In re Lynch
| Decision Date | 24 June 2021 |
| Docket Number | Case No. 20-15551 (CMG) |
| Citation | 630 B.R. 745 |
| Court | U.S. Bankruptcy Court — District of New Jersey |
| Parties | IN RE: Sandra M. LYNCH, Debtor. |
BRENNER, SPILLER & ARCHER, Kenneth Borger, Esq., Attorney for Debtor.
CUTOLO BARROS LLC, Joseph A. Kutschman, III, Esq., Attorneys for Wyndham Place Condominium Association, Creditor.
CHRISTINE M. GRAVELLE, U.S.B.J.
Debtor, Sandra M. Lynch ("Lynch") has proposed to modify the treatment of the claim of Wyndham Place Condominium Association ("Wyndham") through her Chapter 13 bankruptcy plan (the "Plan"). Wyndham filed a proof of claim for $16,209.54, classifying $12,992.94 of that amount as secured, and listing the balance as unsecured. The Plan provides for a cramdown1 of the secured portion of Wyndham's claim to an amount equal to six months of customary condominium assessments, an amount which is entitled to priority over most superior liens pursuant to New Jersey state law. See N.J.S.A. § 46:8B-21(b). The remainder of Wyndham's claim is treated as unsecured through the Plan. Wyndham has objected on the basis that the cramdown violates the anti-modification provision of the Bankruptcy Code. See 11 U.S.C. § 1322(b)(2) (the "Anti-Modification Provision").
The crux of the issue is how condominium association liens ("Condo Liens") are classified under the Bankruptcy Code's statutory definitions, the answer to which affects the applicability of the Anti-Modification Provision to those liens. Almost uniformly, a condominium association's master deed will have language that gives rise to a lien for customary condominium assessments. In addition, the New Jersey Condominium Association Act, N.J.S.A. § 46:8B-1, et. seq. (the "Condo Act") provides for the creation of a lien for unpaid and overdue customary condominium assessments. The language of the Condo Act and the typical master deed are interrelated. The Condo Act's authority explicitly derives from an association's master deed, which is the document through which the property becomes subject to the statute. See N.J.S.A. § 46:8B-9(a). The efficacy of a lien provided for in the master deed is almost entirely reliant upon the Condo Act to give it any practical effect. Adding to the confusion, the language of the Condo Act and the master deed not only reference each other, but often track one another with regard to enforcement procedures. While the liens can exist independent of one another, the true effect of a Condo Lien is achieved when the Condo Act and master deed are acting in concert.
Courts in this district have grappled with the co-dependent nature of Condo Liens. Initially, this Court held that a Condo Lien is a security interest, as defined under the Bankruptcy Code, consensually created through the master deed and bylaws. See In re Rones, 531 B.R. 526 (Bankr. D.N.J. 2015), rev'd in part , 551 B.R. 162 (D.N.J. 2016) (" Rones I"). But because the claim for a condominium charge is also partially secured by the Condo Act and not solely by the master deed, this Court found that the Anti-Modification Provision did not apply to Condo Liens. See Id. While the district court did not disturb the finding that a Condo Lien is a security interest, it did not agree that the statute provided additional security. Therefore, on appeal, the district court held the Condo Lien, as a lien on the principal residence secured solely by a security interest, is subject to the Anti-Modification Provision, making a cramdown impermissible. See In re Rones, 551 B.R. 162 (D.N.J. 2016) (" Rones II").
More recently, a number of my colleagues have held that the Condo Act creates a statutory lien in addition to the security interest created consensually through the master deed and bylaws. Because the Condo Lien claim is not secured only by a security interest but also by the liens created in the Condo Act, those courts have found that the Anti-Modification Provision is inapplicable. See , e.g. , In re Holmes, 603 B.R. 757 (D.N.J. 2019) (" Holmes III"); In re Keise, 564 B.R. 255, 263-64 (Bankr. D.N.J. 2017).
While I have, for a time, followed the recent line of cases finding that two liens secure unpaid fees due to a condominium association, upon further review I no longer accept that analysis. This Court reaffirms its original decision that a Condo Lien is a single, consensual lien and finds that Wyndham's claim is solely secured by a security interest in Lynch's principal residence. I do not come to this conclusion without doubt. As discussed in more detail later in this opinion, Wyndham's "rights" as modified by the Chapter 13 plan are distinguishable from those rights provided for in a mortgage document. See Nobelman v. Am. Sav. Bank, 508 U.S. 324, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993) (). Nevertheless, it is without question that the Plan modifies Wyndham's rights. The Anti-Modification Provision applies, and Wyndham's claim may not be crammed down. Wyndham's objection to confirmation of the Plan is SUSTAINED, confirmation is DENIED, and the case will be DISMISSED.
The Court has jurisdiction over this contested matter under 28 U.S.C. §§ 1334(a) and 157(a) and the Standing Order of the United States District Court dated July 10, 1984, as amended October 17, 2013, referring all bankruptcy cases to the bankruptcy court. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(A), (B), (K), and (L). Venue is proper in this Court pursuant to 28 U.S.C. § 1408. Pursuant to Fed. R. Bankr. P. 7052, the Court issues the following findings of fact and conclusions of law.
The facts are straightforward and have not been contested. Lynch purchased property located at 80 Bradford Court, Aberdeen, New Jersey (the "Property") in August 2008. The Property is part of Wyndham and subject to its master deed (the "Master Deed"). This is reflected in the unit deed giving title of the Property to Lynch (the "Unit Deed"), which describes the Property as follows:
BEING KNOWN AND DESIGNATED AS Unit 80 in Wyndham Place a Condominium which is substantially located in accordance with the location shown in a certain Master Deed dated August 18, 1983 and recorded in the Monmouth County Clerk's Office on August 24, 1983 in Book 4426, Page 922 and as amended in Deed Book 4445 at Page 116, further amended in Deed Book 4449 at Page 61, et seq., together with an undivided .2152 percentage interest in the common elements of Wyndham Place, a Condominium as forth in the Master Deed aforesaid as same may be lawfully amended from time to time pursuant to said Master Deed.
The Unit Deed also provides that the transfer of ownership is "[s]ubject to easements and restrictions of record, zoning ordinances if any and such state of facts as an accurate survey would disclose."
The Master Deed to which the Property is subject provides, at Section C, that Wyndham shall be owned under the "Condominium concept" and shall be subject to the provisions of the Master Deed, the Condo Act, and the restrictions, covenants, limitation and conditions set forth in the Master Deed. It further states at Section 23 that
The Master Deed, at Section 14, creates a lien in favor of Wyndham, providing as follows:
That all charges and expenses chargeable to any unit shall constitute a lien against said unit in favor of the Association, which lien shall be prior to all other liens except (1) assessments, liens and charges for taxes past due and unpaid on the unit and (2) payments due under bona fide mortgage instruments, if any, duly recorded. The charges and expenses represented in the usual monthly maintenance charge shall become effective as a lien against each unit on the first day of each calendar year. Additional or added assessments charges and expenses, if any, chargeable to units and not covered by the usual monthly maintenance charge, shall become effective as a lien against each unit as of the date when the expense or charge giving rise to such additional or added assessment was incurred by the Association. In the event that the assessment, charge or other expenses giving rise to said lien remains unpaid for more than ten (10) days after the same shall become due and payable, the lien may be recorded in accordance with the provisions of the N.J.S.A. 46:8B-1 and be foreclosed by the Association in the manner provided for the foreclosure and sale of real estate mortgages ... The right of the Association to foreclose the lien shall be in addition to any other remedy which may be allowable to it at law or equity ... including the right to proceed personally against any delinquent owner for the recovery of a personal judgment against him for the amount due, court costs, and reasonable attorneys' fees.
The Master Deed also contains language noting that unit owners, tenants and occupants are required to comply with the provisions of the Master Deed and By-laws (at Section 11 ); that owners automatically become members of Wyndham (at Section 8); and that owners are bound to pay a proportionate share of expenses and costs of Wyndham and may not exempt themselves by waiving use of the common elements or abandoning the unit (Section 13).
The language in both the Unit Deed and Master Deed speaks for itself. But it nonetheless must be noted that there is no explicit acknowledgment by Lynch that her ownership is subject to the Master Deed or the Condo Act. Lynch, as grantee of the Property, did not sign the Unit Deed, which includes...
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City of Chester v. PHCC LLC (In re City of Chester)
...lien, and therefore "by Bankruptcy Code definition, a Condo Lien [could not] be statutory, because it [did] not arise solely by statute." Id. at 757. Consequently, the In re Lynch court found that the lien had to be classified as a consensual lien. Id. Like in In re Lynch, the relationship ......