Chapter 13 and No Response from HOA.. Any recourse??

NicoleO1 (California)
Posts: 181

Posted:

Approximately 3 years ago a homeowner declared a Chapter 13 and per laws all debts were combined into the Chapter 13 and processed through the State Bankruptcy Court. Since this thier dues are up to date as per thier responsibility with her BK agreement from the court.

At the time of the filing our previous management company failed to respond on behalf of the account of HOA. The dues that were in arrears were not high enough to be placed in collections and per California BK law ALL debts had to be reported when the homeowner filed.

The homeowner at the time notified the management company of the Bankruptcy Case #, atty information, etc. NO response was received by the courts from the Management company despite claims of doing so.

At the end of the day 3 years later, if this was handled properly by both the previous HOA BOD and PM this small amount of dues would be been paid long ago. Legally the HOA has NO recourse for back collection.

The question that has come around. Is this a potential small claims case for our prior PM?? I am curious why they didn't respond, claimed they did which is part of the executive session meeting minutes but the courts can prove no response nor proper filing as per law.. They had a 90 day period to respond and they DID NOT according to the courts. Also nothing has been done about it since. The amount of arrear dues is enough to fight in a small claims case, but has ANYONE ever had this type or similar situation.

The owner is not at fault and is protected by California BK laws. ( current BOD not at fault either) but we are trying to seek all options at this time.
Any advice would be super appreciated.

RichardP13 (California)
Posts: 1,767

Posted:

Nicole

Bankruptcy is handled through Federal Court, so in this case United States Bankruptcy Court.

Handling Chapter 13 bankruptcy is tricky. I have dealt with one and it wasn't pretty. The Bankruptcy Court may or may not have sent the paperwork to the right office. In my case, the Court may or may not have sent the paperwork to the wrong management company.

Chapter 13 is supposed to set up a payment plan, but in our case, the homeowner never followed up and the filing was cancelled. All monies were still owed and we had to start over on collections. To properly set a bankruptcy case up, a management company or HOA, if self managed, need to set up a new account, ie: 11111-1 (old) and 11111-2 (new). This works for both Chapter 7 and 13. On both accounts, the monies owed on the old accounts are up to the FILING date, not the Discharge date, of the bankruptcy.

IMO, you would have no case against the management company, as they were acting on your benefit. The good news though is that the monies owed are still due and payable to the HOA. If it was Chapter 7, then monies up to the filing date are wiped out. Also, bankruptcy is personal, a lien placed on the property could help recover the assessments.

SheliaH (Indiana)
Posts: 6,964

Posted:

I'd ask for written and verifiable proof they notified the court and if they can't come up with something, I'd talk to your association attorney about going after them. The management company works (or worked for you) and if your board meeting minutes stated that was what the Association wanted it to do, they should have done so.

Of course, this may be a live and learn situation, but just in case, talk to your association attorney to see if there's anything else you can do. In the future, make sure your homeowners has the contact information for the current manager and tell the manager that a proof of claim must be filed with the court when it gets a notice of a chapter 7 or 13 bankruptcy, even if the person is current with fees. This way you ensure the Association's interests are protected in case something bizarre happens.

Our attorney has told us the Association should file a proof of claim because you'll get notices of hearings and creditors meetings and in case someone makes noises about discharging some or all of your claim, you can attend that hearing and object (the judge may discharge some of it anyway, but at least you said something that's reflected on the record).

To save attorneys fees, the management company can file the proof of claim for you. Or you can do what our association is now doing - ordering the management company to send all bankruptcy notices to our attorney - if, for some reason, he feels we won't benefit, he'll tell us, along with options the board can consider.

This has come about because of a situation similar to yours. Our management company's collection manager (who is basically a good guy) had, on one or two occasions, told our attorney not to file an appearance on the Association's behalf in a chapter 7 because the homeowner was usually surrendering the property and so if we did our own foreclosure, we'd lose because the mortgage company has to be paid off first, and usually the sales price wasn't enough to pay them and us.

Later, I learned that surrendering the house in bankruptcy only means the owner won't fight the mortgage company if they take back the house. The owner's still liable for the association fees as long as the house is in his/her name. Bankruptcy does muddle things up a bit, but, as I told the Board, we shouldn't leave any money on the table if there's a chance we can get some.

Oh, the fees that accumulate after the filing are still in play - another reason you should consult with your attorney to see what you can do and when. You don't want to go after fees that are covered by the automatic stay because the courts really hate that and the fines can be tremendous. Good luck!

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

LarryB13 (Arizona)
Posts: 4,099

Posted:

Nicole,

I know little about bankruptcy but I wonder if the management company has the right to respond on behalf of the HOA. Normally, the management company could not appear in court as your attorney but I do not know whether filing a response to a bankruptcy petition is considered "appearing." Since the purpose of the response is to assert a legal right, my first guess would be that the court would consider it an appearance.

There are times when an officer of the association can appear to represent the association in court and other times where only an attorney may represent the association in court. I do not believe that your management company is ever authorized to appear in court for you.

I would suggest consulting your association's attorney first. You may also want to examine the record at the federal courthouse to see if your management company responded and to see how the court reacted to their response.

NicoleO1 (California)
Posts: 181

Posted:

Quote:

Posted By SheliaH on 03/20/2014 2:15 PM
I'd ask for written and verifiable proof they notified the court and if they can't come up with something, I'd talk to your association attorney about going after them. The management company works (or worked for you) and if your board meeting minutes stated that was what the Association wanted it to do, they should have done so.

Of course, this may be a live and learn situation, but just in case, talk to your association attorney to see if there's anything else you can do. In the future, make sure your homeowners has the contact information for the current manager and tell the manager that a proof of claim must be filed with the court when it gets a notice of a chapter 7 or 13 bankruptcy, even if the person is current with fees. This way you ensure the Association's interests are protected in case something bizarre happens.

Our attorney has told us the Association should file a proof of claim because you'll get notices of hearings and creditors meetings and in case someone makes noises about discharging some or all of your claim, you can attend that hearing and object (the judge may discharge some of it anyway, but at least you said something that's reflected on the record).

To save attorneys fees, the management company can file the proof of claim for you. Or you can do what our association is now doing - ordering the management company to send all bankruptcy notices to our attorney - if, for some reason, he feels we won't benefit, he'll tell us, along with options the board can consider.

This has come about because of a situation similar to yours. Our management company's collection manager (who is basically a good guy) had, on one or two occasions, told our attorney not to file an appearance on the Association's behalf in a chapter 7 because the homeowner was usually surrendering the property and so if we did our own foreclosure, we'd lose because the mortgage company has to be paid off first, and usually the sales price wasn't enough to pay them and us.

Later, I learned that surrendering the house in bankruptcy only means the owner won't fight the mortgage company if they take back the house. The owner's still liable for the association fees as long as the house is in his/her name. Bankruptcy does muddle things up a bit, but, as I told the Board, we shouldn't leave any money on the table if there's a chance we can get some.

Oh, the fees that accumulate after the filing are still in play - another reason you should consult with your attorney to see what you can do and when. You don't want to go after fees that are covered by the automatic stay because the courts really hate that and the fines can be tremendous. Good luck!

No according to our atty, there is no legal way to have the past dues collected. The law protects the individual from being held responsible for the past dues, there is no legal recourse according to our atty as there was NO action for filing and after the bk is discharged there is NOTHING that can be done.. your information is incorrect. ( sorry )

NicoleO1 (California)
Posts: 181

Posted:

Quote:

Posted By SheliaH on 03/20/2014 2:15 PM
I'd ask for written and verifiable proof they notified the court and if they can't come up with something, I'd talk to your association attorney about going after them. The management company works (or worked for you) and if your board meeting minutes stated that was what the Association wanted it to do, they should have done so.

Of course, this may be a live and learn situation, but just in case, talk to your association attorney to see if there's anything else you can do. In the future, make sure your homeowners has the contact information for the current manager and tell the manager that a proof of claim must be filed with the court when it gets a notice of a chapter 7 or 13 bankruptcy, even if the person is current with fees. This way you ensure the Association's interests are protected in case something bizarre happens.

Our attorney has told us the Association should file a proof of claim because you'll get notices of hearings and creditors meetings and in case someone makes noises about discharging some or all of your claim, you can attend that hearing and object (the judge may discharge some of it anyway, but at least you said something that's reflected on the record).

To save attorneys fees, the management company can file the proof of claim for you. Or you can do what our association is now doing - ordering the management company to send all bankruptcy notices to our attorney - if, for some reason, he feels we won't benefit, he'll tell us, along with options the board can consider.

This has come about because of a situation similar to yours. Our management company's collection manager (who is basically a good guy) had, on one or two occasions, told our attorney not to file an appearance on the Association's behalf in a chapter 7 because the homeowner was usually surrendering the property and so if we did our own foreclosure, we'd lose because the mortgage company has to be paid off first, and usually the sales price wasn't enough to pay them and us.

Later, I learned that surrendering the house in bankruptcy only means the owner won't fight the mortgage company if they take back the house. The owner's still liable for the association fees as long as the house is in his/her name. Bankruptcy does muddle things up a bit, but, as I told the Board, we shouldn't leave any money on the table if there's a chance we can get some.

Oh, the fees that accumulate after the filing are still in play - another reason you should consult with your attorney to see what you can do and when. You don't want to go after fees that are covered by the automatic stay because the courts really hate that and the fines can be tremendous. Good luck!

No according to our atty, there is no legal way to have the past dues collected. The law protects the individual from being held responsible for the past dues, there is no legal recourse according to our atty as there was NO action for filing and after the bk is discharged there is NOTHING that can be done.. your information is incorrect. ( sorry )

NicoleO1 (California)
Posts: 181

Posted:

Quote:

Posted By SheliaH on 03/20/2014 2:15 PM
I'd ask for written and verifiable proof they notified the court and if they can't come up with something, I'd talk to your association attorney about going after them. The management company works (or worked for you) and if your board meeting minutes stated that was what the Association wanted it to do, they should have done so.

Of course, this may be a live and learn situation, but just in case, talk to your association attorney to see if there's anything else you can do. In the future, make sure your homeowners has the contact information for the current manager and tell the manager that a proof of claim must be filed with the court when it gets a notice of a chapter 7 or 13 bankruptcy, even if the person is current with fees. This way you ensure the Association's interests are protected in case something bizarre happens.

Our attorney has told us the Association should file a proof of claim because you'll get notices of hearings and creditors meetings and in case someone makes noises about discharging some or all of your claim, you can attend that hearing and object (the judge may discharge some of it anyway, but at least you said something that's reflected on the record).

To save attorneys fees, the management company can file the proof of claim for you. Or you can do what our association is now doing - ordering the management company to send all bankruptcy notices to our attorney - if, for some reason, he feels we won't benefit, he'll tell us, along with options the board can consider.

This has come about because of a situation similar to yours. Our management company's collection manager (who is basically a good guy) had, on one or two occasions, told our attorney not to file an appearance on the Association's behalf in a chapter 7 because the homeowner was usually surrendering the property and so if we did our own foreclosure, we'd lose because the mortgage company has to be paid off first, and usually the sales price wasn't enough to pay them and us.

Later, I learned that surrendering the house in bankruptcy only means the owner won't fight the mortgage company if they take back the house. The owner's still liable for the association fees as long as the house is in his/her name. Bankruptcy does muddle things up a bit, but, as I told the Board, we shouldn't leave any money on the table if there's a chance we can get some.

Oh, the fees that accumulate after the filing are still in play - another reason you should consult with your attorney to see what you can do and when. You don't want to go after fees that are covered by the automatic stay because the courts really hate that and the fines can be tremendous. Good luck!

No according to our atty, there is no legal way to have the past dues collected. The law protects the individual from being held responsible for the past dues, there is no legal recourse according to our atty as there was NO action for filing and after the bk is discharged there is NOTHING that can be done.. your information is incorrect. ( sorry )

RichardP13 (California)
Posts: 1,767

Posted:

Nicole

I would do some research between Chapter 13 and Chapter 7. In addition, the reason you place a lien on a house is that it is against the property, so if the owner doesn't pay, the property can. For a home to transfer, it must have clear title. An unpaid lien will cloud that title. Foreclosure, though, is a different issue.

ErikaC (Virginia)
Posts: 12

Posted:

Do you know if the HOA obtained a AoA (affidavit of accounts), lein or judgement for the delinquent homeowner? All of this or any collection actions should be documented prior to pre/post and discharge of the bankruptcy filing.

I also gathered the homeowner listed your Hoa as a creditor. If I read your post incorrectly and the homeowner did NOT list your HOA as a creditor, your Hoa has all legal authority to continue pursuing the delinquent homeowner. My understanding (we've had 24+ homeowners file for either chapter 7, 11 or 13) is Chapter 13 has a trustee (typically approved by the Court), who takes manages and approves payments to the various creditors.

I'd go back to your management company and ask for the following: any correspondence to the delinquent homeowner, account demand letter, any calls made to the homeowner etc. If your Hoa uses a law firm to collect bad debt, aske them for the account history too.

PatriciaH4 (Texas)
Posts: 42

Posted:

You might also carefully consider how much is owed on the account - there are times when the amount due on the account doesn't justify the efforts to collect it, especially if the attorney is involved. I've seen HOAs spend thousands of dollars in legal fees to collect $600 - and then the homeowner gets foreclosed on anyway, and it's all written off.

NicoleO1 (California)
Posts: 181

Posted:

Homeonwer DID.. DID list this an account to the Courts.. Our atty's said there is NO recourse due to lack of flling. It's a loss. This is a chapter 13.. not a 7. EVERYONE seems to think they are both the same in our HOA. 7's debts are written or discharged off. 13's set up a payment plan back to the accounts owed. Our HOA did NOT file the correct documents and the BK Court and atty can prove they submitted correct information to the previous PM through policy and process. Unfortunately there is NO legal recourse to claim passed monies on this account. The previous board claims the PM reported in the minutes of the executive session that "all was taken care of". However the burden of proof is missing...

THe current board relizes this information is 3 years old now. NO action, no follow up and when the chapter 13 payemnt plan is completed in 24 months, all outstanding debts not completed in this plan will be written off. The law protects the homeowner who did NOTHING wrong where our PM seems to have fallen short. The back dues should of been paid back within the first year...

PM's need to be supervised to an extent and monitored, not just "take words for it" especially when there has been a bad long history of short comings.

JanetB2 (Colorado)
Posts: 4,219

Posted:

Hi Nicole:

What your HOA needs to realize is the PM is essentially an "employee" of the HOA. The HOA has the ULTIMATE responsibility to insure all laws, documents, follow through on issues, etc. is completed appropriately. This needs to be chalked up as a hard lesson learned for future reference.

NicoleO1 (California)
Posts: 181

Posted:

Quote:

Posted By JanetB2 on 03/22/2014 8:28 PM
Hi Nicole:

What your HOA needs to realize is the PM is essentially an "employee" of the HOA. The HOA has the ULTIMATE responsibility to insure all laws, documents, follow through on issues, etc. is completed appropriately. This needs to be chalked up as a hard lesson learned for future reference.

You are ever so right. I personally was not involved nor were any of our current board members, Everything is being considered including small claims for lack of action. There has been talk of serving the past board for not insuring this was done. I guess you can sue anyone for anything... Don't know how far this could go or who is really at fault. I am leaning to ask to just write ir off.. not worth the hastle at this point and it's a great learning curve for those on the boards currently.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Just write this off as a learning experience and move on. It is not worth throwing good money after bad. Plus can not get blood out of a turnip. Your going to sue someone who can not afford their bills? Plus your going to lien them forcing them to NOT sell and maybe forcing an expensive forclosure or them using it as rental? They call that a "Peric victory".( forgive the spelling).

What should happen now is putting a solid collection policy. We have a 6 month we lien. A year we CONSIDER a foreclosure. We do NOT do a foreclosure but evaluate if that is a step to take as there are many situations this is not a solution. Lawsuits are not the best option to pursue. Liens are stronger and keep adding up. Lawsuits are fixed amount and the person can sale and move without ever paying a dime.

It is time to make a policy. Once done, then may be able to pursue things from this point forward. A good starting point. Alot to learn about the correct process. A good tip is to look at the LEGALS section in your local newspaper. All foreclosures or liens have to be published in a public source like your local paper. They print this at various schedules for each newspaper. It has saved me a time or too when finding out status on the homes in our HOA.

Former HOA President

NicoleO1 (California)
Posts: 181

Posted:

Quote:

Posted By MelissaP1 on 03/24/2014 3:27 PM
Just write this off as a learning experience and move on. It is not worth throwing good money after bad. Plus can not get blood out of a turnip. Your going to sue someone who can not afford their bills? Plus your going to lien them forcing them to NOT sell and maybe forcing an expensive forclosure or them using it as rental? They call that a "Peric victory".( forgive the spelling).

What should happen now is putting a solid collection policy. We have a 6 month we lien. A year we CONSIDER a foreclosure. We do NOT do a foreclosure but evaluate if that is a step to take as there are many situations this is not a solution. Lawsuits are not the best option to pursue. Liens are stronger and keep adding up. Lawsuits are fixed amount and the person can sale and move without ever paying a dime.

It is time to make a policy. Once done, then may be able to pursue things from this point forward. A good starting point. Alot to learn about the correct process. A good tip is to look at the LEGALS section in your local newspaper. All foreclosures or liens have to be published in a public source like your local paper. They print this at various schedules for each newspaper. It has saved me a time or too when finding out status on the homes in our HOA.

EVERYONE is thinking we want to sue the OWNER! It's NOT. IT's the previous management company. A Chapter 13 protects the person who files it by setting up a payment plan. NOTHING is lost and no actions can be taken against someone who files a 13. Unless they default on dues while they are currently in their plan for the chapter 13.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Nicole,

What did the Board do when the MC said it was handled?
Did they ask for more details?
Did they review what was done?
Did they ask for a copy of the documents?

What I'm saying is that the Association is also at fault for not properly following through. A legal battle would of course assign the percentage of blame (and in my opinion the Association has to take some of the blame). Even if it is 50/50, the cost would likely exceed what you would recoup.

I think this is why Melissa is saying to write it off as the cost of learning and move on.

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Posted By NicoleO1 on 03/26/2014 8:12 PM

EVERYONE is thinking we want to sue the OWNER! It's NOT. IT's the previous management company. A Chapter 13 protects the person who files it by setting up a payment plan. NOTHING is lost and no actions can be taken against someone who files a 13. Unless they default on dues while they are currently in their plan for the chapter 13.

I asked this before I do not recall seeing a reply.

Your board authorized the management company to file a response to the bankruptcy petition. What authority does the management company have to represent your association in federal bankruptcy court? Why did your board not rely on an attorney authorized to practice in the federal courts? Why didn't an officer of your association file the responses if permitted under the rules of federal court?

It appears to me that your board made a serious mistake by turning the bankruptcy responses over to the management company instead of an attorney. Your management company may have filed the responses just as they said they did and the court may have dismissed the responses because they were not filed by an officer of the association or by an attorney authorized to practice in the federal courts.

If my conclusions are correct, then your board conducted itself foolishly. There is a much stronger case against the individual board members for breach of fiduciary duty than there is against the management company. Suing the management company would be throwing good money after bad. My advice is to let this sleeping dog lie and use this as a lesson for seeking out qualified legal advice before acting in the future.