Title: Board of Dir. Colchester v. Wachovia
Citation: N/A
Docket Number: 021741
State: Virginia
Issuer: Virginia Supreme Court
Date: June 6, 2003

Present:  Hassell, C.J., Lacy, Keenan, Koontz, Kinser, and 
Lemons, JJ., and Carrico, S.J. 
 
BOARD OF DIRECTORS OF THE COLCHESTER 
TOWNE CONDOMINIUM COUNCIL OF CO-OWNERS 
 
 
 
OPINION BY 
v.  Record No. 021741 
JUSTICE LAWRENCE L. KOONTZ, JR. 
 
 
 
June 6, 2003 
WACHOVIA BANK, N.A., ET AL. 
 
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY 
Henry E. Hudson, Judge 
 
 
In this appeal, we consider whether the trial court 
correctly determined that Code § 55-79.84, part of the 
Condominium Act, Code §§ 55-79.39 through -79.103, requires 
that the proceeds from a non-judicial sale of a condominium 
unit by a unit owners’ association to satisfy a lien for 
unpaid condominium fees must first be applied to satisfy a 
prior first deed of trust on the unit sold. 
BACKGROUND 
 
In March 2002, the Board of Directors of the Colchester 
Towne Condominium Council of Co-Owners (the Association) 
recorded a lien, pursuant to Code § 55-79.84, against a 
condominium unit owned by Juanita C. James for unpaid 
condominium assessments.  The Association initiated the 
process for a public sale of the unit, as permitted by Code 
§ 55-79.84(I), and notified Wachovia Bank, N.A. (the Bank), 
the holder of the first deed of trust on the unit.  The first 
deed of trust had been recorded in 1996.  The Association’s 
advertisement of the intended sale of the unit at public 
auction to the highest bidder reflected that title to the unit 
would be conveyed to the purchaser by special warranty deed.  
The notice included a statement that the unit was “subject to 
a deed of trust” in favor of the Bank and that the sale would 
be “subject to all existing liens.”  The Association intended 
to disburse the sale proceeds pursuant to the provisions of 
Code § 55-79.84(I)(5)(c).  This subsection makes no express 
provision for disbursement of any of the proceeds of the sale 
to satisfy a first deed of trust. 
 
The Bank filed a bill of complaint and a motion for 
temporary injunction against the impending public sale in the 
trial court, seeking a declaratory judgment that the proceeds 
of the sale must first be applied to satisfy the lien of the 
Bank’s first deed of trust.  The Association responded that, 
under Code § 55-79.84(I), it was entitled to sell the unit 
“subject to” the Bank’s lien without satisfying that lien, and 
that the proceeds of the sale were to be applied to the 
Association’s lien and other specified encumbrances on the 
property.  The trial court entered an injunction in favor of 
the Bank, concluding that under the provisions of Code § 55-
79.84 the Bank’s lien had priority over the Association’s 
assessment lien and that the Association was required to apply 
 
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any proceeds from the sale first to satisfy the bank’s lien.  
We granted the Association an appeal. 
DISCUSSION 
 
It is a matter of common knowledge and experience that, 
as with other forms of land development, purchase money 
financing by institutional lenders is the primary fuel that 
drives the development engine of a condominium complex.  In 
turn, the realities of the marketplace require that such 
lenders be encouraged to provide the desired financing for 
individual condominium units by granting priority to the lien 
of their first mortgages or first deeds of trust.  It is the 
priority of the lender’s lien on a particular unit as well as 
the market value of the unit that establishes the lender’s 
security for the loan.∗  Similarly, there is no dispute that 
condominium assessments are the recognized and necessary means 
by which all owners of a particular condominium development 
benefit from the use of such assessments for general 
maintenance, security, and other matters. 
 
With this in mind, the General Assembly by its enactment 
of Code § 55-79.84 has preserved the desired priority of the 
                     
∗ We recognize that the Bank’s deed of trust in this 
particular case arises from an “equity line agreement” rather 
than from purchase money financing.  This deed of trust, 
however, clearly qualified for priority over the assessment 
lien as established in Code § 55-79.84(A). 
 
 
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lien of the instrument securing institutional lenders while 
providing for an inferior lien in favor of the unit owners’ 
association for unpaid assessments on a particular condominium 
unit.  Code § 55-79.84 addresses the circumstances under which 
a condominium association may acquire a lien on a condominium 
for unpaid assessments.  It also addresses the methods of 
enforcing such a lien.  When perfected in accordance with the 
statute, an assessment lien is prior to all other liens and 
encumbrances except real estate tax liens on the unit, liens 
and encumbrances recorded prior to the condominium lien, and 
“sums unpaid on any first mortgages or first deeds of trust 
recorded prior to the perfection of said lien for assessments 
and securing institutional lenders.”  Code § 55-79.84(A). 
 
Once an assessment lien is perfected against a 
condominium unit, Code § 55-79.84(I) authorizes “the unit 
owners’ association [to] sell the unit at public sale, subject 
to prior liens.”  (Emphasis added.)  Code § 55-79.84 (I)(5)(c) 
recites the order in which the proceeds of the sale are to be 
applied: 
 
The unit owners’ association shall receive and 
receipt for the proceeds of sale, . . . and apply 
the same in the following order:  first, to the 
reasonable expenses of the sale; second, to the 
satisfaction of all taxes, levies, and assessments, 
with costs and interest; third, to the satisfaction 
of the lien for the unit owners’ assessments; 
fourth, to the satisfaction in the order of priority 
of any remaining inferior claims of record; and 
 
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fifth, to pay the residue of the proceeds to the 
unit owner or his assigns . . . . 
 
The focus of the present dispute is on the proper 
construction of the phrase “subject to prior liens” in Code 
§ 55-79.84(I).  The Bank contends that because the priority of 
its lien is established in Code § 55-79.84(A), the proceeds of 
the sale must be used to satisfy its lien before being applied 
to the lien of the unit owners’ association and the other 
encumbrances on the unit in the order prescribed by Code § 55-
79.84(I)(5)(c) because the sale is “subject to prior liens.” 
 
The Association contends that the phrase “subject to 
prior liens” as used in Code § 55-79.84(I) should be read to 
permit a unit owners’ association to sell a unit at public 
sale with the understanding that the unit remains encumbered 
by any prior superior liens.  Thus, the Association contends 
that from the proceeds of the sale it may satisfy its 
assessment lien, satisfy the other encumbrances on the unit 
specifically enumerated in Code § 55-79.84(I)(5)(c), and pay 
any residue of the sale proceeds to the former owner of the 
unit, without applying the proceeds to the prior liens.  In 
sum, the Association contends that a forced sale of an 
individual unit pursuant to Code § 55-79.84(I) preserves the 
priority of the lien of the first deed of trust in favor of 
the institutional lender established in subsection (A), by 
 
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permitting the sale to be made “subject to prior liens” 
through the continued encumbrances of the property after the 
sale. 
 
The Association’s interpretation of the phrase “subject 
to prior liens” in Code § 55-79.84(I) creates a conflict 
between that subsection and subsection (A) of the statute.  In 
effect, the Association’s interpretation would render the 
priority of liens established in subsection (A) meaningless 
with respect to the remainder of the statute.  This conflict 
is avoided, however, by the application of basic principles of 
statutory construction. 
 
Under basic rules of statutory construction, we examine 
the language of a statute in its entirety and determine the 
intent of the General Assembly from the words contained in the 
statute.  Cummings v. Fulghum, 261 Va. 73, 77, 540 S.E.2d 494, 
496 (2001); Earley v. Landsidle, 257 Va. 365, 369, 514 S.E.2d 
153, 155 (1999).  In doing so, the various parts of the 
statute should be harmonized so that, if practicable, each is 
given a sensible and intelligent effect.  VEPCO v. Prince 
William Co., 226 Va. 382, 387-88, 309 S.E.2d 308, 311 (1983). 
 
Applying these principles of statutory construction, the 
priority of the liens in favor of institutional lenders in 
Code § 55-79.84(A) is properly viewed as creating a condition 
precedent to the disbursement order of the sale proceeds under 
 
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subsection (I).  Thus, the “subject to prior liens” language 
of the latter subsection may be fairly interpreted as 
requiring the satisfaction of those liens from the proceeds of 
a forced sale of an individual condominium unit by the unit 
owners’ association.  In short, we conclude that the General 
Assembly intended to balance the interests of the holder of a 
first deed of trust and those of a unit owners’ association by 
providing in these subsections that the satisfaction of the 
institutional lender’s first mortgage or first deed of trust 
be a term of the public sale of an individual condominium unit 
by the unit owners’ association when seeking to satisfy its 
inferior lien for unpaid assessments. 
 
A contrary result permitting the sale proceeds to be used 
to satisfy the lien of the unit owners’ association, other 
lesser encumbrances, and potentially disbursing the residue of 
the sale proceeds to the defaulting former owner, without 
applying those proceeds to satisfy the first deed of trust, 
would put the institutional lender holding the first deed of 
trust at a serious disadvantage with respect to its ability to 
protect its security interest in the condominium unit.  The 
purchaser and new owner of the condominium unit would have no 
obligation to pay the lender the sums unpaid on the lender’s 
first deed of trust.  The lender would be placed at risk that 
the new owner might permit damage to the unit before the 
 
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lender could foreclose.  The other detrimental possibilities 
are numerous and of great potential consequence, such as the 
prospect of inadequate fire insurance coverage in the event of 
unexpected fire damage to the unit.  Additionally, the 
original owner would no longer own the unit and, thus, would 
have less incentive to satisfy the debt secured by the 
lender’s deed of trust.  We have no doubt that the General 
Assembly intended to avoid such possibilities to the detriment 
of the institutional lender’s security interest. 
 
Accordingly, we hold that the proceeds of a public sale 
of a condominium unit by a unit owners’ association under Code 
§ 55-79.84(I) must be applied first to satisfy the prior 
superior liens established under Code § 55-79.84(A) before the 
unit owners’ association may apply the proceeds of that sale 
in satisfaction of its own lien as well as other encumbrances 
on the property, and then it is to pay any residue to the 
former unit owner as prescribed by Code § 55-79.84(I)(5)(c). 
CONCLUSION 
 
For these reasons, we will affirm the judgment of the 
trial court directing that the proceeds of the sale of the 
condominium unit by the Association pursuant to Code § 55- 
79.84(I) must be used first to satisfy the Bank’s first deed 
of trust. 
Affirmed. 
 
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JUSTICE LACY, with whom JUSTICE KINSER and JUSTICE LEMONS 
join, dissenting. 
 
 
 
Subsection (I)(5)(c) of Code § 55-79.84 specifically 
addresses the manner in which the proceeds of the non-judicial 
or public sale of a condominium unit are to be disbursed: 
 
The unit owners' association shall receive and 
receipt for the proceeds of sale, . . . and apply 
the same in the following order:  first, to the 
reasonable expenses of sale; second, to the 
satisfaction of all taxes, levies, and assessments, 
with costs and interest; third, to the satisfaction 
of the lien for the unit owners' assessments; 
fourth, to the satisfaction in the order of 
priority of any remaining inferior claims of 
record; and fifth, to pay the residue of the 
proceeds to the unit owner or his assigns; . . . 
 
There is nothing ambiguous about this provision.  It clearly 
directs payment of an association's assessment lien following 
satisfaction of the expenses of the sale and satisfaction of 
taxes, levies, and assessments.  Nothing in this language 
suggests that the proceeds from the public sale must be used 
first to satisfy a first deed of trust.  Normal rules of 
statutory construction require application of unambiguous 
provisions in accordance with the plain language of the 
statute.  Mozley v. Prestwould Bd. of Dirs., 264 Va. 549, 554, 
570 S.E.2d 817, 820 (2002). 
 
The majority concludes, however, that this section cannot 
be applied as written because it creates a conflict with the 
priority of liens set out in subsection (A) of the section and 
 
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because "common knowledge and experience" inform us that 
without such priority institutional lenders will no longer 
provide the "fuel" for condominium development.  The majority 
states that "[i]t is the priority of the lender's lien on a 
particular unit as well as the market value of the unit that 
establishes the lender's security for the loan."  In my 
opinion, applying these Code subsections as written creates 
neither a conflict between them, nor the parade of horribles 
predicted by the majority. 
 
What is the conflict the majority sees?  Subsection (A) 
provides that sums unpaid on first mortgages, or first deeds 
of trust, securing institutional lenders and recorded prior to 
the perfection of association assessment liens have priority 
over the association assessment liens.  Subsection (I) 
provides that the condominium owners' association may sell the 
unit at public sale, "subject to prior liens," if the 
association complies with certain procedures.  Payment of sums 
remaining on a first mortgage or first deed of trust is not 
mentioned in the scheme delineated in subsection (I) of the 
statute.  This omission, the majority says, creates the 
conflict because it renders meaningless the priority of liens 
set out in subsection (A).  I disagree. 
Normal usage of the phrase "subject to prior liens" as 
used in subsection (I) means that the property being sold 
 
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remains as security for such prior liens – that is, the 
property remains liable for such prior liens regardless of the 
transfer of title.  This concept is not foreign to creditors' 
rights jurisprudence.  It is grounded in common law redemption 
of equity procedures available to subordinate lenders.  See 
Yaffe v. Heritage Sav. & Loan Ass'n., 235 Va. 577, 582, 369 
S.E.2d 404, 407 (1988); Kaplan v. Ruffin, 213 Va. 551, 554-55, 
193 S.E.2d 689, 692 (1973); Schmidt & Wilson, Inc. v. Carneal, 
164 Va. 412, 416-17, 180 S.E. 325, 326-27 (1935).  The 
majority's interpretation of "subject to prior liens" is 
inconsistent with that phrase's well-understood and long-
accepted meaning. 
The majority's interpretation also requires adding words 
to the statute so that the provision would read as follows: 
"The unit owners' association may sell the unit at public 
sale, subject to satisfaction of prior liens."  We generally 
do not engage in adding words to a statute, particularly when 
the statute has a clear and unambiguous meaning without the 
addition of such words.  See Woods v. Mendez, 265 Va. 68, 74-
75, 574 S.E.2d 263, 266-67 (2003). 
More importantly, in enacting subsection (I), the General 
Assembly did not render subsection (A) meaningless.  The 
General Assembly exercised its legislative prerogative to 
provide condominium associations with a process to enforce 
 
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their assessment liens in addition to traditional foreclosure 
procedures and the other remedies set out in subsections (C), 
(D), and (G) of Code § 55-79.84.  The priorities set out in 
(A) apply in all situations involving the sale of the 
condominium unit except the specific type of sale authorized 
in subsection (I). 
The General Assembly's understanding of the enforcement 
mechanism it adopted is further shown by the legislation 
adding subsection (I) in 1997.  In that legislation, the 
General Assembly also amended Code § 55-516 to provide the 
identical enforcement mechanism for property owners' 
association assessment liens.  See 1997 Va. Acts ch. 760.  The 
provisions of subsection (A) in Code § 55-79.84 and subsection 
(A) of Code § 55-516 regarding the priority of liens are also 
identical.  In contrast, the General Assembly, in prescribing 
disbursement of proceeds of public sale to enforce the 
assessment lien of a cooperative association, specifically 
provided that "[s]atisfaction in the order of priority of any 
prior claims of record" occur prior to satisfaction of the 
cooperative association's assessment lien.  Code §§ 55-472 
(J)(3), -472(J)(4).  Subsection (B) of Code § 55-472, like 
subsection (A) of Code § 55-79.84, also provides that a first 
security interest previously perfected encumbering the 
 
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cooperative interest of a proprietary lessee has priority over 
the cooperative association's assessment lien. 
Because the General Assembly has clearly provided for 
different payment distributions in the enforcement of 
assessment liens, even though the prior perfected security 
interest in each case generally has priority over assessment 
liens, I can only conclude that the language adopted by the 
General Assembly was meant to be applied as written.  When the 
General Assembly intended that prior perfected liens be 
satisfied before payment of an association's assessment lien, 
it made the appropriate provisions in the legislation.  The 
language adopted in Code § 55-79.84(I) did not do so and such 
a payment scheme should not be imposed by judicial 
interpretation. 
 
The touchstone of the majority's statutory conflict is 
its perception that allowing the sale of a condominium unit 
"subject to" an antecedent deed of trust and paying the 
condominium assessment lien will somehow seal the doom of 
condominium development.  We do not have the record in this 
case to support such a conclusion, nor is this Court the 
proper venue to develop such a record.  Rather, the General 
Assembly is the branch of government designed and equipped to 
take testimony and compile information on the impact of such 
 
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payment priorities, and accordingly, to decide the wisdom of 
adopting them. 
Of course, if we were to consider relevant data and our 
common knowledge and experience regarding condominium 
development, we might conclude that part of the value of a 
condominium unit comes from the ability of the condominium 
association to maintain the common areas of the development, 
including the structures' exteriors, landscaping, and 
amenities.  The ability to maintain these elements is directly 
related to the association's ability to secure payment of 
assessments from the individual unit owners.  The legislative 
provision for payment of such association liens from the 
public sale of a unit, subject to the first deed of trust (and 
other prior liens), is precisely the type of enforcement 
mechanism that enhances a lender's confidence in the value of 
it's security interest. 
Contrary to the majority's observations, the sale of a 
condominium unit pursuant to subsection (I) would not alter 
the value of the property.  There is no change in the original 
owner's liability for the first deed of trust note.  In fact, 
following a public sale, satisfaction of the lender's deed of 
trust is enhanced because a second party has an interest in 
seeing that the deed of trust note is not defaulted. 
 
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Furthermore, the lender in this case, as in most deeds of 
trust, anticipated the sale of the property without its 
consent or satisfaction of its lien.  The lending instrument 
states that, in the event of sale or conveyance of the 
property, the debt secured by the property is subject to 
payment in full.  Concerns about unit damage or destruction by 
the owner before foreclosure, in my opinion, are counter 
intuitive and not consistent with human experience. 
Allowing the sale of a condominium unit subject to the 
lender's lien simply does not compromise or jeopardize the 
lender's security interest.  But, as I have said, these 
concerns are the stuff of legislative policy determinations 
and not the type of legal principle or rule of statutory 
construction that should guide our analysis and conclusions. 
Accordingly, I would reverse the judgment of the trial 
court and remand the case for further proceedings.*
 
 
                     
* The lender in this case also argued that, because its 
lien was recorded in 1996 and subsection (I) of Code § 55-
79.84 was not enacted until 1997, the subsection cannot be 
applied retroactively to affect its substantive rights.  
Regardless of whether the 1997 enactment affected substantive 
rights, the lender is precluded from raising this issue here 
because it was not raised in the trial court.  Rule 5:25.  In 
the trial court, the lender argued that allowing the proceeds 
from a public sale to be disbursed as provided in subsection 
(I) was per se unconstitutional because such a construction 
would violate the Contract Clause of the United States 
Constitution. U.S. Const. art. I, § 10. 
 
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