598 B.R. 213
Bankr. D. Md.2019Background
- Debtor Stein Properties owned Columbia Professional Center in Howard County, MD; Chapter 11 filed Sept. 22, 2017 to enable an orderly sale.
- Sale approved for $5,275,000; proceeds allocated by lien priority under confirmed plan; Bank holds first deeds of trust with debts exceeding sale proceeds.
- Columbia Association claims a preexisting lien under a 1966 Declaration for unpaid association fees (~$70,744), asserting priority over the Bank's deeds of trust.
- Association never filed statements of lien under the Maryland Contract Lien Act (MCLA); unpaid assessments arose after the Bank’s deeds of trust were recorded.
- Dispute framed by plan: if Association’s claim is secured (Class 3) it is paid in full; if unsecured it shares limited carve-out with other unsecured creditors.
- Court required to decide whether Declaration alone created an enforceable, preemptive lien or whether compliance with the MCLA (and HOA Act) was required; facts are undisputed.
Issues
| Issue | Plaintiff's Argument (Association) | Defendant's Argument (Bank) | Held |
|---|---|---|---|
| Whether the 1966 Declaration itself created an enforceable lien with priority over later-recorded deeds of trust | Declaration language unambiguously created a continuing first lien, recorded in 1966, giving it priority over later instruments | Under Select Portfolio Servicing II and the HOA Act, a recorded declaration alone does not create an enforceable lien; MCLA compliance is required | Court held Declaration alone does not create an enforceable lien; MCLA compliance required |
| Whether the Association could enforce the lien without filing MCLA statements or following MCLA procedures | The Association may enforce under common law, Maryland Rules, or preserved priority in RP § 11B-117(c)(1)(i) without MCLA compliance | HOA Act §11B-117(b) requires associations to enforce declaration liens under the MCLA; Select Portfolio Servicing II bars enforcement without MCLA procedures | Court held HOA Act and Select Portfolio Servicing II require compliance with the MCLA to impose/enforce a declaration lien |
| Whether RP §11B-117(c)(1)(i) preserves the 1966 Declaration’s priority despite lack of MCLA compliance | Section (c)(1)(i) expressly recognizes and preserves the Declaration’s first priority lien independent of MCLA procedures | Subsection (c) does not override (b); priority cannot be asserted absent a valid enforceable lien created under MCLA | Court held (c)(1)(i) does not override the MCLA requirement; (c) does not validate a lien never properly created/enforced under MCLA |
| Whether applying the MCLA requirement impairs a preexisting contract in violation of the Contract Clause | The Association argued retroactive impairment of rights recorded before MCLA would violate Contract Clause | Court: Declaration never created a valid enforceable lien pre-MCLA; MCLA provides process to give effect to contractual assessment rights and does not impair vested lien rights | Court held no Contract Clause violation because no enforceable lien existed pre-MCLA; statute furnishes procedure to create/enforce lien |
Key Cases Cited
- Select Portfolio Servicing, Inc. v. Saddlebrook W. Util. Co., LLC, 167 A.3d 606 (2017) (Maryland Court of Appeals: recorded declaration does not itself create an enforceable lien; MCLA compliance required)
- Select Portfolio Servicing, Inc. v. Saddlebrook W. Util. Co., LLC, 145 A.3d 19 (2016) (Md. Ct. Spec. App.) (held declaration language created a lien; later reversed)
- Golden Sands Club Condo., Inc. v. Waller, 545 A.2d 1332 (1988) (cited for legislative history/purpose supporting MCLA’s due-process objectives)
Result: Association's claim disallowed as a secured claim and allowed only as an unsecured claim; Association failed to comply with the MCLA required to create/enforce a priority lien.