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Wednesday, March 8, 2017


By Saul J. Feldman and Angel K. Mozina

In this article, we will discuss ways in which the condominium form of ownership can be used as a financing tool.


A construction lender will want broad rights to protect its security.  For example, once the Master
Deed is recorded, the construction mortgage must be amended to show clearly that the security is no longer the land and improvements but rather the condominium units and the phasing rights.  There must be a broad definition of “Declarant” in the Master Deed to include not only a foreclosing mortgagee, its successors and assigns, but also any purchaser of the note and mortgage.

The phasing/development rights are customarily covered not only by specific and detailed references in the Master Deed but also by a separate assignment of phasing/development rights. 

Pursuant to Chapter 183A, the Massachusetts Condominium Law, Chapter 183A applies when the sole owner or owners of land submits such owners’ interest in the land by executing and recording a Master Deed.  As Massachusetts is a “title” state, an “owner” includes the mortgagee of record, and therefore each mortgagee must execute a subordination of the lien of its mortgage to:

(1)               The Master Deed;

(2)               The entity for the organization of unit owners which may be a trust, a corporation or an unincorporated association; and

(3)               More generally, the condominium regime.



In each of the following examples, title insurance companies provided (both owners and lenders) title insurance thereby making these examples available to developers and their lenders.

The following are three (3) examples of using the condominium form of ownership as a financing tool.

Take the case, for example, of a rental apartment complex for low income people over fifty-five years of age.  There are two high rise buildings.  A condominium could be created with each building as a separate unit.  There will be three budgets, one for Building A which becomes Unit A, one for Building B which becomes Unit B, and one for the common areas.  This form of ownership allows each building to obtain separate mortgage financing.

Another way the condominium form of ownership can assist in financing is phasing.  Phasing can be vertical or horizontal.  Vertical phasing is several phases in a medium or high rise building.  Horizontal phasing is several phases on a single lot.  Lenders will not be willing to finance the entire development at one time, but lenders may be willing to finance a development on a phase by phase basis.  There may be a market today for twenty (20) units but not for 200 units.  The condominium documents and plans must be drafted carefully to allow the financing of phases.

Sometimes a development may be built with multiple condominiums.  The various condominiums may want to get a single loan from a lender.  One way to do this is to create an umbrella trust which will include all of the condominiums.  The umbrella trust can be the borrower as a lender will be willing to accept the umbrella entity as the borrower.  The security is not a mortgage.  The loan is collateralized by a security agreement, a conditional assignment of revenue stream and a UCC financing statement.  The security is the income stream the umbrella trust receives from its unit owners in the form of the monthly payment of condominium fees.

We routinely put a paragraph in Master Deeds to address the financing of construction.  The following is the language we use:

“The Declarant reserves the right to mortgage all or any portion of the Condominium which is not encumbered by a mortgage for the purpose of financing the construction phases and, until discharged, any such mortgage shall have priority over the interests of all other Unit Owners and their mortgages as to the phase which is encumbered by such mortgage.”

Lenders ought to be aware of potential liability and address it whenever possible in the financing or related documents.  For example, Section 22 of Chapter 183A imposes liability on a construction lender.  The SJC, in Moloney v. Boston Five Cents Savings Bank FSB, 422 Mass. 431 (1996), has said that Section 22 is a consumer protection statute.  It covers deeds in lieu as well as foreclosures.  Proper indemnification and waiver language in the financing documents can ensure the lender is protected in such cases.

In Wyman v. Ayer Properties, 469 Mass. 64 (2014), the Court held that the economic loss doctrine is no bar to construction defects claims asserted by condominium associations.  In addition to indemnification and waiver language, a lender may require a higher liability coverage limit when lending to a condominium developer.  

Also, a construction lender may be bound by unrecorded purchase and sale agreements (“P&S”s) where the bank had actual notice of the P&Ss and the buyers by virtue of the P&Ss had priority equitable interests in the condominium units.  Queeno v. Colonial Co-operative Bank, 63 Mass. App. Ct. 392, review denied 444 Mass. 1108 (2005).  A lender should ensure that a P&S for future construction contains a specific reference to the right and intent of the developer to obtain construction financing, and the buyer should be asked to subordinate to such financing within the text of the P&S.

Sometimes, being a construction lender can be hazardous!


Little has been written until now about the concerns of lenders in lending to a condominium development.  We hope that this article might encourage more thought on this important topic.

Saul Feldman and Angel Mozina practice with the Feldman Law Office in Boston The firm's primary specialties are commercial real estate transactions and condominium law and development, in addition to residential conveyancing.  Angel can be contacted at Saul can be contacted at

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