A. No special declarant right created or reserved under the Condominium Act shall be transferred except by an instrument evidencing the transfer recorded in each county in which any portion of the condominium is located. The instrument is not effective unless executed by the transferee.
B. Upon tranfer [transfer] of any special declarant right, the liability of a transferor declarant is as follows:
(1) a transferor is not relieved of any obligation or liability arising before the transfer. Lack of privity does not deprive any unit owner of standing to maintain an action to enforce any obligation of the transferor;
(2) if a successor to any special declarant right is an affiliate of a declarant, the transferor is jointly and severally liable with the successor for any obligations or liabilities of the successor relating to the condominium;
(3) if a transferor retains any special declarant right but transfers other special declarant rights to a successor who is not an affiliate of the declarant, the transferor is liable for any obligations or liabilities imposed on a declarant by the Condominium Act or by the declaration relating to the retained special declarant rights and arising after the transfer; and
(4) a transferor has no liability for any act or omission or any breach of a contractual or warranty obligation arising from the exercise of a special declarant right by a successor declarant who is not an affiliate of the transferor.
C. Unless otherwise provided in a mortgage instrument or deed of trust, in case of foreclosure of a mortgage, tax sale, judicial sale or sale under bankruptcy laws or receivership proceedings, of any units owned by a declarant or real estate in a condominium subject to development rights, a person acquiring title to all the real estate being foreclosed or sold, but only upon his request, succeeds to all special declarant rights related to that real estate held by that declarant, or only to any rights reserved in the declaration pursuant to Section 27 [47-7B-15 NMSA 1978] of the Condominium Act and held by that declarant to maintain models, sales offices and signs. The judgment or instrument conveying title shall provide for transfer of only the special declarant rights requested.
D. Upon foreclosure, tax sale, judicial sale, sale by a trustee under a deed of trust or sale under bankruptcy laws or receivership proceedings, of all units and other real estate in a condominium owned by a declarant:
(1) the declarant ceases to have any special declarant rights; and
(2) the period of declarant control terminates unless the judgment of instrument conveying title provides for transfer of all special declarant rights held by that declarant to a successor declarant.
E. The obligations and liabilities of a person who succeeds to special declarant rights are as follows:
(1) a successor to any special declarant right who is an affiliate of a declarant is subject to all obligations and liabilities imposed on the transferor by the Condominium Act or by the declaration;
(2) a successor to any special declarant right, other than a successor described in Paragraph (3) or (4) of this subsection, who is not an affiliate of a declarant, is subject to all obligations and liabilities imposed by the Condominium Act or the declaration:
(a) on a declarant which relate to his exercise or nonexercise of special declarant rights; or
(b) on his transferor, other than:
1) misrepresentations by any previous declarant;
2) warranty obligations on improvements made by any previous declarant, or made before the condominium was created;
3) breach of any fiduciary obligation by any previous declarant or his appointees to the executive board; or
4) any liability or obligation imposed on the transferor as a result of the transferor's acts or omissions after the transfer;
(3) a successor to only a right reserved in the declaration to maintain models, sales offices and signs, if he is not an affiliate of a declarant, may not exercise any other special declarant right and is not subject to any liability or obligation as a declarant, except the obligations to provide a disclosure statement; and
(4) a successor to all special declarant rights held by his transferor who is not an affiliate of that declarant and who succeeded to those rights pursuant to a deed in lieu of foreclosure or a judgment or instrument conveying title to units under Subsection C of this section may declare his intention in a recorded instrument to hold those rights solely for transfer to another person. Thereafter, until transferring all special declarant rights to any person acquiring title to any unit owned by the successor or until recording an instrument permitting exercise of all those rights, that successor shall not exercise any of those rights other than any right held by his transferor to control the executive board in accordance with the provisions of Section 36 [47-7C-3 NMSA 1978] of the Condominium Act for the duration of any period of declarant control, and any attempted exercise of those rights is void. So long as a successor declarant may not exercise special declarant rights under this subsection, he is not subject to any obligation or liability as a declarant other than liability for his acts and omissions under Section 36 of the Condominium Act.
F. Nothing in this section subjects any successor to a special declarant right to any claims against or other obligations of a transferor declarant, other than claims and obligations arising under the Condominium Act or the declaration.'
History: Laws 1982, ch. 27, § 37.
ANNOTATIONSBracketed material. — The bracketed material was inserted by the compiler and is not part of the law.
Compiler's notes. — This section is similar to § 3-104 of the Uniform Condominium Act, with the following main exceptions: Subsection B(1) of this section of the state Condominium Act deleted "and remains liable for warranty obligations imposed upon him by this Act" as it appears preceding "Lack of privity" in subsection (b)(1) of § 3-104 of the Uniform Condominium Act; Subsection C of this section of the state Condominium Act deletes "sale by a trustee under a deed of trust" as it appears following "judicial sale" in subsection (c) of § 3-104 of the Uniform Condominium Act; and Subsection E(3) of this section of the state Condominium Act substitutes "disclosure statement" for "public offering statement" and deletes "[and] any liability arising as a result thereof [and obligations under Article 5.]" as it appears at the end of subsection (e)(3) of § 3-104 of the Uniform Condominium Act.
COMMISSIONERS' COMMENT
1. This section deals with the issue of the extent to which obligations and liabilities imposed upon a declarant by this act are transferred to a third party by a transfer of the declarant's interest in a condominium. There are two parts to the problem. First, what obligations and liabilities to unit owners (both existing unit owners and persons who become unit owners in the future) should a declarant retain, notwithstanding his transfer of interests. Second, what obligations and liabilities may fairly be imposed upon the declarant's successor in interest. No present condominium statute adequately addresses these issues.
2. This section strikes a balance between the obvious need to protect the interests of the unit owners and the equally important need to protect innocent successors to a declarant's rights, especially persons such as mortgagees whose only interest in the condominium project is to protect their debt security. The general scheme of the section is to impose upon a declarant continuing obligations and liabilities for promises, acts or omissions undertaken during the period that he was in control of the condominium, while relieving a declarant who transfers all or part of his special declarant rights in a project of such responsibilities with respect to the promises, acts or omissions of a successor over whom he has no control. Similarly, the section imposes obligations and liabilities arising after the transfer upon a non-affiliated successor to a declarant's interests, but absolves such a transferee of responsibility for the promises, acts or omissions of a transferor declarant over which he had no control. Finally, the section makes special provision for the interests of certain successor declarants ( e. g., a mortgagee who succeeds to the rights of the declarant pursuant to a "deed in lieu of foreclosure" and who holds the project solely for transfer to another person) by relieving such persons of virtually all of the obligations and liabilities imposed upon declarants by this act.
3. Subsection (a) [Subsection A] provides that a successor in interest to a declarant may acquire the special rights of the declarant only by recording an instrument which reflects a transfer of those rights. This recordation requirement is important to determine the duration of the period of declarant control pursuant to § 3-103(d) and (e) [47-7C-3 D and E NMSA 1978], as well as to place unit owners on notice of all persons entitled to exercise the special rights of a declarant under this act. The transfer by a declarant of all of his interest in a condominium project to a successor, without a concomitant transfer of the special rights of a declarant pursuant to this subsection, results in the automatic termination of such special declarant rights and of any period of declarant control.
4. Under subsection (b) [Subsection B], a transferor declarant remains liable to unit owners (both existing unit owners and persons who subsequently become unit owners) for all obligations and liabilities, including warranty obligations on all improvements made by him, arising prior to the transfer. If a declarant transfers any special declarant right to an affiliate (as defined in § 1-103(1)) [47-7A-3 A NMSA 1978], the transferor remains subject to all liabilities specified in paragraph (1) of subsection (b) [Subsection B(1)] and, in addition, is jointly and severally liable with his successor in interest for all obligations and liabilities of the successor.
5. The obligations and liabilities imposed upon transferee declarants under the act are set forth in subsection (e) [Subsection E]. In general, a transferee declarant (other than an affiliate of the original declarant and other than a successor whose interest in the project is solely for the protection of debt security) becomes subject to all obligations and liabilities imposed upon a declarant by the act or by the declaration with respect to any promises, acts or omissions undertaken subsequent to the transfer which relate to the rights he holds. Such a transferee is liable for the promises, acts or omissions of the original declarant undertaken prior to the transfer, except as set forth in paragraph (e)(2) (ii) [Subsection E(2)(b)]. For example, a successor declarant would not be liable for the warranty obligations of the original declarant with respect to improvements to the project made by the original declarant. Similarly, a successor would not be liable, under normal circumstances, for any misrepresentation or breach of fiduciary duty by the original declarant prior to the transfer. The successor is liable, however, to complete improvements labeled "MUST BE BUILT" on the original plans.
6. To preclude declarants from evading their obligations and liabilities under this act by transferring their interests to affiliated companies, paragraph (1) of subsection (e) [Subsection E(1)] makes clear that any successor declarant who is an affiliate of the original declarant is subject to all obligations and liabilities imposed upon the original declarant by the act or by the declaration. Similarly, as previously noted, paragraph (2) of subsection (b) [Subsection B(2)] provides that an original declarant who transfers his rights to an affiliate remains jointly and severally liable with his successor for all obligations and liabilities imposed upon declarants by the act or by the declaration.
7. The section handles the problem of certain successor declarants (i.e., persons whose sole interest in the condominium project is the protection of debt security) in three ways. First, subsection (c) [Subsection C] provides that, in the case of a foreclosure of a mortgage, a sale by a trustee under a deed of trust or a sale by a trustee in bankruptcy of any units owned by a declarant, any person acquiring title to all of the units being foreclosed or sold may request the transfer of special declarant rights. In that event, and only upon such request, such rights will be transferred in the instrument conveying title to the units and such transferee will thereafter become a successor declarant subject to the other provisions of this section. In the event of a foreclosure, sale by a trustee under a deed of trust or sale by a trustee in bankruptcy of all units owned by a declarant, if the transferee of such units does not request the transfer of special declarant rights, then, under subsection (d) [Subsection D], such special declarant rights cease to exist and any period of declarant control terminates.
Second, any person who succeeds to special declarant rights as a result of the transfers just described or by deed in lieu of foreclosure, may, pursuant to paragraph (4) of subsection (e) [Subsection E(4)], declare his intention (in a recorded instrument) to hold those rights solely for transfer to another person. Thereafter, such a successor may transfer all special declarant rights to a third party acquiring title to any units owned by the successor but may not, prior to such transfer, exercise any special declarant rights other than the right to control the executive board of the association in accordance with the provisions of § 3-103(c)[(d)] [47-7C-3D NMSA 1978]. A successor declarant who exercises such a right is relieved of any liability under the act except liability for any acts or omissions related to his control of the executive board of the association. This provision is designed to deal with the typical problem of a foreclosing mortgage lender who opts to bid in and obtain the project at the foreclosure sale solely for the purpose of subsequent resale. It permits such a foreclosing lender to undertake such a transaction without incurring the full burden of declarant obligations and liabilities. At the same time, the provision recognizes the need for continuing operation of the association and, to that end, permits a foreclosing lender to assume control of the association for the purpose of ensuring a smooth transition.
Third, paragraph (3) of subsection (e) [Subsection E(3)] provides that a successor who has only the right to maintain model units sales offices and signs does not thereby become subject to any obligations or liabilities as a declarant except for the obligation to provide a public offering statement and any liability resulting therefrom. This provision also is designed to protect mortgage lenders and contemplates the situation where a lender takes over a condominium project and desires to sell out existing units without making any additional improvements to the project. This provision facilitates such a transaction by relieving the mortgage lender, in that instance, from the full burden of obligations and liabilities ordinarily imposed upon a declarant under the act.
Under § 2-110 [47-7B-10 NMSA 1978], a declarant may reserve the right to create additional units in portions of the condominium which were originally designated as common elements. The declarant becomes the owner of any units created, but, prior to creation of units, the title to those portions of the condominium is in the unit owners. The right to create the units is an interest in land in which a security interest might be granted. If the mortgagee of that interest forecloses, the purchaser at the foreclosure sale has the choices concerning development rights and resulting liability which are described in the preceding paragraph. That is, under subsections (c) and (d) [Subsections C and D], the purchaser may limit his liability by agreeing to hold the developments only for the purpose of transfer as provided by paragraph (e)(4) [Subsection E(4)] or may buy the rights under paragraph (c) [Subsection C].
Compiler's notes. — The reference to § 3-103(c) of the uniform act in the second sentence in the second paragraph of Comment 7 seems incorrect, as subsection (c) of § 3-103 deals with the adoption of the budget. Subsection (d) of § 3-103 deals with control of the executive board by the declarant.
Am. Jur. 2d, A.L.R. and C.J.S. references. — 15A Am. Jur. 2d Condominiums and Cooperative Apartments §§ 14, 16, 26, 28.
31 C.J.S. Estates § 153 et seq.