Home "surrendered" in Bankruptcy

Started by KarenT • 3 replies • 2030 views

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KarenT (Washington)
Posts: 250

Posted:

Hello all,

If a homeowner has filed Chapter 7 Bankruptcy and the bankruptcy documents indicate they have surrendered the home to the lender, how does that affect their obligation to pay HOA dues? Does surrendered mean that the Bank is now the owner? Does the homeowner still have to pay HOA dues if the Bank is not in legal title? Can the HOA lien the property for the dues and name both the homeowner and the lender on the lien?
Also, they did not name the HOA as a creditor in the Bankruptcy. They also have a tenant in the home, does the tenant still have to pay rent to the homeowner or do they send it to the Bank? This is another "new" chapter in our HOA delinquency saga! Thanks in advance for your comments.

BrianB (California)
Posts: 2,820

Posted:

Quote:

Posted By KarenT on 08/11/2011 7:16 AM
Hello all,

If a homeowner has filed Chapter 7 Bankruptcy and the bankruptcy documents indicate they have surrendered the home to the lender, how does that affect their obligation to pay HOA dues? Does surrendered mean that the Bank is now the owner? Does the homeowner still have to pay HOA dues if the Bank is not in legal title? Can the HOA lien the property for the dues and name both the homeowner and the lender on the lien?
Also, they did not name the HOA as a creditor in the Bankruptcy. They also have a tenant in the home, does the tenant still have to pay rent to the homeowner or do they send it to the Bank? This is another "new" chapter in our HOA delinquency saga! Thanks in advance for your comments.

IANAL, YMMV

Whatever past dues are owed by owner A are still owed. Collecting them, however, gets tougher. It is my understanding that the owner will be responsible for all debts incurred until the bank takes title/posssession. At that point, the bank is responsible (owner B). Nothing is official until a judge says it is, however.

The time for lien was before the property was surrendered (not that it would have likely done much towards recovery, but it does less after the filing of bankruptcy). You can't really file a lien on someone else's property for another person's debt (ie, you can't file on the owner B's home for owner A's debt). If Owner B fails to pay an assessment, you can file a lien on owner B's property. Technically, the debt of Owner A stays with owner A (regardless of the property). You just have to collect it, through a judgement. If you know of the bankruptcy filing, you should file with the court a a debtee, to potentially recover some monies. Or file a separate action for judgement.

As for the tenant issue, i leave that to the lawyers. There's far too many horror stories about renters and abandoning owners and such to offer any opinion of my own.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Karen,

The lender became the owner at the time the house was surrendered and the court agreed. They should be charged for and pay assessments from that point forward.

As for any past due assessments it will actually depend on if they were listed as part of the bankruptcy debt before the court. If they were, then how much (if any) that the Association receives will depend on the ruling of the court. If they were not listed, I believe you may be able to collect them.

Tim

LawrenceC1 (Georgia)
Posts: 480

Posted:

Karen,

A chapter 7 bankruptcy seldom results in any proceeds for the creditors. Usually the debtor has very few assets, and what few exist are exempted equity in the house, the car, certain personal property, etc.)

The advice our Association has received from an attorney specializing in bankruptcy is that generally a debt will be discharged by a chapter 7 bankruptcy even if it was not listed in the filing. Basically the court is saying that all existing debts are discharged when it issues the final decree, so as to give the debtor a fresh start.

Like Tim points out, when the bankruptcy is final the ownership of the property passes to the bank (unless the debtor has chosen to reaffirm the mortgage). However, if the Association had an outstanding lien it is likely that it survived the bankruptcy. When the bank sells the property the new owner must satisfy the lien at closing. Until that time, the bank is responsible for paying dues and maintaining the property. The bank determines what they want to do about the tenant, although some states have tenants' rights law that limits the bank's options.

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