Opinion ID: 2597663
Heading Depth: 3
Heading Rank: 1

Heading: The Special Assessment Was a Debt at Closing.

Text: The board of the Mt. Vernon Commons Condominium Association voted to levy a special assessment on December 10, 2001, a fact reflected in the minutes of the special board meeting, the corporate resolution, and the testimony of Michael Olson, whom the superior court found to be fully credible. This decision was communicated to homeowners in letters dated January 11 and 16, 2002, along with the amount due from each homeowner, including the interest rate applicable to installment payments. Although the board did not vote to impose a deadline for payment until the March 27, 2002 special board meeting, the January correspondence specifically informed homeowners who were negotiating to sell their units that the special assessment is on the unit and due upon closing and encouraged them to ensure that the closing agent deposited the funds in a special account set up for that purpose. The question is whether the assessment existed as an obligation of the estate prior to the sale of the unit or whether the assessment became effective only on April 30, 2002 and was thus payable by Ramstack. Resolution of this question requires us to determine when a condominium assessment becomes effective and whether the special assessment at Mt. Vernon Commons was an existing obligation when Ramstack purchased unit 2F from the estate. Soules raises two arguments in support of her position that the estate is not contractually obligated to pay the assessment, both of which rely on the April 30 deadline for paying the assessment. First, she argues that, in the absence of an express provision in an association's bylaws, an assessment is not payable until a condominium association has statutory authority to attach a lien against a unit to enforce collection. She relies upon AS 34.08.470, which provides that a lien attaches from the date an assessment is due, to support her argument that the assessment was only effective when it was due. Second, Soules argues that the assessment was a contingent liability when the estate contracted to sell the condominium to Ramstack, and that the liability only became definite on April 30 when the assessment was due. Under both arguments, Soules claims that since the assessment was not due until after the estate sold the unit on April 22, 2002 the estate bore no duty to pay the assessment. While the condominium association's bylaws do not indicate when a special assessment is effective, Soules notes that AS 34.08.470, a provision of the Uniform Common Interest Ownership Act, [12] states that a condominium association has a lien on a unit for an assessment from the time the assessment becomes due. [13] According to Soules, if no lien could attach against the unit until after April 30 then no debt was due and the association could pursue no action for collection. Her argument reduces to a syllogism: if no lien could attach, no debt was payable; if no debt was payable, the assessment had not been levied; if the assessment had not been levied, the estate did not breach its contract. While this argument has the virtue of simplicity, it misses an important point: An assessment does not become valid only when it attaches as a lien. Debts can exist before they are due, and condominium assessments can be effective before they must be paid. Condominium associations in most states have statutory authority to attach liens as a collection mechanism to ensure that homeowners pay the fees it has assessed. [14] Alaska Statute 34.08.470 describes one way for an association to collect assessments from recalcitrant homeowners: It grants the authority to impose liens to collect unpaid assessments, it allows these liens to attach from the time an assessment is due, and it gives these liens priority over other types of liens and encumbrances. [15] But it says nothing about when an assessment itself becomes effective. A condominium association also has other means available to encourage the timely payment of assessments, including authority to impose late fees and fines [16] and to charge up to an eighteen percent interest rate on unpaid balances. [17] Indeed the typical sequence by which an association adopts, announces, and collects assessments implies that an assessment will be effective before it is due, and almost certainly before the association could attach a lien against a unit to compel payment. Typically an association board will adopt a budget for planned expenses, enact an assessment to meet these expenses, set a deadline for payment and, if the assessment remains unpaid, pursue various collection strategies ranging from sending a reminder letter, charging interest, attaching a lien, and even foreclosing on a unit. [18] But the assessment exists even though it might not be immediately payable. Allowing a period of months before payment is due is particularly important where, as here, the association levied an assessment of more than $13,000, greater than ten percent of the value of the condominium, which sold for $126,900. When the announcement of an assessment predates the due date, the assessment is best viewed as an unmatured obligation, a debt for which the sum is certain though the time for payment is deferred. [19] Though the time for payment had not yet passed when the estate sold unit 2F to Ramstack, the assessment existed as an obligation of the estate from the time it was enacted. Because the assessment was an existing obligation when the estate contracted to sell the unit, the superior court correctly found that the estate bore the obligation of paying the assessment. Soules argues that the assessment was a contingent liability rather than an unmatured obligation, because the assessment would only become a debt when all events [had] occurred which fix and determine the liability of the debtor. A contingent liability is a liability that depends upon the occurrence of a future and uncertain event. [20] But Soules's argument would mean that the assessment was not valid until the association closed on the land, because that is when the event finally occurred which fixed the liability of each unit owner. That claim is clearly wrong. [21] The transaction did not finally close until September 6, 2002. If the assessment was contingent upon the land transaction being completed, it was not due until September 6, notwithstanding the fact that the assessment was voted in December and announced in January, payment was due in April, and liens attached against unpaid units in May. But even Soules acknowledges that payment was due on April 30, 2002. The validity of the assessment was not contingent upon whether the association purchased the land. Had the land transaction irreparably fallen apart, the assessment payments would have been refunded with interest. Though the assessment was not due until April 30, when the estate sold the unit to Ramstack, payment of the assessment was contingent upon nothing but the passage of time. Thus the assessment must be viewed as an unmatured debt rather than a contingent liability. The superior court found that the board enacted a special assessment on December 10, 2001, that it communicated the amount due from each homeowner in January 2002, and that the assessment remained valid even though the association continued to negotiate the terms of the transaction with the seller and the bank. These factual findings are not clearly erroneous. Correspondence from the association specifically instructed owners who were selling units to withhold the assessment at closing and informed them that any funds paid would be refunded with interest in the event that the land transaction was not completed. Although the association did not initially impose a due date, Michael Olson testified that the board hoped that owners would pay the assessment before the association purchased the land so that these funds could be used as a down payment. When the transaction was renewed on March 27, 2002 the board set an April 30 deadline for payment. The amount assessed against each unit remained unchanged at least from the initial communication to homeowners on January 11, 2002. Under these circumstances, the superior court correctly ruled that the assessment was a debt of the estate at the time of closing. The superior court also found that Schmidt was fully aware of the status of the land transaction and the special assessment, but that this information was not disclosed to Ramstack or her agent. Because the estate had greater knowledge of the pending assessment, the superior court correctly ruled that the estate bore the burden of exempting the special assessment from its contractual agreement with Ramstack if it wished to avoid its obligation to pay the assessment.