Q: I just read your answer to a question regarding a homeowners association and a foreclosure. My situation is slightly different because the HOA did actually record their lien first. The house was foreclosed on by the first lender and auctioned off (it went back to the bank).
The HOA accepted my dues post-petition and I intended to pay them until the bank took the house back, but they stopped accepting my dues post-discharge because they said they couldn’t accept payment from me and at the same time pursue the lien against the property.
The property has now gone back to the bank but there’s no money to cover their lien so now they’re back at me again trying not only to get past dues but almost $1,000 in additional fees. If they chose to put a lien on the property can they also pursue me for anything above the dues?
A: First, let me translate for readers who are not students of bankruptcy procedure and/or homeowners associations.
When someone files for bankruptcy, they are said to be “petitioning the court for relief from creditors.” So the actual filed documents are called the “petition” as opposed to something like a “lawsuit” or “motion” in the local courts.
The effective date of any bankruptcy is the date the petition is filed. Anything that happens after that, even while the bankruptcy is ongoing in federal court, is considered, you guessed it, “post-petition.”
Generally, this is how it works.
With few exceptions, all of the bills you owed prior to the filing of the petition disappear. However, any bills you accrue after the filing of the petition are post-petition debts and are not erased by the bankruptcy.
A property owner’s obligation to pay their homeowners association dues is an ongoing obligation.
So let’s say your HOA set the dues at $80 per month and you owed your homeowners association $2,000 in back dues and fees on the date you filed for bankruptcy. In that event, the $2,000 would disappear.
But the month after you filed for bankruptcy you would owe $80 for that month. The $80 is a new debt since it was incurred after the filing of the bankruptcy petition.
The historic method for homeowners associations to collect overdue dues is to put a lien on the property. However, in our now not-so-new real estate market, most houses are upside-down and the HOA’s lien isn’t worth anything.
So, as an alternative, the law lets them sue the property owner personally.
The property owner is obligated to pay the monthly dues up until the date they no longer own the property.
For you, that means you owe your monthly dues from the date you filed for bankruptcy protection until the date the first mortgage holder foreclosed.
The HOA was technically correct in telling you they didn’t want to accept payments or sue until they had enforced their lien. But it was a dumb move on their part.
It would have been easy for them to determine that the property was worth less than the first mortgage. They should have simply sued for the money owed and skipped the whole lien-thing.
The bottom line is that you owe the HOA dues from the day after you filed your bankruptcy petition until the day the bank actually foreclosed.
However, it’s probably worth placing a call to your bankruptcy attorney. It may be possible to reopen the bankruptcy for the purpose of putting in these debts.
On the other hand, it may not be worth the cost and effort depending upon how much the HOA wants, and they may be willing to settle for less if you negotiate. You’d likely be better off discussing a payment plan with the HOA’s management than reopening the bankruptcy.
Tim Jones is a real estate attorney in Fairfield. If you have any real estate questions you would like answered in this column you can contact him at [email protected].