Opinion
NO. 2016-CA-000084-MR
03-16-2018
PINNACLE HOMEOWNERS ASSOCIATION, INC. APPELLANT v. JPMORGAN CHASE BANK, N.A.; PNC BANK, NATIONAL ASSOCIATION; FRANCIS A. SAMAAN; AND JACKLINE F. SAMAAN APPELLEES
BRIEFS FOR APPELLANT: Christopher P. Farris Lexington, Kentucky BRIEF FOR APPELLEE: Bill L. Purtell Cincinnati, Ohio
NOT TO BE PUBLISHED APPEAL FROM FAYETTE CIRCUIT COURT
HONORABLE JAMES D. ISHMAEL, JR., JUDGE
ACTION NO. 13-CI-02598 OPINION
AFFIRMING
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BEFORE: COMBS, DIXON, AND NICKELL, JUDGES. NICKELL, JUDGE: Pinnacle Homeowners Association, Inc. ("Association") appeals from a Fayette Circuit Court order overruling its objections to the Master Commissioner's report and granting JPMorgan Chase Bank, N.A.'s ("JPMorgan") motion to distribute the remaining proceeds from a foreclosure sale in accordance with the Master Commissioner's report. After careful consideration, we affirm.
Although the order does not contain finality language, it is final for appeal purposes because it determined priority of the remaining liens and ordered the proceeds to be distributed. There was nothing left for the trial court to adjudicate. See Security Federal Sav. & Loan Ass'n of Mayfield v. Nesler, 697 S.W.2d 136 (Ky. 1985).
On November 4, 2002, the developer recorded a Deed of Restrictions for Pinnacle Subdivision Unit 2-C with the Fayette County Clerk. The subject property—929 Fiddler Creek Way, Lexington, Kentucky—is located within Unit 2-C. Section 33 of the Deed of Restrictions establishes the Association, creating automatic membership on acceptance of a deed for any lot within the unit. Association members are required to pay an annual assessment and a recreational facility assessment. Section 33(c) of the Deed of Restrictions states:
Any assessments levied by the Association shall be used only for purposes generally benefiting the Association, and if not paid when due, shall constitute a lien upon the lot and improvements against which each such assessment is made. This lien shall be subordinate to the lien of any first mortgage or vendor's lien on the lot and shall be enforceable against the real estate by foreclosure or otherwise.
The Samaans purchased the subject property and received a deed for it. In conjunction with the purchase, the Samaans executed a mortgage to PNC Bank, National Association ("PNC"). This mortgage was recorded on June 1, 2004, with the Fayette County Clerk. On December 27, 2006, the Samaans executed a Home Equity Line of Credit Agreement with JPMorgan. JPMorgan's mortgage was recorded on January 29, 2007, with the Fayette County Clerk. Pertinent to this appeal, the Association levied assessments on January 1, 2013. Later, the Samaans became delinquent in their payments on these obligations.
PNC filed a foreclosure complaint in the Fayette Circuit Court on June 24, 2013, after which the Association and JPMorgan filed cross-claims. On April 11, 2014, the court entered summary judgment in favor of PNC, finding both JPMorgan and the Association had valid liens inferior to that of PNC, and ordered sale of the property. Pursuant to the court's order, the Master Commissioner sold the Property in a foreclosure sale on May 12, 2014, for $265,000.00. The proceeds fully satisfied the unpaid property taxes, the Master Commissioner's expenses, and PNC's mortgage. The remaining proceeds being insufficient to satisfy both the Association and JPMorgan, the matter was referred to the Master Commissioner for a recommendation as to priority of the remaining liens. The Master Commissioner concluded JPMorgan had priority over the Association to the excess funds. The Association filed objections to the Master Commissioner's report and JPMorgan moved the trial court to distribute the remaining proceeds in accordance with the report. The trial court overruled the Association's objections and ordered the funds distributed to JPMorgan in an order entered on December 23, 2015. This appeal followed.
Although both parties set forth in their briefs the standard of review for appeals of summary judgment, the trial court's order did not contain any summary judgment language or any reference to a summary judgment motion. The Association attached a Motion for Summary Judgment as to Priority to the Sale Proceeds to its Objections to the Master Commissioner's Report and Recommendation, but it is not clear from the order being appealed whether the court ruled on the summary judgment motion specifically. Regardless, only a question of law is involved here, and we review the application of the law to the facts de novo. Gosney v. Glenn, 163 S.W.3d 894, 898 (Ky. App. 2005).
The sole issue to be decided in this appeal is which competing lien had priority to the remaining proceeds of the foreclosure sale. The Association argues the language in the Deed of Restrictions was sufficient to make the lien effective as of the date it was recorded and to make additional liens, other than first mortgages and vendor's liens, subordinate to it. Conversely, JPMorgan argues the Deed of Restrictions was not explicit enough to create a super-priority or to relate back to the recording date.
Lien priority determines distribution of proceeds in a foreclosure sale. Kentucky is a "race-notice" jurisdiction and follows the common law rule of "first in time, first in right" for determining lien priority. Wells Fargo, Minnesota N.A. v. Commonwealth, 345 S.W.3d 800, 804 (Ky. 2011). Essentially, "a prior interest in real property takes priority over a subsequent interest that was taken with notice, actual or constructive, of the prior interest." Mortgage Electronic Registration Systems, Inc. v. Roberts, 366 S.W.3d 405, 408 (Ky. 2012). The legislature also has authority to "create statutory liens and establish the priorities thereof." Midland-Guardian Co. v. McElroy, 563 S.W.2d 752, 754 (Ky. App. 1978). Without a governing statute, "first in time, first in right" is the applicable rule. Id. (citation omitted).
There is no Kentucky statute governing homeowners association ("HOA") liens on properties other than condominiums. The Kentucky Condominium Act and Kentucky's Horizontal Property Law provide statutory mandates as to priority of assessment liens in a foreclosure action where condominium regimes are involved. A condominium, however, is not involved here. The Association cites Bank of the Bluegrass and Trust Company v. Richmond Square Office Townhouse Condominiums Council Co-Owners, Inc., 965 S.W.2d 827 (Ky. App. 1997), to argue the Deed of Restrictions clearly and explicitly created a lien superior to all other liens, except first mortgages and vendor's liens. KRS 381.883 was the controlling statute there, but is inapplicable here. Further, contrary to the Association's contention, the language set out in KRS 381.883—creating a super-priority—is not comparable to the language contained in the Deed of Restrictions here. Specifically, the statute states condominium assessments "constitute a lien . . . prior to all other liens," except certain enumerated liens and mortgages. Although application of that statute would be helpful here, "courts are interpreters and not makers of the law; it is not the province of the court to usurp the functions of the Legislature." Gathright v. H.M. Byllesby & Co., 154 Ky. 106, 157 S.W. 45, 52 (1913). If the legislature desires to give all HOAs the same lien priority rules, it has the power to enact such legislation.
Kentucky Revised Statutes (KRS) 381.910 et seq.
KRS 381.805 et seq.
KRS 381.883 is part of Kentucky's Horizontal Property Law, which the Kentucky General Assembly enacted in 1962. The Kentucky Condominium Act became effective in 2011, and applies to condominium regimes created after 2011. Kentucky's Horizontal Property Law is still in effect, but only applies to regimes created before 2011.
The Association also suggests this lien be treated the same as ad valorem tax liens, which is another statutory lien. We will refrain from analogizing two different types of liens.
As there is no governing statute, we must construe Section 33(c) of the Deed of Restrictions. "The rules applicable to construction and interpretation of a deed or trust are generally analogous to the rules of construction and interpretation of contracts." Williams v. City of Kuttawa, 466 S.W.3d 505, 509 (citing Monroe v. Rucker, 310 Ky. 229, 220 S.W.2d 391, 392-93 (1949) (citation omitted)). Unless ambiguities are present, we look only "to the intentions of the parties, gathered from the four corners of the instrument using its words' common meaning and understanding." Id. (quoting Florman v. MEBCO Ltd. Partnership, 207 S.W.3d 593, 600 (Ky. App. 2006) (citation and internal quotations omitted)).
The only Kentucky case involving this type of HOA lien is an unpublished opinion, Dunn v. Frankfort Properties Ltd. Liability Co., No. 2003-CA-002487-MR, 2005 WL 387948 (Ky. App. Feb. 18, 2005). A panel of this Court found an HOA lien had priority over a subsequently filed lien because "[t]he Master Deed . . . provided that unpaid assessments were to become a lien on the property, and that the lien for assessments was to be superior to all other liens except for any recorded institutional mortgages." Dunn at *1. A panel of this Court found the Master Deed gave constructive notice of the possibility of superior liens on the property. Id at *2. Dunn is not dispositive because the wording of the Deed of Restrictions we review differs from the wording appearing in Dunn.
Under Section 33(c), the assessments "constitute a lien" only "if not paid when due." Thus, based on the plain language of the Deed of Restrictions, a lien cannot exist until an assessment is levied and remains unpaid past the delinquency date. It is undisputed no delinquent assessments existed on the subject property prior to the recording of JPMorgan's mortgage, and therefore no lien in favor of the Association was in force. In fact, the delinquent assessments underlying the Association's lien at issue here did not arise until nearly six years after JPMorgan perfected its mortgage interest in the subject property. Absent a subordination agreement or explicit language in the Deed of Restrictions elevating the priority of the Association's interest, any subsequently created lien would necessarily be inferior to JPMorgan's interest. No subordination agreement appears in the record and our review of the Deed of Restrictions reveals no priority elevation language exists.
The language of Section 33(c) fails to explicitly declare a relation back of HOA liens to the recording date or a super-priority over other liens. First, the Deed of Restrictions states, "[i]f not paid when due, [any assessments] shall constitute a lien." Contrary to the Association's contention, this language fails to put all interested parties on notice of an ongoing, automatic lien relating back to the date the Deed of Restrictions was recorded. Second, the Deed of Restrictions states, "[t]his lien shall be subordinate to the lien of any first mortgage or vendor's lien." This verbiage fails to declare priority over any type of lien, and certainly not over every other type of lien. In Dunn, this Court found the language of the Master Deed declared the HOA lien superior to all other liens, except for institutional mortgages. Such is not the case here. The phrase "subordinate to the lien of any first mortgage or vendor's lien" is simply not explicit enough to provide notice of a super-priority.
See Westin Hills W. Three Townhome Owners Ass'n v. Fed. Nat'l Mortg. Ass'n, 814 N.W.2d 378 (Neb. 2012); Holly Lake Ass'n v. Fed. Nat'l Mortg. Ass'n, 660 So.2d 266 (Fla. 1995); First Twinstate Bank v. Hart, 648 A.2d 820 (Vt. 1993); St. Paul Fed. Bank for Sav. v. Wesby, 501 N.E.2d 707 (Ill. App. Ct. 1986). The courts in these cases found the HOA lien subordinate because a lien cannot come into existence in the absence of a debt and the relevant HOA language did not explicitly provide for relation back or a super-priority. --------
As stated above, we will not look beyond the four corners of the document absent ambiguity. We cannot construe an intention to create a super-priority or a relation back when it is not apparent on its face. To preserve the principle of notification embodied in recording statutes, we cannot grant the Association priority over JPMorgan. Thus, JPMorgan's lien is superior to the Association's, and the Fayette Circuit Court correctly ordered distribution of the remaining proceeds in favor of JPMorgan.
For the foregoing reasons, we affirm the order of the Fayette Circuit Court.
ALL CONCUR. BRIEFS FOR APPELLANT: Christopher P. Farris
Lexington, Kentucky BRIEF FOR APPELLEE: Bill L. Purtell
Cincinnati, Ohio