In re Stein Props., Inc.
| Decision Date | 22 January 2019 |
| Docket Number | Case No. 17-22680-TJC |
| Citation | 598 B.R. 213 |
| Parties | IN RE: STEIN PROPERTIES, INC., Debtor. |
| Court | U.S. Bankruptcy Court — District of Maryland |
Lawrence A. Katz, Hirschler Fleischer PC, Tysons, VA, for Debtor.
The First National Bank of Pennsylvania (the "Bank") objects to the secured claim of the Columbia Association, Inc. (the "Association"). The parties dispute whether the Association holds a lien against the real property owned by debtor, Stein Properties Inc. (the "Debtor"), for unpaid Association fees and charges. Specifically, the issue is whether the Association obtained a lien with priority over the Bank's deed of trust loan as a result of a declaration it recorded in 1966, or whether it lacks an enforceable lien against the property because it did not comply with the provisions of the Maryland Contract Lien Act, Md. Code Ann., Real Prop. §§ 14-201, et seq. (2018) (the "MCLA").
The facts are not in dispute and the parties agree the matter is ripe for resolution. For the reasons stated herein, the court concludes that the Association was required to comply with the MCLA to obtain and enforce a lien for unpaid fees and charges. Because there is no dispute that the Association has not complied with the MCLA, the Association's claim will be disallowed as a secured claim.
The court has jurisdiction over this matter under 28 U.S.C. §§ 1334 and 157(b) and Local Rule 402 of the United States District Court for the District of Maryland. This court has authority to enter a final judgment under 28 U.S.C. § 157(b)(2)(k) and consistent with the standards of Stern v. Marshall , 564 U.S. 1058, 132 S.Ct. 56, 180 L.Ed.2d 924 (2011) and Wellness Int'l. Network, Ltd. v. Sharif , ––– U.S. ––––, 135 S.Ct. 1932, 191 L.Ed.2d 911 (2015).
The Debtor filed this Chapter 11 case on September 22, 2017. It obtained confirmation of its second amended plan after a hearing held on September 25, 2018. ECF 147.
The Debtor's Plan .
At the time the Debtor filed this case, it owned real property and improvements known as the Columbia Professional Center, located at 10840 Little Patuxent Parkway, Columbia, Maryland (the "Property"). The Debtor filed the case to enable it to conduct an orderly sale of the Property and realize its maximum value. After actively marketing the Property, the Debtor entered into a sale agreement for $ 5,275,000.00, subject to higher and better offers. The Debtor obtained approval to conduct an auction sale, but no competing offers were made. The court approved the sale for $ 5,275,000.00.
The sale agreement required the Debtor to obtain confirmation of a plan authorizing the sale. Under the confirmed plan, the sale proceeds will be distributed to the secured creditors in accordance with their lien priorities. Although the Debtor initially hoped the sale would generate sufficient proceeds to pay all secured creditors in full with funds remaining for distribution to the unsecured creditors, that is not the case. Nevertheless, with the agreement of the Bank, the plan provides a carve-out from the funds that would otherwise be paid to the Bank on its secured claim to pay various fees and claims and for distribution to the general unsecured creditors. The unsecured creditors are expected to receive no more than 5% depending on the resolution of various claim objections.
Other than claims of insiders, the plan contains four classes of potentially secured claims and one class of unsecured claims. The secured claims, and their treatment under the plan, are as follows:
The Bank's Class 4 claims consists of two commercial obligations secured by deeds of trust against the Property. The aggregate balance due to the Bank at the commencement of this case was $ 5,427,346.52. Claim Nos. 4-1, 6-1. The Association asserts a secured claim of $ 70,744.48 for unpaid fees and charges accruing over several years.
The approved sale price of $ 5,275,000 is sufficient to pay the Class 1, 2 and 3 claims but not the Bank's Class 4 claims in full. Accordingly, if the Association's claim in Class 3 is a valid and enforceable secured claim, it will be paid in full. On the other hand, if the claim is found to be unsecured it will share in the distribution to unsecured creditors of 5% or so from the carve-out.
The confirmation of the plan was consensual. In order to provide for an orderly resolution of the dispute over the Association's claim, the parties agreed to escrow the funds that would be otherwise paid to the Association until the dispute is finally resolved. ECF 147 at p. 11. The motion now before the court is the proceeding contemplated by the parties in the confirmation order to resolve the priority and validity of the Association's Class 3 claim. See ECF 138, 143, 155 and 157.
The Association is a non-profit corporation formed in 1966 to manage the planned community of Columbia, Maryland, in which the Property is located. It provides recreational, cultural and community services to Columbia residents. The Association assesses and collects fees and charges from Columbia property owners, including the Debtor.
The Association assesses fees and charges pursuant to the terms of a Deed, Agreement and Declaration of Covenants, Easements, Charges and Liens dated December 13, 1966, and recorded among the land records of Howard County, Maryland at Liber 463, Page 158 et seq. (the "Declaration"). ECF 138-2. There is no dispute that the Property is subject to the Declaration.
The Association asserts its lien claim pursuant to the language in the Declaration. It states:
[T]he Annual Charge, both prior to and after the assessment thereof in each year, together with the continuing obligation to pay all future Annual Charges assessed in all future years, shall be and remain a first charge against, and a continuing first lien upon , ... the Assessable Property ... to the end that said charge and lien shall be superior to any and all other charges, liens or encumbrances which may hereafter in any manner arise or be imposed upon the Assessable Property ... whether arising from or imposed by judgment or decree or by any agreement, contract, mortgage or other instrument , saving and excepting only such liens for taxes or other public charges as are by applicable law made superior.
Declaration at § 3.01 (emphasis added).
There is no dispute that the Association's claims for unpaid fees and charges arose after the Bank's deeds of trust were recorded against the Property and that the Association did not file statements of lien in the land records for Howard County.
The Association contends that the Declaration unambiguously creates a lien against the Property for unpaid fees and charges and was duly recorded in 1966, long before the Bank's deeds of trust. It contends the lien is enforceable under common law and the Maryland Rules, and that Md. Code Ann., Real Prop. § 11B-117(c)(1)(i) expressly recognizes the priority of the Association's lien. The Bank contends that the Maryland Homeowners Association Act RP §§ 11B-101, et seq. (2018) (the "HOA Act") requires the Association to comply with the MCLA to obtain and enforce a lien. The Bank further argues that, even if the HOA Act does not require compliance with the MCLA, the Court of Appeals decision in Select Portfolio Servicing, Inc. v. Saddlebrook W. Util. Co. LLC ("Select Portfolio Servicing II") , 455 Md. 313, 167 A.3d 606 (2017) requires the Association to have complied with the MCLA in order to obtain a lien against the Property for unpaid fees and charges.
The court begins with Select Portfolio Servicing II . There, Saddlebrook West, LLC, as the developer of a residential subdivision, created a Declaration of Deferred Water and Sewer Charges (the "Saddlebrook Declaration") to recoup the cost of building the water and sewer infrastructure of the development. The Saddlebrook Declaration, duly recorded in the land records of Prince George's County, ran in favor of a related entity, Saddlebrook West Utility, LLC. ("Saddlebrook"), and imposed an annual water and sewer charge on each identified lot. Id. at 609. The Saddlebrook Declaration stated it created a lien against each covered lot, that the lien would have priority over any subsequently recorded instruments, including mortgages, and that the lien could be foreclosed for nonpayment through a power of sale. Id.
Saddlebrook brought a foreclosure action against a property on which the homeowner failed to pay the annual charges. Select Portfolio Services, Inc. held a deed of trust loan secured by the property. Select filed a declaratory judgment action claiming its deed of trust to be the first priority lien against the property, that Saddlebrook had no security interest in the property, and that the Saddlebrook Declaration alone did not create an enforceable lien against the property. Id. at 612.
The Circuit Court for Prince George's County concluded that the Saddlebrook Declaration was a covenant running with the land that constituted a "valid, enforceable first-priority lien encumbering the...
To continue reading
Request your trial
-
In re Walker
...rules that comported with due process for establishing, enforcing, or denying a lien based on a contract.’ " In re Stein Props., Inc. , 598 B.R. 213, 218 (Bankr. D. Md. 2019) (quoting Select Portfolio , 455 Md. at 332, 167 A.3d at 617 ). The MCLA's predecessor had allowed the statement of t......
-
In re Walker
...rules that comported with due process for establishing, enforcing, or denying a lien based on a contract.'" In re Stein Props., Inc., 598 B.R. 213, 218 (Bankr. D. Md. 2019) (quoting Select Portfolio, 455 Md. at 332, 167 A.3d at 617). The MCLA's predecessor had allowed the statement of the l......
-
Pinnick v. No (In re Pinnick)
... ... to Schedule D, the Property is subject to two mortgages securing obligations to Wesbanco Bank, Inc. and the Urban Redevelopment Authority of Pittsburgh (the "URA"), respectively.5 Wesbanco Bank ... ...