Voting Rights and Bankruptcy of HOA members

Started by EveC1 • 14 replies • 2477 views

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EveC1 (South Carolina)
Posts: 1

Posted:

I am the treasurer for our HOA. We are a neighborhood of single family homes. Our annual meeting where we elect a new board is coming up and as treasurer I do a certified membership list of all members in good standing, meaning current on their dues. We have a case where a resident has filed bankruptcy and our president has received legal documents advising not to pursue payment of dues. My question is this: Since our bylaws clearly state you must be in good standing to vote and these residents are not current on their dues, does the bankruptcy provide some sort of loop hole which allows them to still be able to vote at the meeting? One of our residents is an attorney and he says he thinks they probably do still get to vote. This seems ludicrist to me. Does anyone have any advice? Thanks!

CharlesW1 (Georgia)
Posts: 826

Posted:

EveC1

I’m fairly confident in saying NO (can not vote), they are not member’s in good standings therefore they are NOT ineligible to vote.

I personally would fight, tooth and nail over that issue with any HOA attorney, judge, etc. I would have to say that his legal advice would be something to question on this particular matter.

Maybe I’m wrong, if so then I would be learning something new, but I highly doubt it!

I’m sure someone with a bit more experience will be able to provide you with better advice.

Chuck W.

Charles E. Wafer Jr.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Count my vote with CharlesW.

By-laws are clear and no provisions for the current circumstances.
I even question the order to not pursue fees. I would also immediately get the associations name on the Bankruptcy proceedures as a lien holder on the property. That should be detailed in your documents.

DonnaS (Tennessee)
Posts: 5,671

Posted:

Make it 3 "NOs"

RS1 (California)
Posts: 1

Posted:

I have some experience with bankruptcy as an attorney, though it's not my principle area of practice. A bankruptcy filing imposes an "automatic stay" on all attempts to collect debts outside of the bankruptcy court, meaning you have to proceed in the bankruptcy court if you want to try to collect what you're owed.

But, I'm fairly certain, that's all it means. I seriously, seriously doubt it means you have to pretend that the person is in good standing for purposes of voting when in fact they are not. But, as always, you should check with competent local counsel.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

RS1,
Great to hear your logic from the legal side. Hope you can stick around for a while. I, for one tend to think I know it all and a push to the correct analysis would be appreciated.

GlenL (Ohio)
Posts: 5,491

Posted:

We had the same problem in our condo community and actually had to have two files for the person one pre and one post filing of their bankruptcy and it cost us a bundle because it stops the foreclosure process while they got to live for free. (Condo was in her name and she filed while the live-in BF had a good job.)

I also agree that this person should not vote under any circumstances, just because you can't go after the money doesn't make them in good standing. IMhO Depending when they filed and when your dues are due they may be in arrears again already.

Studies show that 5 out of 4 people have problems with fractions

SusanW1 (Michigan)
Posts: 5,202

Posted:

The bankrupcty has no effect on voting rights - the issue is if all associaton fees have been paid up to date.

Real simple - no dues payment, no vote. (no matter what the reason)

LawrenceC1 (Georgia)
Posts: 480

Posted:

We have the same situation in our Community. A homeowner declared bankruptcy but "reaffirmed" their first mortgage and continues to live in the community. Our lawyer says that denying the homeowner access to common facilities or the right to vote "would violate the discharge injunction".

Our bylaws say clearly that homeowners who don't pay dues don't vote or use the common facilities, and there is no exception given.

Has anyone stood firm on maintaining that a bankrupt homeowner that has not paid dues is *not* entitled to the benefits of a member in good standing?

If so, did that position stand up to legal challenges?

TimB4 (Tennessee)
Posts: 21,059

Posted:

I agree with others. Until the bankruptcy is finished and the court order waives the debt (or gives you pennies on the dollar) - the debt is still owed. Therefore, they are not in good standing.

Tim

LawrenceC1 (Georgia)
Posts: 480

Posted:

Tim,

I took the others to say that even after the bankruptcy was finished, and a final discharge is granted by the court, the homeowner *still* will not regain their privileges to vote or use the common facilities.

The thinking is that the bankruptcy does not abrogate any contracts made by the homeowner. He still can't install a window air-conditioner (for example) and he still can't vote if he hasn't paid his dues. Bankruptcy doesn't change the rules.

I'm wondering if this line of thinking has been pursued successfully.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Lawrence,

I concur with what you are saying. The member must still abide by the CC&Rs they agreed to when purchasing the home. However, since voting is directly tied to be current on assessments - it depends on how the paperwork was filed and if the bankruptcy was discharged. The final determination will depend on each States individual bankruptcy laws and the wording in any orders from the court.

As Glen pointed out, the assessments are continual and it's possible that the Association will have to start another set of books.

Now, if the individual claiming bankruptcy was intelligent and claimed the entire years worth of assessments when they filed (as typically Association Assessments are assessed annually at the first of the year but members are given the option to pay monthly)then for the rest of that year the member would probably have to be considered in good standing.

Remember, the Bankruptcy doesn't protect anyone from new debts. Therefore, any new debt (i.e. next years assessment) will not be covered by the court order. Additionally, depending on how the current years assessments were filed (as a single amount for the entire year - or a monthly amount up to the date of filing) it's possible that the next months payment could be considered a new debt.

SheliaH (Indiana)
Posts: 6,964

Posted:

In our HOA, if you're not current with fees, you lose your right to vote, period - bankruptcy doesn't play a part at all.

This question does prompt one I've wondered about for some time (maybe an attorney on this board or someone else has the answer). When people declare chapter 7 bankruptcy (liquidation), they usually list HOA fees and if the judge discharges the debt, the Association is SOL. However, I remember hearing that in a chapter 7 proceeding, there's a way to protest discharging a specific debt - the judge may say otherwise, but perhaps one may make a good case for the judge to say everything's being discharged except this debt and the person would have to pay it.

Can someone tell me whether this is correct? If so, our BOD could direct our attorneys to at least make an attempt on not having the fees discharged (I'm thinking even if we lose, at least it's on record that the debtor never attempted to contact the Association for a payment plan, has always been a deadbeat, etc.)

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

TimB4 (Tennessee)
Posts: 21,059

Posted:

Shelia,

Prior to the discharge there is an opportunity for a debtor to challenge it. This will of course cost the Association money for the lawyers time (I know this when my mother had to declare bankruptcy when my father died). The time frame to challenge is different for each State so consult your attorney.

However, one has to ask if the expenses paid the attorney will be worth the possibility of collecting the back assessments (simple cost comparison issue).

LawrenceC1 (Georgia)
Posts: 480

Posted:

Shelia,

The HOA may not be entirely SOL. Any lien on the member's property will survive the bankruptcy in a chapter 7 filing. If the homeowner manages to stay in the house, the lien is still out there waiting to be satisfied whenever the property is sold or refinanced. If the bank takes the house during bankruptcy, the HOA is treated as a secured creditor who will receive consideration from any proceeds in a sale.

And paying a lawyer to challenge the discharge of HOA dues simply because the bankrupt homeowner is a deadbeat is unlikely to have much influence on the judge. I'm sure that's the case more often than not in a bankruptcy. :-)

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