Facts
- Anne M. Will owned a condominium unit in The Mill Condominiums in Ludlow, Vermont.
- Will failed to pay condominium assessments, and the Mill Condominium Owners’ Association initiated a nonjudicial foreclosure under 27A V.S.A. § 3-116.
- The Association, through its attorney, conducted a foreclosure sale and set an upset price equal to unpaid assessments, interest, and costs ($3,510.10).
- The Association and prospective purchasers believed a $45,000 mortgage encumbered the unit; the mortgage had actually been discharged.
- The purchasers were the only bidders and bought the unit for $3,510.10; the unit’s fair market value was approximately $70,000.
- Will sued for declaratory relief to set aside the foreclosure sale and deed; the trial court confirmed the sale and granted defendants summary judgment.
Issues
- Whether a constitutional challenge to applying the nonjudicial foreclosure procedure to condominium assessment liens was preserved for appeal.
- Whether the sale could be voided for mutual mistake based on the parties’ shared but erroneous belief about an outstanding mortgage.
- Whether 27A V.S.A. § 3-116(i) imposes a “commercially reasonable” requirement on condominium lien foreclosure sales, including for associations formed before UCIOA’s enactment.
- Whether the foreclosure sale of Will’s unit was commercially reasonable.
Decision
- The constitutional challenge was waived because it was not raised in the trial court.
- Mutual mistake did not void the sale because Will was not a party to the sales contract between the Association and the purchasers, and the Association’s attorney did not represent Will.
- Section 3-116(i) requires condominium associations to conduct foreclosure sales in a commercially reasonable manner, and the requirement applies even to pre-UCIOA associations.
- The sale was not commercially reasonable given the extreme price disparity, reliance on a nonexistent mortgage, and deficient sale information and procedures.
- The Supreme Court vacated summary judgment for defendants and remanded for entry of judgment voiding the foreclosure sale and deed.
Legal Principles
- Arguments not raised in the trial court, including constitutional claims, generally may not be raised for the first time on appeal.
- Mutual mistake permits avoidance of a contract only by a contracting party; a nonparty affected by a transaction generally cannot rescind the contract on that ground.
- Under 27A V.S.A. § 3-116(i), a condominium association foreclosing an assessment lien must conduct the sale in a commercially reasonable manner.
- The content of “commercial reasonableness” under § 3-116(i) may be informed by UCC Article 9 standards; the party conducting the sale bears the burden to show commercial reasonableness.
- A very low sale price relative to fair market value, coupled with misleading or materially incorrect information affecting bidding, can support a finding that a nonjudicial foreclosure sale was commercially unreasonable and therefore invalid.
Conclusion
The Vermont Supreme Court held that UCIOA conditions the validity of condominium assessment lien foreclosures on a commercially reasonable sale, and it voided a nonjudicial foreclosure where the unit was sold for the amount of delinquent dues based on an erroneous belief about a mortgage and procedures that failed to yield a reasonable price.