Don’t Get Stuck Owing Homeowner Association Assessments

Homeowner association dues or assessments which are incurred before you file bankruptcy are dischargeable under 11 U.S.C. Section 523(a)(16). However, homeowner association dues or assessments incurred after you file bankruptcy are NOT dischargeable under any chapter, even if you abandon the property physically. If the debtor intends to remain in the property and to retain physical possession thereof, there typically no issue arises with respect to unpaid homeowner association dues. However, as long as your name remains on title to your property, you remain legally responsible for all accrued homeowner association dues or assessments.

The problem of owing homeowner association dues incurred post-bankruptcy typically arises in two situations: a) when the debtor intends to abandon the property (or intends to let the property be foreclosed on), but files bankruptcy while retaining legal title to the property or b) where the debtor files a Chapter 13 case to save his property from foreclosure, but ultimately is unsuccessful in saving it because he cannot afford to keep up the current mortgage payments, property taxes, and/or homeowner association dues, or because he cannot afford to cure the pre-petition mortgage delinquencies, including property taxes and/or homeowner association dues.

Debtors often file bankruptcy to stop the foreclosure, even if it is just to “buy” time to stay in their property for free, before they have to move out and start paying rent. Often, debtors in such situations don’t pay their homeowner association dues because they don’t think they have to, or because they don’t see the point in doing so; after all, they’re going to lose the property anyway, so why pay the homeowner association dues?

The reason to pay the homeowner association dues – at least as long as you reside in the property and are getting some benefit from the amenities provided – is that the homeowner association dues incurred after you file bankruptcy are not dischargeable.

In some states, such as Nevada, lenders are postponing their foreclosure sales repeatedly because they don’t want more foreclosed properties in their inventories. In other states like Florida, which was hit particularly hard by the real estate crash and which is a judicial foreclosure state (i.e., the lender must sue in court for a judgment allowing the foreclosure), lenders are delaying their court cases for years because they don’t want more foreclosed properties in their inventories. By delaying foreclosure, the lenders don’t have to incur the costs of maintaining the property, paying homeowner association dues, or
marketing the propety for sale.

As a debtor, if you know you want to get rid of your residence, or if you know you want to be rid one or more investment properties, you need to need to be pro-active, and it is much better to do so before you file the bankruptcy. Don’t rely on the lender to foreclose on your property, because that may not happen for months or years.

There are two ways to transfer title to your property.

One way to get rid of your property is to transfer title thereto back to your lender by way of a Deed in Lieu of Foreclosure. That puts the onus back on the lender to record a notice indicating that it does not accept your deed-in-lieu transfer of title to your property. Based on my experience, that generally does not happen.

The second way to get rid of your property is to short sell your property to a third party. However, if you are short selling your house or other property, make sure to let your realtor know if you are delinquent on your homeowner association assessments payments. From your perspective, you want your the lender or the prospective buyer to cover your delinquent homeowner assessments. Otherwise, if some arrangement is not made for the payment of the delinquent homeowner association dues as part of the short sale, you still will find yourself liable for all accrued homeowner’s association assessments up until the close of escrow of the short sale.

The result transsferring title to your unwanted property to the lender or to a third party is that you get rid of it on your terms. Moreover, if you get rid of the property before you file bankruptcy, your bankruptcy discharge will discharge your homeowner’s association dues because pre-petition homeowner association dues are dischargeable under the 11 US.C. Section 523(a)(16), the very same statute that excepts post-bankruptcy homeowner association dues from discharge.

If you have questions, please e-mail me or call me for a free phone consultation.

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