Title: American Holidays, Inc. v. Foxtail Owners Ass'n

State: wyoming

Issuer: Wyoming Supreme Court

Document:

American Holidays, Inc. v. Foxtail Owners Ass'n1991 WY 156821 P.2d 577Case Number: 91-41Decided: 12/09/1991Supreme Court of Wyoming
AMERICAN HOLIDAYS, INC., 
A MISSOURI CORPORATION, APPELLANT (DEFENDANT),

v.

FOXTAIL OWNERS 
ASSOCIATION, A WYOMING NONPROFIT CORPORATION, APPELLEE 
(PLAINTIFF)

Appeal from the 
District Court, TetonCounty, D. Terry Rogers, 
J.

 Frank Hess, Jackson, for 
appellant.

Phelps H. Swift, Jr. 
of Mullikin, Larson & Swift, Jackson, for 
appellee.

Before URBIGKIT, 
C.J., and THOMAS, CARDINE, MACY and GOLDEN, JJ.

CARDINE, 
Justice.

 [¶1.]     Appellant, mortgagee of 
a shared interest in a time-share condominium, challenges the trial court's 
decree of foreclosure which subordinated its mortgage to appellee's lien for 
unpaid condominium assessments. We affirm the decision of the trial 
court.

 [¶2.]     Appellant states the 
issue to be resolved as follows:

"Did the court err in 
holding as a matter of law that the homeowner's assessment lien had priority 
over a previously filed mortgage?"

 [¶3.]     Condoshare Jackson 
Limited Partnership recorded a Declaration of Condominium for the Foxtail 
Condominium Project on January 6, 1981. This Declaration created appellee, the 
Foxtail Owners Association (Association). The Association was given numerous 
responsibilities for maintenance and upkeep of the Foxtail condominium units and 
common areas. It was empowered to levy assessments against the shared interest 
of each of the Foxtail condominium owners in order to pay its expenses. These 
assessments were to be secured by a lien on each shared interest and would bear 
interest and court costs if not paid.

 [¶4.]     On September 16, 1984, 
Edward L. Meier and Clara Zo Meier (Meiers) executed a note and mortgage deed 
secured by a shared interest in one of the Foxtail units in favor of The Time 
Store, Inc., a Colorado corporation (Time Store). This mortgage deed was 
recorded on March 8, 1985. The mortgage deed contained a legal description which 
made the shared interest "subject to the terms, covenants, conditions, and 
restrictions contained in the Declaration." The Time Store's mortgagee interest 
passed by assignment and is now held by appellant American Holidays, Inc. 
(American Holidays).

 [¶5.]     The Meiers defaulted on 
the mortgage with American Holidays on December 1, 1985. They also failed to pay 
Association dues as required by the Declaration. On October 10, 1989, the 
Association filed two Notices of Lien for unpaid dues with the Teton County 
Clerk. Then, on January 30, 1990, the Association filed this complaint for 
foreclosure, which named the Meiers and American Holidays as 
defendants.

 [¶6.]     The trial court entered 
a Summary Judgment and Decree of Foreclosure on January 3, 1991. Both the 
Association and American Holidays were given judgment against the Meiers. The 
court further found that American Holidays' interest was subordinate to the 
Association's lien for unpaid assessments, interest, costs and attorney fees, 
"even if the mortgage [had been] filed [for record] prior to the time the lien 
mature[d]." The decree of foreclosure provided that upon foreclosure sale the 
proceeds would be applied: First, to the costs of the sale; second, toward 
satisfaction of the Association's assessment lien; and third, toward 
satisfaction of the mortgage held by American Holidays. Any surplus would be 
paid to the Meiers. American Holidays filed a timely notice of appeal from this 
decision.

 [¶7.]     All issues in this case 
were resolved by summary judgment.

"We review a summary 
judgment in the same light as the district court, using the same materials and 
following the same standards. Summary judgment is proper only when there are no 
genuine issues of material fact and the prevailing party is entitled to judgment 
as a matter of law." Zmijewski v. Wright, 809 P.2d 280, 282 (Wyo. 
1991).

There is no real 
dispute about the facts here, only about the legal conclusions the trial court 
reached.

 [¶8.]     Wyoming Statute 
34-1-121(a) (July 1990 Repl.) provides in part that 

"[e]ach and every 
deed, mortgage, instrument or conveyance touching any interest in lands, made 
and recorded, according to the provisions of this chapter, shall be notice to 
and take precedence of any subsequent purchaser or purchasers from the time of 
delivery of any instrument at the office of the register of deeds (county 
clerk), for record."

Appellant's mortgage 
was recorded prior to the recordation of appellee's lien statement, but 
subsequent to the recordation of the Declaration of Condominium for the Foxtail 
Condominium Project. The question to be resolved is that of appellant's priority 
status relative to that of appellee, considering the recording dates and the 
subordination clauses contained in the Declaration and in the Meiers' 
mortgage.

 [¶9.]     It is undisputed that 
American Holidays' interest is subject to the provisions of the Declaration, 
which by its terms are made covenants running with the land binding on "any 
person acquiring, leasing, or owning an interest in the real property and 
improvements comprising the Project, and to their respective administrators, 
personal representatives, heirs, successors, and assigns." The mortgage, whose 
mortgagee interest was assigned to American Holidays, also describes the 
property as being subject to the terms of the Declaration.

 [¶10.]  Our review of authority connected with 
this issue shows no previous Wyoming cases on point. Cases from other 
jurisdictions show that the issue of priority has been resolved, generally, in 
either one of two ways. First, many jurisdictions have applied a statutory 
scheme governing condominium assessment priority. See e.g., Towne Realty, Inc. 
v. Edwards, 156 Wis.2d 344, 456 N.W.2d 651 (1990); First Federal Savings Bank v. 
Eaglewood Court Condominium Ass'n, Inc., 186 Ga. App. 605, 367 S.E.2d 876 
(1988); Brask v. Bank of St. Louis, 533 S.W.2d 223 (Mo. Ct. App. 1975). 
Wyoming has no 
such statute, and so we do not find these cases to be 
helpful.

 [¶11.]  Second, some jurisdictions have held, in 
the context of homestead exemption priority, that an association's lien for 
assessments is a contractual lien which relates back to the time of filing the 
declaration. See Bessemer v. Gersten, 381 So. 2d 1344 (Fla. 1980); Accord, Inwood North 
Homeowners' Ass'n, Inc. v. Harris, 736 S.W.2d 632, 636 n. 1 (Tx. 1987); In re 
Lincoln, 30 B.R. 905 (Bankr.D.Colo. 1983). For reasons stated below, we think that the Bessemer rule properly 
applies to this case, and that the lien for assessments which attached when the 
mortgagee's interest was created relates back to the time of filing of the 
Declaration.

 [¶12.]  The Bessemer case gives no rationale for its 
holding that an association's lien relates back to the time of recording. We 
follow it in this case because we believe it reflects the intent of the original 
covenantor as revealed in the terms of the Declaration.

 [¶13.]  We consider first the language of the 
Declaration itself to determine its effect on the interests of the parties. In 
interpreting the covenants contained in a condominium declaration, we will 
follow our general rule that we seek to discern the intent of the parties, and 
especially that of the grantor. Cf. Dawson v. Meike, 508 P.2d 15, 18 (Wyo. 1973) (court seeks 
to discern intent in interpreting covenants contained in warranty deed). See 
also 20 Am.Jur.2d Covenants, Conditions, and Restrictions § 5 
(1965):

"The courts have 
consistently adhered to the view that in their interpretation or construction of 
covenants, the cardinal principle, or most persuasive guide for them to follow, 
is the intention of the parties as it may appear or be implied from the 
instrument itself. * * *

"The intention of the 
parties is to be gathered from the entire context of the agreement, and not from 
a single clause." (footnote omitted)

Where the plain terms 
of a covenant are sufficiently clear, we construe it without reference to 
attendant facts and circumstances or extrinsic evidence. Revelle v. Schultz, 759 P.2d 1255, 1258 (Wyo. 1988).

 [¶14.]  The Declaration contained a provision, 
quoted in part above, subjecting the property to its terms and creating a 
covenant running with the land: 

"2.01 Submission to 
Condominium Ownership. * * * All of said property and all Common Facilities and 
Unit Furnishings are and shall be subject to the covenants, conditions, 
restrictions, uses, limitations, and obligations set forth herein, each and all 
of which are declared and agreed to be for the benefit of said Project and each 
Condominium therein and in furtherance of a plan for improvement of said 
property and division thereof into Condominiums. Each and all of the provisions 
hereof shall be deemed to run with the land and shall be a burden and a benefit 
to the Declarant, and to any person acquiring, leasing, or owning an interest in 
the real property and improvements comprising the Project, and to their 
respective administrators, personal representatives, heirs, successors, and 
assigns."

 [¶15.]  Any subsequent mortgage or encumbrance 
was made subject to the terms of the Declaration:

"4.05 Separate 
Mortgages. * * * Any mortgage or other encumbrance of any Shared Interest shall 
be subject [to] and subordinate to each and all of the provisions of this 
Declaration and, in the event of foreclosure, the provisions of this Declaration 
shall be binding upon any Shared Owner whose title is derived through 
foreclosure by private power of sale, judicial foreclosure, or 
otherwise."

 [¶16.]  The Declaration provided for assessments 
to be made by and paid to the Association:

"9.01 Agreement to 
Pay Assessments. * * * [E]ach Shared Owner by the acceptance of instruments 
of conveyance and transfer of his Shared Interest, whether or not it be so 
expressed in said instruments, shall be deemed to covenant and agree with each 
other and with the Association to pay to the Association all assessments made by 
the Association for the purposes provided in this 
Declaration."

 [¶17.]  These assessments would bear interest at 
the rate of one percent per month. Finally, the Declaration provided that such 
assessments would constitute a lien on the property:

"9.04 Lien for 
Assessments. All sums assessed to the Shared Owner of any Shared Interest in 
a Condominium within the Project pursuant to the provisions of this Article IX, 
together with interest thereon as provided herein, shall be secured by a lien on 
such Shared Interest in favor of the Association. To evidence a lien for sums 
assessed pursuant to this Article IX, the Association may prepare a written 
notice of lien setting forth the amount of the assessment, the date due, the 
amount remaining unpaid, the name of the Shared Owner of the Shared Interest, 
and a description of the Shared Interest. Such a notice shall be signed and 
acknowledged by a duly authorized officer of the Association and may be recorded 
in the office of the County Clerk of Teton County, State of Wyoming. No notice 
of lien shall be recorded until there is a delinquency in payment of the 
assessment. Such lien may be enforced by judicial foreclosure by the Association 
in the same manner in which mortgages or trust deeds on real property may be 
foreclosed in the State of Wyoming. In any such foreclosure, the Shared Owner 
shall be required to pay the costs and expenses of such proceeding (including 
reasonable attorneys' fees) and such costs and expenses shall be secured by the 
lien being foreclosed."

 [¶18.]  The trial court found that this language 
was plain and unambiguous and that it subjected any interest of a mortgagee to 
the Association's lien for assessments, interest, costs and attorney fees, even 
if the mortgage was recorded prior to the time that the lien matured. We agree 
that the Association's lien has priority because the Declaration subordinated 
all subsequent encumbrances to its provisions.

 [¶19.]  Section 4.05 of the Declaration has the 
effect of a subordination agreement, to which appellant became a party when it 
took assignment of the mortgage interest. A subordination agreement controls 
even over real property priorities established by law. Arundel Federal Savings 
& Loan Ass'n v. Lawrence, 65 Md. App. 158, 499 A.2d 1298, 1302 (1985). Thus, 
sellers of unimproved land routinely subordinate their prior purchase money 
mortgage to a mortgage lien for construction purposes in order that land may be 
improved. Cf. 2 G. Glenn, Glenn on Mortgages § 352 (1943); G. Osborne, Handbook 
on the Law of Mortgages § 212 at 387 (2nd ed. 1970). And prior condominium 
subscription agreements creating a vendee's lien are frequently made subject to 
a lien for a building loan mortgage. G. Nelson & D. Whitman, Real Estate 
Finance Law § 13.3 at 947-49 (2nd ed. 1985).

 [¶20.]  The scope of the subordination is 
described in Section 4.05 of the Declaration. This section provides that any 
mortgage or other encumbrance is subject to and subordinate to "each and all" of 
the provisions of the Declaration. No exception is made for the Association 
assessment provisions of Article 9. Since these assessment provisions are to be 
enforced by the existence of a lien, the lien provision itself should also take 
priority.

 [¶21.]  Appellant notes that Section 9.04 
provides for recordation of a written notice of lien once default occurs. It 
argues that the lien has the priority date of this recordation. However, this 
provision for recording written notice of lien is designed only to provide 
recorded notice once the payments are in default. It differs from the underlying 
lien created by the terms of the Declaration itself, which comes into being as 
soon as the owner of the shared interest takes his interest subject to the 
Declaration. See Bessemer, 381 So. 2d  at 1348.

 [¶22.]  Furthermore, the only way to give effect 
to the subordination clause, which should control over the result achieved under 
a pure application of the recording statute, is to hold that the Association's 
lien relates back to the time the Declaration was recorded. That way, any 
subsequent encumbrance of the shared interest would have a later priority than 
the Association's lien for assessments, as implicitly provided for in the 
Declaration. Therefore, we hold that the priority date of the Association's lien 
relates back to the time that the Declaration was recorded and, as a covenant 
running with the land, binds the holders and assignees of a subsequent mortgagee 
interest.

 [¶23.]  Appellant cites a case which achieved a 
contrary result based on facts similar to those of this case. St. Paul Federal 
Bank for Savings v. Wesby, 149 Ill. App.3d 1059, 103 Ill.Dec. 390, 501 N.E.2d 707 (1986), cert. denied 114 Ill. 2d 557, 108 Ill.Dec. 425, 508 N.E.2d 736 
(1987). We distinguish Wesby in that the declaration in that case expressly 
provided that the assessment did not become a lien until the unit owner failed 
to make payment. Also, the declaration specifically provided that the lien for 
unpaid assessments was subordinate to the lien of a prior recorded first 
mortgage. Thus, we are not persuaded by the Wesby case.

 [¶24.]  Our decision affirming the trial court is 
correct as a matter of law. We note also that it is fair and reasonable and 
benefits both parties. The assessments are used by the Association for 
insurance, repairs, maintenance, and upkeep of the condominium unit. The benefit 
to the mortgage holder is that the condominium unit is maintained in good repair 
and condition and its value maintained. The Association benefits in that all 
units are kept in good repair and condition and total property values are 
enhanced.

 [¶25.]  Because American Holidays' mortgage 
interest was subordinate to the Declaration, including the provision for the 
Association's lien, the lien took priority over the mortgage when the 
Association foreclosed. Therefore, the trial court properly ordered that the 
proceeds of the foreclosure sale be apportioned to pay off the lien and expenses 
connected thereto prior to payment of the mortgage. 

 [¶26.]  The order of the trial court is 
affirmed.