The

purchaser and new owner of the condominium unit would have no

obligation to pay the lender the sums unpaid on the lender’s

first deed of trust. The lender would be placed at risk that

the new owner might permit damage to the unit before the

7
lender could foreclose. The other detrimental possibilities

are numerous and of great potential consequence, such as the

prospect of inadequate fire insurance coverage in the event of

unexpected fire damage to the unit. Additionally, the

original owner would no longer own the unit and, thus, would

have less incentive to satisfy the debt secured by the

lender’s deed of trust. We have no doubt that the General

Assembly intended to avoid such possibilities to the detriment

of the institutional lender’s security interest.

Accordingly, we hold that the proceeds of a public sale

of a condominium unit by a unit owners’ association under Code

§ 55-79.84(I) must be applied first to satisfy the prior

superior liens established under Code § 55-79.84(A) before the

unit owners’ association may apply the proceeds of that sale

in satisfaction of its own lien as well as other encumbrances

on the property, and then it is to pay any residue to the

former unit owner as prescribed by Code § 55-79.84(I)(5)(c).

CONCLUSION

For these reasons, we will affirm the judgment of the

trial court directing that the proceeds of the sale of the

condominium unit by the Association pursuant to Code § 55-

79.84(I) must be used first to satisfy the Bank’s first deed

of trust.

Affirmed.

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JUSTICE LACY, with whom JUSTICE KINSER and JUSTICE LEMONS
join, dissenting.

Subsection (I)(5)(c) of Code § 55-79.84 specifically

addresses the manner in which the proceeds of the non-judicial

or public sale of a condominium unit are to be disbursed:

The unit owners' association shall receive and
receipt for the proceeds of sale, . . . and apply
the same in the following order: first, to the
reasonable expenses of sale; second, to the
satisfaction of all taxes, levies, and assessments,
with costs and interest; third, to the satisfaction
of the lien for the unit owners' assessments;
fourth, to the satisfaction in the order of
priority of any remaining inferior claims of
record; and fifth, to pay the residue of the
proceeds to the unit owner or his assigns; . . .

There is nothing ambiguous about this provision. It clearly

directs payment of an association's assessment lien following

satisfaction of the expenses of the sale and satisfaction of

taxes, levies, and assessments. Nothing in this language

suggests that the proceeds from the public sale must be used

first to satisfy a first deed of trust. Normal rules of

statutory construction require application of unambiguous

provisions in accordance with the plain language of the

statute. Mozley v. Prestwould Bd. of Dirs., 264 Va. 549, 554,

570 S.E.2d 817, 820 (2002).

The majority concludes, however, that this section cannot

be applied as written because it creates a conflict with the

priority of liens set out in subsection (A) of the section and

9
because "common knowledge and experience" inform us that

without such priority institutional lenders will no longer

provide the "fuel" for condominium development. The majority

states that "[i]t is the priority of the lender's lien on a

particular unit as well as the market value of the unit that

establishes the lender's security for the loan." In my

opinion, applying these Code subsections as written creates

neither a conflict between them, nor the parade of horribles

predicted by the majority.

What is the conflict the majority sees? Subsection (A)

provides that sums unpaid on first mortgages, or first deeds

of trust, securing institutional lenders and recorded prior to

the perfection of association assessment liens have priority

over the association assessment liens. Subsection (I)

provides that the condominium owners' association may sell the

unit at public sale, "subject to prior liens," if the

association complies with certain procedures. Payment of sums

remaining on a first mortgage or first deed of trust is not

mentioned in the scheme delineated in subsection (I) of the

statute. This omission, the majority says, creates the

conflict because it renders meaningless the priority of liens

set out in subsection (A). I disagree.

Normal usage of the phrase "subject to prior liens" as

used in subsection (I) means that the property being sold

10
remains as security for such prior liens – that is, the

property remains liable for such prior liens regardless of the

transfer of title. This concept is not foreign to creditors'

rights jurisprudence. It is grounded in common law redemption

of equity procedures available to subordinate lenders. See

Yaffe v. Heritage Sav. & Loan Ass'n., 235 Va. 577, 582, 369

S.E.2d 404, 407 (1988); Kaplan v. Ruffin, 213 Va. 551, 554-55,

193 S.E.2d 689, 692 (1973); Schmidt & Wilson, Inc. v. Carneal,

164 Va. 412, 416-17, 180 S.E. 325, 326-27 (1935). The

majority's interpretation of "subject to prior liens" is

inconsistent with that phrase's well-understood and long-

accepted meaning.

The majority's interpretation also requires adding words

to the statute so that the provision would read as follows:

"The unit owners' association may sell the unit at public

sale, subject to satisfaction of prior liens." We generally

do not engage in adding words to a statute, particularly when

the statute has a clear and unambiguous meaning without the

addition of such words. See Woods v. Mendez, 265 Va. 68, 74-

75, 574 S.E.2d 263, 266-67 (2003).

More importantly, in enacting subsection (I), the General

Assembly did not render subsection (A) meaningless. The

General Assembly exercised its legislative prerogative to

provide condominium associations with a process to enforce

11
their assessment liens in addition to traditional foreclosure

procedures and the other remedies set out in subsections (C),

(D), and (G) of Code § 55-79.84. The priorities set out in

(A) apply in all situations involving the sale of the

condominium unit except the specific type of sale authorized

in subsection (I).

The General Assembly's understanding of the enforcement

mechanism it adopted is further shown by the legislation

adding subsection (I) in 1997. In that legislation, the

General Assembly also amended Code § 55-516 to provide the

identical enforcement mechanism for property owners'

association assessment liens. See 1997 Va. Acts ch. 760. The

provisions of subsection (A) in Code § 55-79.84 and subsection

(A) of Code § 55-516 regarding the priority of liens are also

identical. In contrast, the General Assembly, in prescribing

disbursement of proceeds of public sale to enforce the

assessment lien of a cooperative association, specifically

provided that "[s]atisfaction in the order of priority of any

prior claims of record" occur prior to satisfaction of the

cooperative association's assessment lien. Code §§ 55-472

(J)(3), -472(J)(4). Subsection (B) of Code § 55-472, like

subsection (A) of Code § 55-79.84, also provides that a first

security interest previously perfected encumbering the

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cooperative interest of a proprietary lessee has priority over

the cooperative association's assessment lien.

Because the General Assembly has clearly provided for

different payment distributions in the enforcement of

assessment liens, even though the prior perfected security

interest in each case generally has priority over assessment

liens, I can only conclude that the language adopted by the

General Assembly was meant to be applied as written. When the

General Assembly intended that prior perfected liens be

satisfied before payment of an association's assessment lien,

it made the appropriate provisions in the legislation. The

language adopted in Code § 55-79.84(I) did not do so and such

a payment scheme should not be imposed by judicial

interpretation.

The touchstone of the majority's statutory conflict is

its perception that allowing the sale of a condominium unit

"subject to" an antecedent deed of trust and paying the

condominium assessment lien will somehow seal the doom of

condominium development. We do not have the record in this

case to support such a conclusion, nor is this Court the

proper venue to develop such a record. Rather, the General

Assembly is the branch of government designed and equipped to

take testimony and compile information on the impact of such

13
payment priorities, and accordingly, to decide the wisdom of

adopting them.

Of course, if we were to consider relevant data and our

common knowledge and experience regarding condominium

development, we might conclude that part of the value of a

condominium unit comes from the ability of the condominium

association to maintain the common areas of the development,

including the structures' exteriors, landscaping, and

amenities. The ability to maintain these elements is directly

related to the association's ability to secure payment of

assessments from the individual unit owners. The legislative

provision for payment of such association liens from the

public sale of a unit, subject to the first deed of trust (and

other prior liens), is precisely the type of enforcement

mechanism that enhances a lender's confidence in the value of

it's security interest.

Contrary to the majority's observations, the sale of a

condominium unit pursuant to subsection (I) would not alter

the value of the property. There is no change in the original

owner's liability for the first deed of trust note. In fact,

following a public sale, satisfaction of the lender's deed of

trust is enhanced because a second party has an interest in

seeing that the deed of trust note is not defaulted.

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 Furthermore, the lender in this case, as in most deeds of

trust, anticipated the sale of the property without its

consent or satisfaction of its lien. The lending instrument

states that, in the event of sale or conveyance of the

property, the debt secured by the property is subject to

payment in full. Concerns about unit damage or destruction by

the owner before foreclosure, in my opinion, are counter

intuitive and not consistent with human experience.

Allowing the sale of a condominium unit subject to the

lender's lien simply does not compromise or jeopardize the

lender's security interest. But, as I have said, these

concerns are the stuff of legislative policy determinations

and not the type of legal principle or rule of statutory

construction that should guide our analysis and conclusions.

Accordingly, I would reverse the judgment of the trial

court and remand the case for further proceedings. *

*
The lender in this case also argued that, because its
lien was recorded in 1996 and subsection (I) of Code § 55-
79.84 was not enacted until 1997, the subsection cannot be
applied retroactively to affect its substantive rights.
Regardless of whether the 1997 enactment affected substantive
rights, the lender is precluded from raising this issue here
because it was not raised in the trial court. Rule 5:25. In
the trial court, the lender argued that allowing the proceeds
from a public sale to be disbursed as provided in subsection
(I) was per se unconstitutional because such a construction
would violate the Contract Clause of the United States
Constitution. U.S. Const. art. I, § 10.

15