Homeowners Must Pay Dues Even for Pre-Owned Properties: A Lesson in Liens and Responsibilities

Ferndale Homes Homeowners Association Inc. v. Spouses Harlin Cast. Abayon and Daryl Grace Abayon, G.R. No. 230426, April 28, 2021

Imagine purchasing your dream home, only to discover that you’re responsible for unpaid dues from the previous owner. This scenario became a reality for the Abayon spouses, sparking a legal battle that reached the Supreme Court of the Philippines. The central question: Can new homeowners be held liable for association dues that accrued before they owned the property? The answer lies in understanding the concept of liens and the obligations that come with property ownership.

The Abayons acquired several lots in Ferndale Homes, a residential subdivision in Quezon City. Unbeknownst to them, these properties had unpaid association dues from previous owners. The Ferndale Homes Homeowners Association Inc. (FHHAI) demanded payment, including interest and penalties, claiming these dues constituted liens on the properties. The Abayons contested this, arguing they shouldn’t be responsible for debts they didn’t incur. This case highlights the importance of understanding your rights and responsibilities as a homeowner in the Philippines.

Legal Context: Understanding Liens and Homeowners’ Associations

In the Philippines, homeowners’ associations play a crucial role in maintaining the quality of life in residential subdivisions. These associations are empowered by laws like Republic Act No. 9904, the Magna Carta for Homeowners and Homeowners’ Associations, which grants them the right to impose and collect dues for community services and maintenance.

A key concept in this case is the lien. A lien is a legal right or interest that a creditor has in another’s property, lasting usually until the debt or obligation that it secures is paid. In the context of homeowners’ associations, unpaid dues can become liens on the property, meaning the debt follows the property itself, not just the original owner.

The Ferndale Homes Deed of Restrictions, which all lot owners agree to, explicitly states that unpaid assessments become liens on the property. This provision is crucial, as it binds new owners to pay any outstanding dues, even if they were incurred by previous owners.

Consider this example: If you buy a car with an outstanding loan, you’re responsible for paying off that loan, even if you weren’t the original borrower. Similarly, when buying property in a subdivision, you must be aware of any existing liens, as they become your responsibility upon purchase.

Case Breakdown: The Abayons’ Journey Through the Legal System

The Abayons’ legal battle began when they filed a complaint with the Housing and Land Use Regulatory Board (HLURB) in 2013, seeking reimbursement for dues they paid on lots they acquired in 2004 and 2005. They argued that they shouldn’t be liable for dues that accrued before their ownership.

The HLURB initially ruled in their favor, stating that successors-in-interest aren’t obligated to pay the unpaid dues of previous owners. However, FHHAI appealed this decision to the Court of Appeals, which reversed the HLURB’s ruling.

The Court of Appeals found that the Abayons were indeed liable for the unpaid dues, as these constituted liens on the properties they purchased. The court noted that the Deed of Restrictions, which the Abayons agreed to when purchasing their lots, clearly stated that unpaid assessments become liens on the property.

The case eventually reached the Supreme Court, which upheld the Court of Appeals’ decision. The Supreme Court emphasized that the Abayons, as new owners, stepped into the shoes of their predecessors and assumed the obligation to pay the outstanding dues.

Key quotes from the Supreme Court’s reasoning include:

“As liens, unpaid association dues attach to the properties themselves, regardless of whoever is their owner. When said properties get transferred, the liens remain but the obligation to pay them is transferred to the new owner.”

“The spring cannot rise higher than its source. No one can transfer to another a right greater than that which one has.”

The Supreme Court also addressed the issue of interest and penalties on late payments. While acknowledging FHHAI’s right to impose these charges, the court reduced the rates from 24% to 12% for interest and from 8% to 6% for penalties, citing these original rates as unconscionable.

Practical Implications: What This Means for Homebuyers and Associations

This ruling has significant implications for both homebuyers and homeowners’ associations in the Philippines. For potential buyers, it underscores the importance of conducting thorough due diligence before purchasing property. This includes checking for any existing liens or unpaid dues that could become their responsibility.

For homeowners’ associations, the decision reaffirms their right to enforce liens for unpaid dues, but also emphasizes the need for reasonable interest and penalty rates.

Key Lessons:

• Always review the Deed of Restrictions and inquire about any existing liens before purchasing property in a subdivision.
• Understand that by buying property, you may be assuming responsibility for unpaid dues from previous owners.
• Homeowners’ associations must ensure their interest and penalty rates are fair and not unconscionable.

Frequently Asked Questions

What is a lien in the context of homeowners’ associations?

A lien is a legal right that a homeowners’ association has over a property for unpaid dues. It means that the debt follows the property, so new owners may be responsible for paying it.

Can I be held liable for dues that accrued before I bought my property?

Yes, if the subdivision’s Deed of Restrictions states that unpaid dues become liens on the property, you may be responsible for paying them as the new owner.

What should I do before buying property in a subdivision?

Conduct thorough due diligence. Review the Deed of Restrictions, check for any existing liens, and inquire with the homeowners’ association about any unpaid dues.

Can homeowners’ associations charge interest and penalties on late payments?

Yes, but the rates must be reasonable. The Supreme Court has ruled that excessively high rates may be reduced.

What if I disagree with the amount of dues or penalties charged by my association?

You can file a complaint with the Housing and Land Use Regulatory Board (HLURB) or seek legal advice to challenge the charges.

ASG Law specializes in property law and homeowners’ association disputes. Contact us or email hello@asglawpartners.com to schedule a consultation.