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).
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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
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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
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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
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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
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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
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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
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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