Certified questions from federal courts have kept the Maryland Court of Appeals busy with issues arising from debtors and creditors relationships. In United Bank v. Buckingham (Misc. No. 1, Sept. Term 2020) (Mar. 9, 2021), the Court advised the U.S. District Court for the District of Maryland that a change of beneficiary on a life insurance policy is a “conveyance” for purposes of the State’s fraudulent conveyance act. More recently, the Court advised the U.S. Bankruptcy Court that a Maryland condominium association may not file a “continuing lien” to secure unit owner obligations that accrue after the lien is recorded. In In re: Walker (Misc. No. 8, Sept. Term 2020) (Mar. 30, 2021), the Court declared that while Maryland permits some continuing liens, “[t]he plain text, legislative history, and case law relevant to the [Maryland Contract Lien Act] collectively demonstrate the intent of the General Assembly to prohibit continuing liens” to secure unpaid damages, cost and fees owed to a condominium association. Id. at 26.
Denicia Walker, a condominium unit owner, routinely failed to pay monthly assessments required by her condominium association bylaws. Between 2002 and 2014, the association filed eight liens against Walker’s unit for unpaid fees. In October 2015, the association notified Walker that it would be filing a ninth lien to secure payment of assessments due as of October 6, 2015, “plus all sums becoming due thereafter.” Id. at 3. The association filed the lien as promised and later obtained a personal judgment for unpaid assessments through December 31, 2016.
On October 16, 2018, Walker filed a petition for relief in the U.S. Bankruptcy Court. The association promptly filed proof of a secured claim for $42,298, which included principal, interest, attorneys’ fees, and costs that accrued after the 2015 lien was filed. Walker objected, arguing that the Maryland Contract Lien Act (MCLA) Md. Code Ann., Real Property (Real Prop.) §§ 14-201 et seq., which authorizes the filing of liens by condominium associations, does not permit a lien to secure amounts that accrue after the lien is filed. As the statute was silent on continuing liens and there was no Maryland case law addressing the question, the Bankruptcy Court certified it to the Court of Appeals.
The association argued that it could file a continuing lien because nothing in the MCLA said that it could not. Mindful that the Court of Appeals had previously determined that MCLA was intended to create a framework for recording and enforcing liens in accordance with the minimum requirements of due process, the association suggested that due process requirements were met because the unit owner received prior notice that a continuing lien was being sought and thus had an opportunity to be heard before it was recorded. Id. at 7. The association also argued that while requiring successive liens would not significantly lower the risk of erroneous deprivation of a unit owner’s property, it would have deleterious consequences for both condo owners and associations by subjecting them to increased procedural, fiscal, and administrative burdens.
Walker took a contrary view, arguing that continuing liens are prohibited by the plain language of the statute and its legislative history, and would violate procedural due process rights previously recognized by the Court. The Court agreed with Walker on all three points.
Addressing the statutory construction argument, the Court first noted that as a statutory creation, statutory liens are governed entirely by the terms of the statute. Moreover, because the statute creates a right in favor of a creditor that did not exist at common law, rules of statutory construction require that it be strictly construed in favor of the debtor. Id. at 11.
The Court first observed that Real Prop. § 14-202(b) contains an exclusive list of condominium association payments that can be secured by a lien:
A lien may only secure the payment of:
(2) Cost of collection;
(3) Late charges permitted by law; and
(4) Attorney’s fees provided for in a contract or awarded by a court for breach of contract.
The Court said that by inserting the term “only” in the statute, the Legislature “clearly limited the four types of payments that may be secured by a lien” and that “[w]ithin this bounded list, Real Prop. § 14-202(b) notably omits mention of payments that accrue subsequent to the lien’s recordation.” Id. at 13–14. Furthermore, as “damages” are defined at § 14-201(c)(1) as “‘unpaid sums due under contract, plus interest accruing on the unpaid sums due under a contract . . .’ [t]he definition of damages plainly limits payments that may be secured by the lien to those that are ‘due.’” (emphasis supplied by the Court). Id. at 14. “Future, accumulated damages cannot logically be due,” and thus are not included in the list of items for which a lien may be filed. Id.
Finally in this regard, the Court looked at § 14-202(b) in the context of the statute as a whole. It noted that § 14-204(d)(2)(i) authorizes foreclosure on a condo association lien, but only if the damages secured by the lien consist of delinquent assessments and “costs and attorney’s fees directly related to the filing of the lien . . . .” (Emphasis supplied by the Court). Id. at 15. “It would untenably stretch the meaning of ‘directly related to’ if the lien could encompass costs and fees that accumulate years after the lien is recorded.” Id. at. 14–15.
The Court also found the MCLA’s legislative history instructive. It noted that the MCLA was revised in 1985 in response to due process concerns raised by the Court of Special Appeals when analyzing an earlier version of the Act. “The General Assembly amended the MCLA to prevent a lien’s recordation until the unit owner received both prior notice and an opportunity to be heard.” Id. at 20. A continuing lien, the Court concluded, would be “at odds with the legislative purpose of the MCLA because it deprives debtors of the opportunity to challenge the accrual of a finite amount of debt in a proceeding before the condominium association records the lien.” Id. at 21.
The Court summarily dismissed the association’s argument that requiring successive liens would expose all parties to unnecessary burden and expense. The MCLA established a formulaic, fill-in-the-blank method to record the liens, so requiring future liens to secure debts as they become due “would not impose an undue burden on condominium associations.” Id. at 18. The fact that nine liens were recorded with little effort by the association in this case did little to further its cause.
The Court made two more points in support of its position. First, it noted that one of its earlier opinions compared the State’s mechanic’s lien statute with the MCLA and concluded that while the MCLA “is not a clone of the 1976 Mechanic’s Lien Law, there is enough similarity to suggest cousinship even if not parentage.” Id. quoting Golden Sands Club Condo, Inc. v. Waller, 313 Md. 484, 491 n. 5 (1988). As the Court had previously determined that a mechanic’s lien does not attach to future indebtedness, “[i]t follows that the MCLA would similarly require advanced notice to challenge the proposed amount or sum due before recordation of the lien.” Id. at 22.
Second, the Court observed that in the other contexts, like wage garnishments, the General Assembly has expressly authorized continuing liens. “If the General Assembly had intended for the MCLA to permit continuing liens . . . it could have said so in the statute.” Id. The Court underscored this point by noting that other states have expressly authorized continuing liens for condo associations, and that courts interpreting statutes that do not almost universally decline to imply such a remedy.
The Court thus concluded: “Real Prop. §§ 14-201–206 does not secure unpaid damages, costs of collection, late charges, and attorney’s fees that accrue subsequent to the recordation of the lien.” Id. at 26. Successive liens, therefore, are required under the statute.