Judgment Lien vs. Memorandum of Lien: Two Power Tools in a Community Association’s Collection Toolkit
In Virginia, when a property owner fails to pay assessments to the community association, the association has the option of filing a judgment lien or a memorandum of lien against the owner’s property as a means of securing the debt. The benefit of a lien is that it attaches to the property of the debtor, which increases the likelihood that the secured debt will be paid. A lien will prevent the property owner from selling the property or refinancing without first paying the debt to have the lien released. There are key distinctions between the two types of liens; however, both are powerful debt collections tools. This article will briefly explain each type of lien in the context of a tool for community associations to collect unpaid assessments.
The first step in creating a judgment lien is filing a warrant in debt or a complaint in court and obtaining a judgment against the property owner for the amount of the unpaid assessments. If the association is successful in its suit, the court’s judgment will often include an award of attorneys’ fees, court costs, and interest. After obtaining the judgment against the property owner, the judgment does not become a judgment lien (i.e. attach to the debtor’s property) until an abstract of judgment is filed with the clerk of the circuit court for the county or city where the property is located.
One of the benefits to a judgment lien is that the association can file the abstract of judgment with the clerk of the circuit court for any county or city where the property owner owns property. It does not have to be limited to the county or city where the community association is located. Another benefit of judgment liens is that, after an association obtains a judgment for unpaid assessments, the judgment may be enforced for up to 20 years after the judgment is obtained. In addition to filing an abstract of judgment that attaches to real and personal property, a community association may also enforce the judgment by garnishing the property owner’s wages or accounts. One of the downsides to judgment liens, however, is that judgment liens are one of the lower priority liens, and if a superior lien, such as a memorandum of lien, tax lien, or mortgage lien is foreclosed upon, it is rare that there will be money to pay toward a judgment lien, and the lien will likely be rendered moot in its effect against the property that was foreclosed upon.
Memorandum of Lien
In contrast, a memorandum of lien may be filed by an association without first going to court, as the ability to file such liens derives from statute. Virginia Code § 55-516 provides the requirements for perfecting and enforcing a memorandum of lien in property owners (or homeowners) associations, while Virginia Code § 79.84 provides the requirements for perfecting and enforcing a memorandum of lien in condominium owners associations. Provided that the requirements for perfecting the lien are followed, and proper notice is given to the property owner at each step pursuant to the statute, a memorandum of lien may be directly filed in the land records of the county or city where the property is located, creating a cloud on the property’s title until it is released.
There are several benefits to a memorandum of lien, including that (with very few exceptions) it is higher in priority than judgment liens. Also, a memorandum of lien may be foreclosed on, and the property sold as a means of collecting the debt secured by the lien. There are also downsides and pitfalls to filing and enforcing a memorandum of lien. In order to perfect a property or homeowners association lien, it must be filed within 12 months from the time the assessment first becomes delinquent. This is something to be aware of, especially if the association only charges assessments on an annual basis. The deadline for condominium associations, however, is even shorter. A condominium memorandum of lien must be filed within 90 days from the time the assessment first becomes delinquent. Further, unlike judgment liens that have a 20-year enforceability window, a memorandum of lien loses its enforceability after 36 months from the time it was recorded, unless action has been taken to enforce the lien (e.g. initiating foreclosure proceedings).
Best Practice Tips
Judgment liens and memorandum of liens are not mutually exclusive. The best practice for a community association is to file both types of liens to increase the likelihood of payment. It is also a good practice to first check the governing documents and/or condominium instruments, as some will have provisions that address debt collection practices, including additional requirements or restrictions on filing liens.
Liens are by no means the only tool in an association’s collection toolkit, but they are two powerful tools. Whether you are a member of your community association’s board of directors or an association property manager tasked with debt collection strategy, make sure that your community association takes full advantage of these valuable tools.
Kristen Jurjevich is a Pender & Coward attorney who routinely assists community associations with collection efforts, including obtaining judgments for delinquent dues and filing memoranda of liens and foreclosure proceedings.
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