Homeowners are often surprised to find out they are still liable for certain HOA fees on property they surrendered in Bankruptcy. The surprise is justified though in light of the whacky Bankruptcy Laws concerning the same that were passed in 2005. Bankruptcy Code 11 USC 523a(16) provides that bankruptcy does not discharge a debt:
(16) for a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor’s interest in a unit that has condominium ownership, in a share of a cooperative corporation, or a lot in a homeowners association, for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest in such unit, such corporation, or such lot, but nothing in this paragraph shall except from discharge the debt of a debtor for a membership association fee or assessment for a period arising before entry of the order for relief in a pending or subsequent bankruptcy case;
What does all this legal mumbo jumbo mean? Basically it means that Bankruptcy does discharge all HOA fees that arose BEFORE the Bankruptcy Case was filed, but NONE of the HOA arising after case filing. Thus even if you abandoned the property before the case was filed or even after, you still remain responsible for ALL HOA Fees after the filing date UNTIL the property transfers out of your name.
For example: You have HOA fees of $200 per month and owe 6 months on the date your case is filed. $1200 is discharged. But the property does not foreclose for another 8 months after filing. You are off the hook for the pre-petition $1200 but on the hook for the Post Petition $1600 until the property transferred out of your name.
So what do you do? Well, there are several options:
- Quitclaim the Property: You can quitclaim the property back to the bank. This may be risky though in light of all the real estate securitization that took place in recent years. Quitclaiming the property to the wrong lender could potentially create a new claim against you. Of course, if this was done pre-petition, such a claim would be dischargeable.
- Deed in Lieu: See if the lender will accept a Deed in Lieu of Foreclosure. This expedites the foreclosure process and actually saves the bank considerable expenses.
- Wait until Foreclosure: If you wait and file the Bankruptcy after the property forecloses, there are no post petition HOA fees to worry about.
- Sell/Short Sale Pre-Petition: If you sell or short sell the property prior to the bankruptcy case being filed, there are no post petition HOA fees to worry about.
- Pay: If you do none of the forgoing, you are on the hook for all post petition fees. Then your best bet is to negotiate the debt out, which rarely happens. Nevertheless, sometimes the HOA will file a lien on the property for the HOA fees and there might be some equity to attach to for payment. But with current market conditions, don’t bet on it.
Or for or more information on this, please contact us.