HOA dues and Bankruptcy

Started by KarenT • 11 replies • 2364 views

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KarenT (Washington)
Posts: 250

Posted:

We have a homeowner who filed Bankruptcy and the bankruptcy indicates they "surrendered" the home to the lender in that bankruptcy. However, all the research I find shows that the homeowner is still liable for HOA dues as it is a financial responsibility that “run with the land” and collection of HOA dues can still be enforced. Until the lender foreclosues, the homeowner remains the legal title holder and is responsible for the HOA dues.

Now in having said that, this homeowner just called our bookkeeper and told her to quit sending the HOA notices to them as it is considered "harrassment" and then she said their attorney called also saying the lender refuses to forclosure. We have instructed the bookkeeper to send the HOA notices to both the homeowner and the lender and we do not consider this to be harrassment. We informed the bookkeeper not to discuss anything with this homeowner but to refer them to the Board.

This homeowner with 3 others have been turned over to collection.

My questions are:

Does anyone have any experience with Bankruptcy and a surrender to the lender who has not foreclosed?

Should we have our attorney send them and their attorney a letter or have the collection agency pursue the matter?

Thanks!

TimB4 (Tennessee)
Posts: 21,059

Posted:

Karen,

You need to at least consult with your attorney.

My understanding is, if the member includes the HOA fees as part of their debt, you are limited in what actions you may take.

I'd suggest asking the member for the contact information of his bankruptcy attorney and then talk to your attorney.

KarenT (Washington)
Posts: 250

Posted:

They did not include the HOA dues in their Bankruptcy and in fact paid their dues from February thru May when the bankruptcy was discharged. They quit paying in June of 2011.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Based on that information, I suspect that they think the Bank is the new owner and responsible for the assessments. However, until the bank takes possession, the member is still responsible.

You may want to have your attorney check (or check the records yourself) on when the deed officially became the banks.

RichardP13 (California)
Posts: 1,767

Posted:

Karen

Any individual that files for Chapter 7 and lives within an HOA and is is supposed to pay dues, is liable to pay dues once the Chapter 7 has been filed, not the date discharged. If the bank took over due to a foreclosure, the bank will be responsibnle to the HOA the day they took back the property.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

You are NOT harrassing. If you are trying to collect on a debt sending notification is NOT harrasment. I would see if you have a lien on this property. It is better if you do. Talk to the lawyer about that. Keep sending notices to the HOA address.

You are trying to get blood out of a turnip here. So don't think your going to get anything out of this. The bank will always get paid first then leftovers go to the HOA if any. It is just good to have the paperwork in order.

Former HOA President

SheliaH (Indiana)
Posts: 6,964

Posted:

If the homeowner didn't include the dues in their bankruptcy, it seems to me they're still liable. Did the association get anything from the court stating the debt was discharged? If so, i think you're SOL on the dues owed before the bankruptcy was filed. However, dues that accumulate after the bankruptcy filing are still fair game, although, as Melissa pointed out, you may be squeezing blood from a turnip (if they went chapter 7, there's probably nothing to pay you with anyway).

Now, if they're giving up the house, the bank will be liable for dues from the date the house is turned over to them. But the banks don't want to be liable for dues either, so what they usually do is keep the owner's name on it until the house is sold and then the Association gets its money (or not - sometimes the selling price isn't enough to pay everyone and the Association still loses out). This is what's happened over and over again in our HOA and it's really frustrating.

Hopefully you have a lien on the house that can ensure the Association will get something. As for the owner, you'll have to talk to the attorney about your next step, if any.

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

Quote:

Posted By KarenT on 08/27/2012 10:18 AM
They did not include the HOA dues in their Bankruptcy and in fact paid their dues from February thru May when the bankruptcy was discharged. They quit paying in June of 2011.

If they didn't include the HOA in the bankruptcy, they still owe back dues. And even if they did, they would owe from the day after their bankruptcy was discharged because its new debt. It would be no different than declaring bankruptcy, then buying a tv. You still owe for the TV.

I would still pursue collection and if necessary, go to court for a judgement. You can typically get a judgement for 10 years and renew it for another 10. In the next 20 years, I'm sure the person will be able to come up with the money it owes the HOA.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Just to clarify something...If you or someone else files bankruptsy NOT all debts are "Forgiven". HOA dues being one of those. They don't fall under the bankruptsy blanket. Consider HOA dues like utilities or a really bad gym membership debt. You can get your credit back by filing bankruptsy allowing you to get credit cards in a few years. However, it doesn't get you out of owing HOA dues, liens, or being foreclosed on...

I've had some people who think them being on Social Security allows them to pay less HOA dues. It doesn't. That may work in section 8 type housing but HOA's aren't those. They may have section 8 housing by the owners property but the dues still remain the same.

You basically belong to a club when you buy into a HOA area. Just when they kick you out for not paying, it means your house is at risk...

Former HOA President

KarenT (Washington)
Posts: 250

Posted:

For all who replied - thank you! This article says it all.

Surrendering a Home in Bankruptcy Does Not Clear Title
Well not exactly as you may picture it, but yes, you will still technically own title to your home until the bank clears the title through foreclosure. A National Bankruptcy Forum contributor wrote an excellent post a few weeks ago explaining how a Home Owners Association can still come after a homeowner for dues even after the property has been surrendered. How is this possible?
Understand, that when you surrender a home in bankruptcy, your lender will still go through the foreclosure process in order to clear title so that the property can be sold to a third party. Here is where the “continuing ownership” problem can arise. The article offers the following example:
Example: Let’s say that the debtor decides to let the home go. We file the bankruptcy on Novemeber 1, 2008. We indicate in the petition that the debtor will surrender the home. The case goes smoothly and the debtor gets their discharge around February 1, 2008. Just before the bankruptcy, the debtor moves out of the home. This makes sense because after all, they are surrendering the home. Our good moral values tell us that if we are giving something up, we shouldn’t use it anymore! It makes even more sense, because the debtor believes that the bankruptcy will preclude them from finding a new place to rent post discharge. Fast forward to October 2009. The debtor has long since walked away from the home, they have started a new life, and they are happier after the bankruptcy. Suddenly, they are served with a summons and complaint for past due homeowners dues! The bank has still not foreclosed on the property and technically, the debtor still owns the house!
Even though you have surrendered your house and moved on with your life, the title remains in your name. You no longer have any obligation under the mortgage but financial responsibilities that “run with the land” such as HOA dues can still be enforced.

LawrenceC1 (Georgia)
Posts: 480

Posted:

Quote:

Posted By SteveM9 on 08/29/2012 7:03 AM
If they didn't include the HOA in the bankruptcy, they still owe back dues.

That may not always be true. In a chapter 7 filing, all debts as of the date of filing are discharged even if they aren't all listed in the bankruptcy papers.

Quote:

Posted By SteveM9 on 08/29/2012 7:03 AM
...they would owe from the day after their bankruptcy was discharged because its new debt.

Absolutely correct, any debt incurred after the date of filing (not the date of final disposition) is new debt not covered by the bankruptcy and must be paid by the debtor -- including HOA dues incurred after the date of filing.

LawrenceC1 (Georgia)
Posts: 480

Posted:

Quote:

Posted By MelissaP1 on 08/29/2012 7:05 AM
If you or someone else files bankruptsy NOT all debts are "Forgiven". HOA dues being one of those. They don't fall under the bankruptsy blanket.

This is not at all true. HOA dues are treated like any other debt in either a chapter 7 or a chapter 13 bankruptcy filing.

The difference is that in a chapter 7 filing the debt is discharged in its entirety, where in a chapter 13 filing there may be a partial repayment or a partial repayment over time.

See the article here.

Bankruptcy laws allow certain items to be held back in a bankruptcy fling, such as a homestead allowance or personal items like clothing. HOA dues are not one of the exempted categories.

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