Priority of Texas Assessment Liens

Other than the time, cost and effort required in pursuing foreclosure of the assessment lien, the Texas Uniform Condominium Act, or, TUCA, further limits its usefulness, by statutorily recognizing certain types of liens that are superior to the Texas assessment lien, and therefore are not extinguished by an assessment lien foreclosure. Any Texas condominium unit taken at foreclosure will be taken subject-to any superior liens.

Section 82.113(b) outlines four types of liens that are superior to the assessment lien. As one might expect, liens for property taxes and other governmental assessments are superior to assessment liens related to the Condominium Association, as are liens recorded prior to the filing of the Declaration for the Condominium Association in the real property records.

Most notable of the statutorily superior liens though regards first deed of trust liens, commonly known as mortgages. Pursuant to Texas Property Code Section 82.113(b)(3), an assessment lien is inferior and subordinate to “a first vendor’s lien or first deed of trust lien recorded before the date upon which the assessment sought to be enforced becomes delinquent under the declaration, bylaws, or rules.” So while the process for perfecting a lien under TUCA is essentially effortless and trouble-free, and further relates back to the date of filing of the Declaration (thereby establishing a priority position with respect to subsequent liens), unfortunately, the assessment lien would be inferior to the extent that the underlying assessments became delinquent subsequent to the recordation of the first mortgage lien in the real property records. Given that most unit owners will acquire a unit only through the acquisition of a mortgage, unless a mortgagee fails to properly protect their interests through timely recordation of their lien, delinquent assessments will only arise after the mortgagee (typically a bank or credit union) has already secured their “place-in-line”, and established superiority over the assessment lien.

Interestingly, the “uniform act” upon which TUCA is modeled, created by the National Conference of Commissioners on Uniform State Laws, contained provisions allowing for up to six-months worth of assessments to have “super-priority” even over first deed of trust liens. However, what many regard as a strong banking lobby in Texas was able to prevent that provision of the model act from making it into TUCA.
Similar to the first deed of trust lien, under 82.113(b)(4), liens, such as “mechanics and materialman’s” liens arising from improvements made to the unit are also superior to the assessment lien to the extent that any assessments sought through foreclosure of the lien became delinquent subsequent to the recordation of that lien. However, this subordination to mechanic's and materialman's liens may be eliminated by declaration. So, should a unit owner hire a contractor to make improvements to the unit, and the contractor records the lien, that lien would have superiority over assessments that only became delinquent after the recordation of that contractor’s lien.

Additionally, under 82.113(b)(4) (again, unless the Declaration provides otherwise), an assignment of insurance proceeds on the unit is also superior to assessment liens to the extent that any assessments sought through foreclosure of the lien became delinquent subsequent to the recordation of the insurance assignment.

“Opting out” of the superiority of mechanics and materialman’s liens and insurance assignments through the Declaration is one step a Condominium Association can take to improve the utility of the assessment lien.

Prepared by Austin Lawyer Chloe M. Love