First Federal Savings & Loan Ass'n v. Bailey , 316 S.C. 350 ( 1994 )

Howell, Chief Judge:

Respondent, First Federal Savings and Loan Association of Charleston brought an action to foreclose a mortgage on real property owned by Arthur N. Bailey and James Michael Manney. Treeloft Villas Homeowners Association was included as a defendant because it held judgment liens against the property for past due assessments. Treeloft answered First Federal’s complaint, maintaining its liens were superior to the mortgage lien. The master found First Federal held a purchase money mortgage superior to the liens of Treeloft. Treeloft appeals. We Affirm.

First Federal’s mortgage was recorded in the R.M.C. Office for Charleston County on April 18, 1979. Covenants of Treeloft Villas Homeowners Association, authorizing assessments for the improvement, maintenance and operation of common properties of the Association, were filed in the R.M.C. Office on August 24, 1978. Treeloft subsequently obtained a series of judgments¹ for unpaid assessments which were all recorded after the mortgage.

The master considered Treeloft’s argument that its judgments obtained pursuant to the covenants should relate back to the date of the recording of the covenants, which was prior to the recording of the purchase money mortgage. The master concluded, however, that the assessments would not have arisen but for the purchase of the property, and that the lien created by First Federal’s purchase money mortgage preceded the judgment liens. The master accordingly held in favor of First Federal, citing the principle that “a purchase money mortgage will ordinarily be given priority over security interests in realty arising through the mortgagor.”

On appeal, Treeloft argues the master erred in holding First Federal’s mortgage was prior to its assessment judgment liens because the judgment liens were obtained pursuant to the prior recorded covenants. The covenants provide:

4. MAINTENANCE ASSESSMENTS: Each owner of any lot shall by acceptance of a deed therefor, whether or not it shall be so expresses [sic] in such deed, agrees to all of the terms and provisions of these Covenants, and to pay to the Association: (i) an interim management fee in the sum of Ten ($10.00) Dollars per month; (ii) working capital for the Association; (iii) maintenance assessments; (iv) special assessments established and collected for hereunder [sic], whether maintenance assessments or special assessment, together with such interests thereon and cost of collections therefor, shall be a charge and continuing lien on the lots against which each assessment is made. (Emphasis added.)

The covenants further provide “[T]hese Covenants shall run with and bind the land and shall enure to the benefit of and be enforceable by the Association____”

Covenants requiring the payment of maintenance assessments are contractual in nature and bind the parties to the covenants in the same manner as other contracts. See Seabrook Island Property Owners Ass’n v. Pelzer, 292 S.C. 343, 356 S.E. (2d) 411 (Ct. App. 1987). Covenants requiring property owners to pay fees for improvements, maintenance or other services to a homeowners association have been held to run with the land. See Streams Sports Club, Ltd. v. Richmond, 99 Ill. (2d) 182, 75 Ill. Dec. 667, 457 N.E. (2d) 1226 (1983); 21 C.J.S. Covenants § 31 (1990). Moreover, where the language imposing such covenants is unambiguous, the covenants will be enforced according to their obvious meaning.² Shipyard Property Owners Ass’n v. Mangiaracina, 307 S.C. 299, 414 S.E. (2d) 795 (Ct. App. 1992).

We agree with Treeloft’s argument that its contractual right to a charge and lien on the subject property did not emanate from First Federal’s mortgagors, but rather the property was already burdened with the covenant at the time the mortgagors received title to it. Accordingly, First Federal, pursuant to the prior recorded covenants, and a provision in its mortgage,³ holds its mortgage subject to Treeloft’s right to impose a charge or lien against the property for unpaid assessments. See South Carolina Federal Sav. Bank v. San-A-Bel Corp., 307 S.C. 76, 413 S.E. (2d) 852 (Ct. App. 1992) (one who takes a security interest in real property with notice of an existing third-party equity in the property takes subject to the third party’s interest).

First Federal argues that notwithstanding the prior recordation of the covenants, there was no debt to support the imposition of a charge or lien until Treeloft, in accordance with the covenants, actually made assessments against the property and such assessments became due and payable. A review of the covenants and principles of equity convinces us of the correctness of this argument. The covenants provide the assessments shall be a “charge and continuing lien on the lots against which each such assessment is made.” The same provision provides that the assessments shall also be a personal obligation of the person(s) who was owner of such lot at the time when the “assessments fell due.” Another provision of the covenants provides that the board of directors of Treeloft shall fix the assessments at least annually and such assessments shall be payable in advance by the lot owners. Additionally, the assessments were to become delinquent if not paid within 30 days after becoming due.

The question then becomes whether amounts assessed by the association which became past due 30 days after assessed constitute a lien recognizable at law which relates back to the time of the filing of the covenants or whether such lien is prospective only. We have not located any South Carolina cases which address this question. To answer this question, we must review the nature of the “charge and continuing lien” established in the covenants. In doing so, we note first that nowhere do the covenants purport to subject specific property to a lien or charge as security for payment of a present debt owed by a lot owner. In fact, at the time of the recording of the covenants, the specific property in question had neither been conveyed to the mortgagors, nor been assessed a sum for maintenance of the common property. We also note the covenants do not provide a method for enforcing the nonpayment of the assessment charge and lien. Nor do the covenants provide that the charge or lien created has priority over other liens and claims. Thus, Treeloft must resort to equity to enforce its charge and lien and secure whatever claim it has to the proceeds from the sale of the mortgaged property.

In equity to charge property means to impose a burden, duty, obligation or lien; to create a claim against the property. Black’s Law Dictionary, 5th Ed. (1983). A charge is a lien, incumbrance, or claim which is to be satisfied out of the specific thing, or proceeds thereof, to which it applies. State ex rel. Malott v. Board of County Com’rs of Cascade County, 89 Mont. 37, 296 P. 1 (1931); In re Interborough Consol. Corp., 288 F. 334, 349 (2nd Cir. 1923). A lien is not property in the thing to which it attaches, but more properly constitutes a charge upon the thing. Powers v. Fidelity & Deposit Co. of Maryland, 180 S.C. 501, 186 S.E. 523 (1936). Unlike a mortgage, an “equitable lien or charge” is neither an estate or property in the thing itself, but is simply a right of a special nature over the thing, which constitutes a charge or encumbrance upon it, so that the very thing itself may be proceeded against in equity for payment of a claim or debt. Carolina Attractions, Inc. v. Courtney, 287 S.C. 140, 337 S.E. (2d) 244 (Ct. App. 1985).

For an equitable lien to arise there must be a debt owing from one person to another, specific property to which the debt attaches, and an intent, expressed or implied, that the property will serve as security for the payment of the debt. Perpetual Federal Sav. and loan Ass’n v. Willingham, 296 S.C. 24, 370 S.E. (2d) 286 (Ct. App. 1988). An equitable lien is a mere floating equity until a judgment or decree subjecting the property to the payment of the debt or claim is rendered. 51 Am. Jur. (2d) Liens § 22 (1970); 53 C.J.S. Liens § 3 (1987). Although not judicially recognized until a judgment is entered declaring its existence, an equitable lien relates back to the time it was created by the conduct of the parties. Fibkins v. Fibkins, 303 S.C. 112, 399 S.E. (2d) 158 (Ct. App. 1990).

Assuming for the sake of this appeal the covenants sufficiently identify specific property to which an equitable lien could attach, what then is the conduct of the parties that actuates the associaton’s charge or lien? We hold it is the failure of the lot owners to pay the assessments when due. For after all, the lien or charge created in the covenants is a lien charge for unpaid assessments. We hold Treeloft’s judgments for assessments constitute liens against the property only from the time the amounts of the respective assessments represented by the judgments were fixed and became due. See St. Paul Federal Bank For Sav. v. Wesby, 149 Ill. App. (3d) 1059, 103 Ill. Dec. 390, 501 N.E. (2d) 707 (1987); see also Harley, Condominiums in South Carolina: Possibilities and Pitfalls, 17 S.C.L. Rev. 334, 346 (1965). It is clear that the assessments giving rise to Treeloft’s judgments were fixed or determined subsequent to First Federal’s mortgage lien and, thus, must necessarily be subordinate to the mortgage lien.

We think this resolution of the parties claims is fair and in keeping with the spirit of the law relative to the priority of common property assessment liens vis-a-vis mortgage liens. Under § 27-31-210 of the Horizontal Property Act, “all sums assessed by the administrator ... but unpaid ... shall constitute a lien on such apartment prior to all other liens except only, ... (ii) mortgage and other liens, duly recorded, encumbering the apartment.” Further, the model Real Estate Cooperative Act, § 3-115 and § 3-116 of the Uniform Condominium Act provide that unpaid assessments shall constitute a lien subordinate to mortgages duly recorded prior to the assessments becoming delinquent.

Accordingly, the order of the master is

Affirmed.

Shaw, J., concurs. Littlejohn, Acting Judge, dissents in separate opinion.

1 The judgments were obtained by Treeloft on August 9, 1986, August 30, 1989, December 28,1990 and June 9,1992.

2 Treeloft cities authorities for the proposition that pre-existing liens may be validly created to secure future debts and obligations. The authorities cited, for the most part, deal with the validity of such liens. The validity of the assessment liens is not at issue here. No one contends they are unconstitutional or violate settled principles of property law.

3 The mortgage states it is taken subject to the provisions of the Covenants.