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Citicorp Mortgage, Inc. v. Highland Lakes Country Club and Community Association

A-5682-97T3 (N.J. Super. App. Div. 1999) (Unpublished)

FORECLOSURE; HOMEOWNERS ASSOCIATIONS; ASSESSMENTS—Just because a property is acquired in a foreclosure action doesn’t mean that the buyer is not required to pay pre-foreclosure association fees that are called for in the chain of title; such an obligation runs with the land.

A deed to property required that sellers of the property would not sell, rent or lease, or permit the property to be occupied except by an active or associate member of a particular property owners’ association. All subsequent buyers of the property were required to comply with, and conform to, the by-laws of the association. The by-laws automatically granted membership in the association to new owners upon proof of conveyance of title to the property, but membership privileges in a club operated by the association could not be granted on resale or other transfer of ownership of the property until all club dues, assessments, and initiation fees, in arrears, had been paid in full. The membership privileges included garbage collection and the use of the club facilities. A lender foreclosed on the property and then purchased it at the foreclosure sale. Thereafter, the association wrote to the lender advising it of an obligation to pay the dues and assessments established by the club’s board, including amounts owed for the period before the foreclosure. The foreclosing lender refused to pay. After losing a prospective sale of the property because it could not assure its prospective buyer that it would be entitled to enjoy the services and amenities provided by the club, it commenced suit against the association. The lower court held in favor of the association. It found that the condominium act did not apply because the development in question was a “common interest development,” not a condominium development; and that the lender “became bound by the By-Laws of the Defendant Club when it took title to the ... property by the Sheriff’s Deed ... and, thus, automatically became a member of the Defendant Club.” It ordered that all of the dues, assessments, and initiation fees which were in arrears were required to be paid by the foreclosing lender. The lender argued that its foreclosure had wiped out any lien for the arrearages. The Court held that there was no language in the deed covenants or in the portion of the by-laws submitted to the Court which purported to make the indebtedness to the club for unpaid assessments into liens against the property. The lender also argued that the club’s “membership covenants are personal in nature and do not touch and concern the land.” The significance of this argument, if correct, would be that the covenants were binding on the lender if, but only if, they are considered to “touch and concern the land.” The Court held against the lender. Numerous cases had recognized that the provision of community services and facilities, funded by assessments like those at issue in this case, were necessary for the enjoyment of property within a community and enhanced its value. Consequently, covenants to pay assessments for such services and facilities “run with the land” or “touch or concern the land” and are valid and enforceable. Accordingly, the association was entitled to be paid the arrearages by the foreclosing lender.


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