Bankers Trust Co. v. Board of Managers, 81 N.Y.2d 1033 (1993)

A statutory lien for condominium common charges is subordinate to a first mortgage of record, and a first mortgage foreclosure sale extinguishes the common charges lien unless there are excess proceeds after satisfying the mortgage.

Summary

Bankers Trust foreclosed on a first mortgage lien against condominium units owned by the Pals, who also owed the Board of Managers of the Park 900 Condominium unpaid common charges. The Board argued that its lien for common charges should be paid from the foreclosure sale proceeds. The court held that Real Property Law § 339-z subordinates the common charges lien to a first mortgage. A foreclosure sale extinguishes the Board’s lien unless proceeds exceed the mortgage debt. The statute’s “sale or conveyance” clause applies to voluntary transfers, not mortgage foreclosures, solidifying the priority of first mortgages over common charge liens.

Facts

Bankers Trust held a first mortgage on two condominium units owned by Joseph and Josephine Pal. The Pals failed to pay common charges to the Board of Managers, resulting in a statutory lien filed by the Board. The Pals also leased one of the units to Joseph Wender, approved by the Board without requiring the overdue charges to be paid.

Procedural History

Bankers Trust initiated a foreclosure action on its mortgage lien. The Board of Managers, which had also started a foreclosure proceeding regarding its lien, argued its lien should be paid from the foreclosure sale proceeds. The lower court granted summary judgment to Bankers Trust, asserting the priority of its lien. The Appellate Division affirmed, concluding the foreclosure sale was not a