by Michael J. McKeefery, Esq.

Cohn, Goldberg & Deutsch, LLC *

USFN Member (DC, MD)

            For years now, all mortgage holders in the District of Columbia (“D.C.”) have had to simply accept that a Condominium Association (“COA”) could swoop in and sever a mortgage holder’s interests in a property. Under D.C. law, if a COA forecloses on a “super priority” lien, then a priority mortgage holder’s interest in the property would be wiped out in its entirety. Despite this bleak backdrop, a case has finally emerged from the United States District Court for the District of Columbia that offers some solace to a certain group of mortgage holders. 

            Before this case, the landscape for all mortgage holders in D.C. had been a treacherous one. In 2014, the Court of Appeals for the District of Columbia issued its decision in Chase Plaza Condominium Ass’n v. JP Morgan Chase Bank, N.A., 98 A.3d 166 (D.C. 2014), finding that a COA is permitted to foreclose on a six-month condominium assessment lien, and that such a foreclosure wipes out any and all other liens on the property, including any previously recorded first mortgage lien. In Liu v. U.S. Bank, N.A., 179 A.3d 871 (D.C. 2018), the D.C. Court of Appeals found that a COA foreclosure sale wiped out all other liens, even when there was explicit notice to all potential buyers that the sale was to be conducted “subject to the first mortgage or deed of trust.” In 4700 Conn 305 Trust v. Capital One, N.A., 193 A.3d 762 (D.C. 2018), the Court found that, even in the context of a COA lien that amounted to more than just the six-month super-priority lien, all liens were wiped out including previously recorded first mortgage liens.

            However, now, hope shines brightly for a particular group of first priority mortgage holders, thanks to the United States District Court for the District of Columbia’s recent decision in M&T Bank v. Delphina N. Brown, 2022 WL 7003740. The facts of this case are reasonably straightforward. In 2006, Ms. Brown took out a loan to finance the purchase of a condominium unit commonly known as 512 Ridge Road, SE, #206, Washington, DC (the “Property”). Freddie Mac purchased this loan in 2007, and M&T Bank (“M&T”) became the servicing agent for Freddie Mac. In 2016, the Ridgecrest Condominium Owners Association (“RCOA”) executed and recorded a lien concerning the Property. Thereafter, RCOA foreclosed on its lien and sold the Property via public sale to a third-party purchaser. It is uncontested that, at the time of RCOA’s foreclosure sale, Freddie Mac was the owner of the 2006 loan, and neither Freddie Mac nor the Federal Housing Finance Agency (“FHFA”) consented to the sale. In 2017, M&T filed a Complaint for Judicial Foreclosure regarding the Property and amended that complaint in 2019 to add Freddie Mac as a plaintiff in the action. M&T and Freddie Mac then removed their case to the United States District Court for the District of Columbia and filed a Motion for Partial Summary Judgement with the Court, requesting that the Court find that the COA foreclosure did not extinguish Freddie Mac’s interest in the Property. 

            Primarily, in its analysis, the Court focused upon the interplay between the Federal Foreclosure Bar and the D.C. Condominium Act (DC Code § 42-1903.13). The Federal Foreclosure Bar provides that “[n]o property of [an FHFA conservatorship] shall be subject to levy, attachment, garnishment, foreclosure, or sale without the consent of the Agency.” 12 U.S.C. § 4617 (j) (3) (emphasis added). The D.C. Condominium Act grants eligible COA liens a “super-priority” status, permitting a COA with such a lien to foreclose on a property and extinguish all other liens. The Court found that the D.C. Condominium Act is preempted by the Federal Foreclosure Bar. Essentially, the Court found that it was impossible to reconcile the Federal Foreclosure Bar’s explicit provision that no property of an FHFA conservatorship shall be subject to foreclosure without consent of the Agency with a local law that authorizes the foreclosure of FHFA property without its consent. Therefore, the Court found that, from the text of the federal provision alone, it was clear that Congress intended for the Federal Foreclosure Bar to displace state laws such as the D.C. Condominium Act.

The Court then considered the purposes and objectives of the Federal Foreclosure Bar. The Federal Foreclosure Bar was enacted as part of the Housing and Economic Recovery Act of 2008 (“HERA”).  HERA “authorized the Director of FHFA to appoint FHFA as either conservator or receiver for Fannie Mae and Freddie Mac;” and, thus, the Federal Foreclosure Bar prevents entities from extinguishing Freddie Mac’s property through foreclosure. Perry Cap. LLC v. Mnuchin, 864 F,3d 591, 599-600 (citing 12 U.S.C. § 4617 (a) (1)).

HERA was enacted after the 2008 mortgage crisis, and Congress chose to “authorize extraordinary measures to resuscitate” Fannie Mae and Freddie Mac, including granting the FHFA authority to appoint itself as their conservator. Id. at 599-600. Congress made it clear that it provided this power to FHFA to “preserve and conserve the assets and property” of Fannie Mae and Freddie Mac.” Id. at 600 (citing 12 U.S.C. § 4617 (b) (2) (B) (iv)). Since the D.C. Condominium Act works against preserving and conserving such assets and property, the Court found that the D.C. Condominium Act was preempted by the Federal Foreclosure Bar and could not extinguish Freddie Mac’s lien in this case. 

Thus, Brown stands for the principle that, in D.C., the foreclosure of a COA lien does not extinguish a priority lien held by an FHFA conservatorship, such as Fannie Mae or Freddie Mac. However, it is important to note that this decision does not alter the fact that a private entity’s priority lien would still be wiped out by the foreclosure of a COA’s super-priority lien in D.C.

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USFNews - Nov. 16

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