Condominium Association Liens and Foreclosure

By: Steve Zablocki, Underwriting Counsel

A customer may ask you to insure a prospective purchaser at sheriff’s sale. It may be that the sale is based on a foreclosure initiated by a Condominium Association. If that is the case, there are some potential pitfalls.

First, any sale by the Association may be subject to other liens that by statute have priority. In general, a condominium lien has priority over all liens except taxes, first mortgages recorded before the assessment and construction liens. [See Wis. Stat. §703.165(5)]

When the property is sold at sheriff’s sale, the property will be sold subject to all lien encumbrances. This could include the first mortgage lien. If there is any doubt, make sure your commitment requires the payment and satisfaction of all mortgages and liens that appear on title. 

If the lien holder were joined in the foreclosure action, do not automatically assume the lien is subordinate and foreclosed. There have been instances where a lien was joined and the Association later agreed that the lien could not be foreclosed. You might see language in CCAPS where an answer is filed and a subsequent stipulation entered between the parties. If CCAPS is not clear, you should pull a copy of the judgment from the court file.

Finally, you should also raise an exception for future Association dues on your commitment. While Association dues should be “current” once the foreclosure is complete, you do not want a scenario where the insured recites that the future dues are covered by your policy.

If you have any foreclosure related questions, please contact your First American underwriter.