Condo owner filing serial bankruptcies to delay foreclosure

One of the owners of a unit at our condo is filing Chapter 13 bankruptcy to delay foreclosure - and I wanted to see if anyone else had experienced this problem and what they did about it. Has anyone tried to get In Rem Relief and how well did that work?

The unit owner is behind on their mortgage and their condo dues. After many attempts to collect the delinquent funds, the lender got an order from the foreclosure court to foreclose on the property and force the transfer of ownership. The judge typically gives the defendant around 6 months to pay off the loan before the law day, which effectively is the day the transfer is suppose to occur. But just before the law day, the defendant declares bankruptcy and gets an automatic stay, which prevents the foreclosure from going through. The defendant however never files any of the court paperwork or provides a repayment plan so the bankruptcy case ultimately is dismissed about a month or two after filing for Chapter 13. About 3 months after dismissal, the mortgage lender goes back to the foreclosure court and resets the order which starts the process all over again. The defendant has done this four times now and has delayed the foreclosure for years without paying any mortgage payments or condo dues and assessments.

I am trying to get some answers on how and when this nightmare might end. I am reading about a thing called "In Rem" Relief which is supposed to put an end to this. If the court grants a motion for In Rem Relief, then a foreclosure could proceed even if the defendant declares bankruptcy. To get In Rem Relief it is necessary to demonstrate to the satisfaction of the judge that the defendant is participating in a scheme to delay, hinder or defraud creditors. I wouldn't mind paying a lawyer for answers - but my experience is that I pay a lot of money but I don't get good answers. So anyone have any experience with this?

LetA - thanks for the response. I agree with you 100%. I was hoping the bankruptcy judge would stop it at some point, I am pretty most judges take offense to people abusing their court. It's already happened four times, how many times do they need to be convinced?

EEP - I just had a flashback to a homeowner in my community who did the same thing! You're right, it's infuriating and in our situation, the mortgage company wasn't much help at all until the judge said "hey, you guys need to fix this somehow." Unfortunately, they still dragged their feet - the owner was in the midst of yet another bankruptcy at the time I stepped down from the board. I seem to recall there were changes in the bankruptcy code about 10 years ago that were supposed to rein in serial bankruptcy 13 filings - guess that isn't working.

In our case, it got to the point that I went to a hearing with our attorney with the intent of telling the judge and everyone else what this owner had put us through, how much money it cost the association, and whatever else in hopes the court would see the owner was playing the system. Instead, the attorney representing the homeowner said he hadn't been paid and was withdrawing from the case. There were also documents that the homeowner was supposed to file but didn't (same as your owner) and so the judge shrugged and dismissed the case. I left the board after that, so I don't know how this ended.

Since you do have an attorney, you really need to speak to him or her about your next steps. You said you've paid money in the past, but "didn't get good answers," but this is a situation where there aren't any good answers (and perhaps you think you haven't gotten good answers because the attorney didn't tell you what you wanted to hear.) I don't know if talking to the mortgage company about joining forces would help - they have a secured interest so they'll get paid regardless, so the best you can hope for is for the house to sell and enough money be left over to pay the association. That doesn't always happen and in the end the association has to write off that amount, so be prepared.

If you end up writing off the account, you could talk to the attorney and your tax accountant about filing a 1099-C with the IRS. You would list the total amount owed (assessments, late fees, court costs, etc.) and all that would be considered income to the homeowner, which he or she would have to pay taxes on. You won't be able to pursue collection after that, but let's see the homeowner do this dance with the IRS and see what happens. This should be done after the amout's written off, but you might not be there yet, so see what happens in the next 6 months or so and then the board can discuss what's next.

In the meantime, it may be a good idea for you to go to the next bankrupty court hearing and tell the court what the association has done to collect and its affect on the finances. When homeowners don't pay their fair share of assessments, other homeowners have to indirectly subsidize them to ensure association expenses (which don't go away) are paid and reserves are funded. The judge needs to hear that - what he or she does next, I don't know, but at least it's on record and the homeowner might be compelled to explain him/herself.

Hi SheilaH,

At this point I think it's clear that the HOA will not be able to collect much more than six months of condo dues once the foreclosure goes through. There is no equity in the home and the HOA has a superlien of 6 months. I was hoping to just end this process because each month it goes on for the HOA is out condo fees that it will never see again. But it did finally get resolved somehow in your case - I was wondering if the judge ever acts on her own to stop it or if it was stopped by some action by the creditors.

I would recommend that the HOA (via their attorney) attend the next chapter 13 hearing, or write a friend of the court brief, and point out the number of times the individual has filed chapter 13. The court can stop it if they desire.

See: How Many Times Can You File Bankruptcy?

Hi MelissaP1,

We are not giving up the lien in this case. We have taken the lien as far as we can go and foreclosed on the unit holder. The mortgage lender then foreclosed on the defendant as well to maintain its priority as a lender. Since there is no equity, the HOA is only entitled to six months of back condo dues, and we are well past that point. The mortgage lender as senior creditor is now leading the process. They have received an order for foreclosure by the court but the defendant keeps delaying the foreclosure by declaring Chapter 13 even though they never actually go through chapter 13. When the defendant files for Chapter 13 they receive an automatic stay and this stops all pending action by creditors. The defendant has done this 4 times already and has delayed the foreclosure for nearly 4 years, while living in the unit and not paying condo dues or the mortgage.

Ideally your association has a collection policy and this was turned over to your attorney with 3 months delinquency.

Quote: it's hard to collect from someone that has nothing to lose.

That the problem in a nutshell, in addition to the fact that the HOA has rules it must follow while the owner can do whatever they want (not really, but in practice that's what it boils down to). other

As Jim in pointing out, dealing with delinquencies will involve judgement calls even if the board has already created standard procedures that they try to follow. There are things that can lead the board to make different choices. Is there a lender involved? Is the lender the prior lien? Does the owner have any equity in the home? Do they have other debts (eg. medical, credit cards)? Is the owner elderly or disabled, meaning there are Fair Housing issues that can complicate the decision-making process?

Bankruptcy filings will stop the collection process, which is why serial filers are so difficult to deal with. A related strategy some delinquent owners use is to make occasional small payments, because courts tend to view that as the owner's good faith attempt to pay what they owe rather than a plan to thwart the HOA's efforts at foreclosure. Courts don't like to take people's homes and often look for every excuse not to. (Our attorney told us that we should stop accepting anything other than full payment from a delinquent owner who was moving toward foreclosure.)

In communities that have a lot of turnover in the membership, simply filing a lien and letting it ride may make the most sense. This will depend, though, on your estimate of how likely it is that the delinquent owner will try to sell their home. I assume that a person who files repeatedly for bankruptcy is using it as a strategy to stay in their home with minimal consequences.

Unfortunately, I think the person who's skilled at gaming the system holds most of the cards. The HOA often has to wait for that person to make a mistake that the HOA can jump on - hopefully the person isn't as smart as they think they are and will mess up at some point.

Are you able to review public records related to previous attempts at foreclosure? If you're working with an attorney, can that person get these records for you? If you can figure out where those attempts went wrong, perhaps you can adjust what you're doing to improve your chances.

You need to set a goal and face reality. The HOA is NOT going to see any money. Unless this person wins the lottery, HOA/Bank NOT going to see a dime. The purpose now is to hope the foreclosure goes through to get rid of the non-paying member. However, depending on your state there is a right of redemption period up to a year. This means the original owner has up to a year to pay what they owe, improvements, and house payments. The new owner even if they win the house in an auction, still has to wait out that right of redemption before can do any work. It's kind of like they are in limbo. They own the house but it can be taken back. They lose their investment money. If the bank owns the property, then they will probably NOT pay dues for that year. They may pay up at the end when they sell the property. They are NOT going to pay for any of the legal steps your HOA took. Just the back dues.

Now if there is also the factor of Tax liens/foreclosures. This is the type you see on TV advertising house flipping business. They are usually NOT bank foreclosures. They are when the Tax man cometh. I would check their tax status. Our house we foreclosed on the bid winner decided not to buy the house. The house then turned into a Tax foreclosure. It took nearly 2 years for that vacant house be occupied free and clear.

If it was me, I would let the "Super lien" lay as it is. Make sure it's still in place/active. Give up the idea of ever being paid. Plus NEVER have the HOA purchase this house. It just is going to take time. Your just trying to stop the bleeding at this point. It sucks and have been there. However, once the foreclosure process can wrap up. Just wait it out. Otherwise your just spending more money to pursue a bad debt that can't be collected.