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unpaid dues, owner transferred name on title

Started by LynetteB • 21 replies • 3427 views

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LynetteB (Texas)
Posts: 141
Posted:
We are in the process of writing our collection procedures. Meanwhile, we have a few lot owners with unpaid dues. I was looking through county records on-line and found that a lot owner, that has unpaid dues on the two lots he owns,is no longer listed as the owner of record. He apparently changed the name on the title to other family members. I believe this person to be going through bankruptcy without listing the lots he owns in our subdivision with the bankruptcy court. Without our procedures in place, some board members don't want to proceed with any action. Knowing the members of this board, it could be a while before a procedure gets adopted. Does anyone have any advice of what I should recommend the board do? I know we should get with a lawyer. Has anyone dealt with this type of issue? Thanks for any advice or stories of your own on this subject.
MicheleD (Kentucky)
Posts: 4,491
Posted:
Well, getting a lawyer would indeed be my first step.

One question:

Do you have a date showing on when the "new owner" took title?

The person listed on that title is the one who owes the dues and who is responsible for compliance with the deed conditions, covenants and restrictions.

So, if the "new owner" is the person who held the title when the dues became delinquent, that is the person against whom you enforce collection.

If the new owner took title after the delinquency, then, unfortunately, the only thing you can collect from them are the assessments that are due for the period of time they took ownership forward.

You still can file a claim against the previous owner, if the amount is large enough to make it worth your while. Meaning, if it's large enough to go to small claims, I guess. But you won't be able to lien the property since it doesn't technically belong to him and can't be held as "collateral" for the outstanding assessments.

If the family member who is now "owner" does not pay what HE/SHE owes in assessments (prorated from the date of ownership), then you can go ahead and lien the property at that point against them.

GeorgerwilliamsW (Indiana)
Posts: 975
Posted:
In Hoosierland unpaid dues is both (1) a personal obligation of the member (i.e. owner) and a lien against the property. If an owner transfers title to a unit without paying dues and there is no recorded lien, then you cannot go after the new owner for payment. However, you can sue the former owner in small claims court. And if a lien has been recorded then you can go after the new owner for payment, since the lien was not released at sale.

If it is the same in Texas (Kirk would know), you should immediately file a suit in small claims court against the previous owner for the amount of the unpaid dues. If h/she is going through bankruptcy then you have to get in line and await your turn for payment if any.

You should know that it is a serious federal offense to hide assets in bankruptcy or to transfer ownership of real or personal property in contemplation of bankruptcy. People have been sent to jail for such offenses, and the bankruptcy court takes an exceedingly dim view of such shenanigans.

You should advise the board to file suit in small claims court and file a claim in the bankruptcy court. Worry about policy later.
GlenL (Ohio)
Posts: 5,491
Posted:
Depending on your documents and applicable state law since this was a voluntary transfer of title then the debt may have transferred as well.
Studies show that 5 out of 4 people have problems with fractions
MicheleD (Kentucky)
Posts: 4,491
Posted:
Quote:
Posted By GeorgerwilliamsW on 01/06/2009 12:58 PM
And if a lien has been recorded then you can go after the new owner for payment, since the lien was not released at sale.


It is not the same in Kentucky. If the lien was not released prior to the sale or transfer, the new owner is not responsible for it.

Basically, you still have to go after the original debtor.

LynetteB (Texas)
Posts: 141
Posted:
The date on the county records shows July for both lots. fyi-one lot was in husband and spouse's name, now only in spouse's name; the other lot was in both, now in son's name. Our dues are due on January 1 of each year.
LynetteB (Texas)
Posts: 141
Posted:
We have not filed any liens on either property. The amounts total over $1000 for both.
MicheleD (Kentucky)
Posts: 4,491
Posted:
The spouse's name would not necessarily cause a problem, since she was on the original title, and now the current one, she is still an indebted owner.

You could probably safely lien that one.

In other words, as the owner prior to July, she was in arrears, and as the sole owner after July. . . she's STILL in arrears. So that really isn't that big a problem.

The son's ownership is a different matter.

That's where an attorney familiar with Texas laws and such will make a difference. He would be better able to assist you in knowing whether you can hold the new owner (son) accountable for prior assessments in Texas.

Good luck to you and hope this works out.

The key is, apparently, you guys need to get some concrete and professional, relevant guidance and advice fairly soon.

GeorgerwilliamsW (Indiana)
Posts: 975
Posted:
Quote:
Posted By MicheleD on 01/06/2009 1:37 PM
Posted By GeorgerwilliamsW on 01/06/2009 12:58 PM
And if a lien has been recorded then you can go after the new owner for payment, since the lien was not released at sale.

It is not the same in Kentucky. If the lien was not released prior to the sale or transfer, the new owner is not responsible for it.

Basically, you still have to go after the original debtor.
I think you are misunderstand the law. What you say is absolutely not correct.

A recorded lien is a claim against property, not a claim against the owner. Transferring ownership of real property does not, repeat does not, extinguish a lien. The lien still exists as a claim against the real property. That is why liens must be satisfied (released) before mortgage companies will loan money to purchase property. An existing lien has priority over a new mortgage.

A mechanic's lien is not extinguished simply by simply selling the property to somebody else. Were it so, a lien would be little more than a unenforceable piece of paper. Basically, what you are saying that if I have dues in arrears all I have to do to extinguish that lien is to sell the property for, say, $1 to my spouse and the property transfers free and clear. It does not.

A tax lien is not extinguished when property is sold.

A lien places a cloud over a title. Until the lien is released, the property does not transfer "free and clear."

Now, in many covenant documents there is language for the protection of first mortgagees that extinguishes a lien for unpaid dues if, and only if the mortgage is foreclosed. That is relatively unique to homeowners association dues.

GeorgerwilliamsW (Indiana)
Posts: 975
Posted:
Let me further clarify: If property with an existing lien transfers title, the lien continues to exist, and the lien holder can seek action to foreclose on the property regardless of who owns it. So when I say go after the new owner, I mean initiate enforcement proceedings to foreclose on the lien that was not extinguished at the time of transfer. It is correct that the lien is not a personal debt or obligation of the new owner.

MaryA1 (Arizona)
Posts: 7,043
Posted:
I have heard of some assn docs that state any delinquencies transfer to the new owner. It would be wise to thoroughly check the declaration to see if language to this effect is in place.

It appears to me the board is being very lax in not having a collection policy. This is only one case, there could be more to pop up as time goes by. A high rate of delinquencies will eventually put a real strain on the finances of an assn; perhaps resulting in increased assessments and sometimes in a special assessment if funds are needed immediately.
DwightT (Idaho)
Posts: 664
Posted:
We had one property owner last year who was under the impression that the assessment obligation wouldn't follow a title transfer, so he had the title on his rental property transferred from his company name to his personal name. When he found out that that didn't clear the obligation, he transferred it back to the company name.

Unfortunately (for him) he then found out that we charge a transfer fee for title transfers, so in addition to owing us the dues (plus the late charges and collection fees) he also wound up with two transfer charges added to his bill. He was not happy.

FWIW: we don't file liens. Our docs include a clause that makes the assessments "a charge on the land and shall be a continuing lien upon the Property against which each such assessment is made." That essentially gives us an automatic lien - title companies won't transfer the title until the dues are paid. But that won't stop some people (like the guy I mentioned above) from doing the transfers themselves. But, as that guy found out, just transferring title doesn't eliminate the debt. By accepting the title, the new owner is now obligated to pay that debt.

In addition, our docs also state that the assessments "shall also be the personal obligation of the person who was the Owner of such Property at the time when the assessment fell due." That gives us the ability to go after the original owner if we want even after the title is transferred. So if we can locate the original owner, we can take him to small-claims court and use that system to collect from him (thus sparing the new owner from having to pay those fees).

Lynette - as Michelle mentioned, you probably want to get in touch with an attorney who is familiar with Texas property law to help you sort this out. And remember - you should also be able to pass that attorneys fees on to the owner who is causing this problem.
LynetteB (Texas)
Posts: 141
Posted:
Dwight, Our docs have very similar language, "Each Owner of a Lot by acceptance of a deed therefore, whether or not it shall be expressed in any such deed or other conveyance, is deemed to covenant and agrees to pay to the Association a monthly maintenance charge and any other assessments or charges hereby levied. The Maintenance Charge and any other assessments or charges hereby levied, together with such interest thereon and costs of collection thereof, as hereinafter provided, shall be a charge on the Lots and shall be a continuing lien upon the property against which each such Maintenance Charge and other charges and assessments are made." In another section it states, "In order to secure payment.....,each owner of a lot, by acceptance of a deed, hereby grants to the Association a contractual lien on such lot...."

In your state, with this in your docs, you don't have to file liens? Sweet. I will ask the lawyer once we get the list of questions together what our state requires.

Our Board is "laxed" as someone stated, but that is mostly due to one or two bad apples, not wanting to do any real work, and just be everyone's friend. People just keep electing these apples and the rest of the board is left to "work around" them. Most of our lot owners live out of state, so as I have seen in several posts, lack of involvement really hurts.

Thanks a bunch for all the comments. I get a lot from this website.
DwightT (Idaho)
Posts: 664
Posted:
Quote:
Posted By LynetteB on 01/06/2009 8:40 PM

In your state, with this in your docs, you don't have to file liens? Sweet. I will ask the lawyer once we get the list of questions together what our state requires.

I don't know about not having to file liens, but from what I've been told, we are an "either/or" state: We can either file a lien, or we can file a small-claims suit. We can't do both. While there may be some risk by not filing a lien, the "automatic" lien does give us some protection, and with many homes currently worth less than their mortgage amounts, foreclosing on a lien probably wouldn't get us anywhere anyway. Also, if we don't foreclose on the lien then we would have to renew it every year, while a small-claims judgement is good for 5 years before needing to be renewed, and there are more collection options with a judgement.
GeorgerwilliamsW (Indiana)
Posts: 975
Posted:
Quote:
Posted By MaryA1 on 01/06/2009 5:26 PM
I have heard of some assn docs that state any delinquencies transfer to the new owner. It would be wise to thoroughly check the declaration to see if language to this effect is in place.
Here is language from a covenant declaration of an Illinois association:
    Said personal obligation of an owner shall not pass to his successors in title or interest unless expressly assumed by them or unless, prior to such transfer, a written notice of the lien for such assessments shall have been recorded in the office of the county recorder.
This document makes it very clear that if a lien is recorded, the unpaid association fees becomes a personal obligation of a new member purchasing the unit on which a lien has been recorded. As a personal obligation, the new owner can be sued in small claims court for the fees due from the former owner.
GeorgerwilliamsW (Indiana)
Posts: 975
Posted:
Quote:
Posted By DwightT on 01/06/2009 8:59 PM
Posted By LynetteB on 01/06/2009 8:40 PM In your state, with this in your docs, you don't have to file liens? Sweet. I will ask the lawyer once we get the list of questions together what our state requires.


I don't know about not having to file liens, but from what I've been told, we are an "either/or" state: We can either file a lien, or we can file a small-claims suit. We can't do both. While there may be some risk by not filing a lien, the "automatic" lien does give us some protection, and with many homes currently worth less than their mortgage amounts, foreclosing on a lien probably wouldn't get us anywhere anyway. Also, if we don't foreclose on the lien then we would have to renew it every year, while a small-claims judgement is good for 5 years before needing to be renewed, and there are more collection options with a judgement.
It is important, folks, to understand liens. If the declaration of covenants so state (and perhaps if they do not) a lien against property is created the instant association fees are due and not paid.

A lien does not have to be recorded to be a valid lien. However, with that said, recording a lien makes it enforceable in foreclosure proceedings against the property. I do not believe that an unrecorded lien against real property can be the basis of a foreclosure, but I could be in error about this. Also, an unrecorded lien cannot be transferred nor asserted by a third party.

Here is the language from a covenant document (again from Illinois) that specifies the creation of a lien and recording it:
    Any assessments authorized herein, together with interest, costs and reasonable attorneys’ fees, shall be a continuing lien from the first day of January (for annual assessments) and from the date the first installment is payable (for special assessments) against the Lots assessed.

    No notice of lien shall be recorded until there is a delinquency in payment of the assessment for thirty (30) days. Upon such a delinquency for thirty (30) days, the Association shall proceed promptly to enforce the lien or, in its discretion, to sue the person personally liable to pay the lien for the delinquency. Such lien shall be enforced by action in the same manner in which mortgages on real property may be foreclosed.

MicheleD (Kentucky)
Posts: 4,491
Posted:
One comment on George's last two posts:

. . . in Illinois. . .
MaryA1 (Arizona)
Posts: 7,043
Posted:
I've always been under the impression that all assn declarations contained an article outlining the automatic assessment lien for assessments. Perhaps I'm wrong??? My declaration states: "Each lot shall be charged with and subject to a continuing servitude and lien from the date of recordation of this declaration or a supplemental declaration fro the amount of the assessments and charges against each such lot. The lien (hereinafter called the "assessment lien") against each suchlot shall be superior to any and all other claims, charges, liens or encombrances which hereafter in any manner may arise or be imposed upon each such lot, except that such assessment lien shall be subject and subordinate to liens for taxes and other public charges which by applicable law are expressly made superior."

In AZ, state law also addresses the "automatic assessment lien", as follows: "The association has a lien on a unit for any assessment levied against that unit from the time the assessment becomes due." The automatic assessment lien is prior to "all other liens, interests and encombrances on a unit except: 1) liens and encumbrances recorded before the recordation date of the declaration; 2) a recorded first mortgage on the unit, a seller's interest in a first contract for sale pursuant to chapter 6, article 3 of this title on the unit recorded prior to the lien arising pursuant to subsection A of this section or a recorded first deed of trust on the unit; or 3) liens for real estate taxes and other governmental assessments or charges against the unit. This section does not affect the priority of mechanics' or materialmen's liens or the priority of liens forother assessments made by the association." This lien is not subject to the homestead exemption. The statute also states that: "recording of the declaration constitutes record notice and perfection of the lien for assessments, for charges for late payment of assessments, for reasonable collection fees and for reasonable attorney fees and costs incurred with respect to those assessments. "Further recordation of any claim of lien for assessments under this section is not required."

I'm sure the laws vary from state to state but I would certainly be surprised that the "automatic assessment lien" is not addressed in state law in states that do have HOA statutes. Of course I've been surprised by many things as regards HOAs and HOA state laws!
MicheleD (Kentucky)
Posts: 4,491
Posted:
Section 4. Assessments; Creations of the Lien and Personal Obligation. Each lot owner, except Developer, by acceptance of deed for the lot, whether or not it shall be so expressed in such deed, covenants and agrees to pay to the Residents Association (i) annual assessments of charges, and (ii) special assessments for improvements, such assessments to be established and collected as provided in this Article IV. Developer shall be responsible for the maintenance costs of the Residents Association by the lot owners, until Developer transfers control of the Residents Association. The annual and special assessments, together with interest, costs and reasonable attorney fees, shall be a charge on the land and shall be continuing lien upon the property against which each such assessment is made. Each such assessment, together with interest, costs and reasonable attorney fees, shall also be the personal obligation of the person who was the owner of such property at the time when the assessment fee due. The personal obligation for delinquent assessments shall not pass to his successors in title unless expressly assumed by them.

DwightT (Idaho)
Posts: 664
Posted:
Interesting. Here is all of ours:

The assessments, together with interest, costs, and reasonable attorney's fees, shall be a charge on the land and shall be a continuing lien upon the Property against which each such assessment is made. Each such assessment, together with interest, costs, and reasonable attorney's fees, shall also be the personal obligation of the person who was the Owner of such Property at the time when the assessment fell due. However, the personal obligation for delinquent assessments shall pass to his successors in title. The Board or its authorized representative may enforce the obligations of the Owners to pay such assessments by commencement and maintenance of a suit at law or in equity, or the Board may exercise the power of foreclosure and sale pursuant to this Declaration to enforce the liens created hereby. A suit to recover a money judgment for an unpaid assessment shall be maintainable without foreclosing or waiving the lien hereinafter provided.

So while Michele's docs explicitly state that the obligation shall not pass to the successor in title, mine explicitly states that it does. To be honest, we would do everything we could to avoid going after the new owner for the dues that the previous owner should have paid, but in a situation like Lynette's, we probably wouldn't have any qualms about telling the "new" owner to pay up.
GlenL (Ohio)
Posts: 5,491
Posted:
Here is the law about assessment liens for COA's in Ohio:

5311.18 Lien for common expenses.

(A)(1) Unless otherwise provided by the declaration or the bylaws, the unit owners association has a lien upon the estate or interest of the owner in any unit and the appurtenant undivided interest in the common elements for the payment of any of the following expenses that are chargeable against the unit and that remain unpaid for ten days after any portion has become due and payable :

(a) The portion of the common expenses chargeable against the unit;

(b) Interest, administrative late fees, enforcement assessments, and collection costs, attorney’s fees, and paralegal fees the association incurs if authorized by the declaration, the bylaws, or the rules of the unit owners association and if chargeable against the unit.

(2) Unless otherwise provided by the declaration, the bylaws, or the rules of the unit owners association, the association shall credit payments made by a unit owner for the expenses described in divisions (A)(1)(a) and (b) of this section in the following order of priority:

(a) First, to interest owed to the association;

(b) Second, to administrative late fees owed to the association;

(c) Third, to collection costs, attorney’s fees, and paralegal fees incurred by the association;

(d) Fourth, to the principal amounts the unit owner owes to the association for the common expenses or penalty assessments chargeable against the unit.

(3) The lien described in division (A)(1) of this section is effective on the date that a certificate of lien in the form described in division (A)(3) of this section is filed for record in the office of the recorder of the county or counties in which the condominium property is situated pursuant to an authorization given by the board of directors of the unit owners association. The certificate shall contain a description of the unit, the name of the record owner of the unit, and the amount of the unpaid portion of the common expenses and, subject to subsequent adjustments, any unpaid interest, administrative late fees, enforcement assessments, collection costs, attorney’s fees, and paralegal fees. The certificate shall be subscribed by the president or other designated representative of the association.

(4) The lien described in division (A)(1) of this section is valid for a period of five years from the date of filing, unless it is sooner released or satisfied in the same manner provided by law for the release and satisfaction of mortgages on real property or unless it is discharged by the final judgment or order of a court in an action brought to discharge the lien as provided in division (C) of this section.

(B)(1) The lien described in division (A)(1) of this section is prior to any lien or encumbrance subsequently arising or created except liens for real estate taxes and assessments of political subdivisions and liens of first mortgages that have been filed for record and may be foreclosed in the same manner as a mortgage on real property in an action brought on behalf of the unit owners association by the president or other chief officer of the association pursuant to authority given to that individual by the board of directors.

(2) In a foreclosure action a unit owners association commences pursuant to division (B)(1) of this section or a foreclosure action the holder of a first mortgage or other lien on a unit commences, the owner of the unit, as the defendant in the action, shall be required to pay a reasonable rental for the unit during the pendency of the action . The unit owners association or the holder of the lien is entitled to the appointment of a receiver to collect the rental. Each rental payment a receiver collects during the pendency of the foreclosure action shall be applied first to the payment of the portion of the common expenses chargeable to the unit during the foreclosure action.

(3) In a foreclosure action the holder of a lien on a unit commences, the holder of that lien shall name the unit owners association as a defendant in the action.

(4) Unless prohibited by the declaration or the bylaws, following a foreclosure action a unit owners association commences pursuant to division (B)(1) of this section or a foreclosure action the holder of a lien on a unit commences, the association or its agent duly authorized by action of the board of directors, is entitled to become a purchaser at the foreclosure sale.

(5) A mortgage on a unit may contain a provision that secures the mortgagee’s advances for the payment of the portion of the common expenses chargeable against the unit upon which the mortgagee holds the mortgage.

(6) In any foreclosure action, it is not a defense, set off, counterclaim, or crossclaim that the unit owners association has failed to provide the unit owner with any service, goods, work, or material, or failed in any other duty.

(C) A unit owner who believes that the portion of the common expenses chargeable to the unit, for which the unit owners association files a certificate of lien pursuant to division (A) of this section, has been improperly charged may commence an action for the discharge of the lien in the court of common pleas of the county in which all or a part of the condominium property is situated. In the action, if it is finally determined that the portion of the common expenses was improperly charged to the unit owner or the unit, the court shall enter an order that it determines to be just, which may provide for a discharge of record of all or a portion of the lien.

Effective Date: 07-20-2004
Studies show that 5 out of 4 people have problems with fractions
EllenS1 (Florida)
Posts: 1,148
Posted:
George,

I agree 100%

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