Homeowner Associations get a special pass in bankruptcy, based on both federal law and Arizona statutes. Consider the following example:
You own a home in Mesa, Arizona, and your home is in a community with an HOA, and the monthly assessments are $50. You have not paid assessments for one year, and this totals $600. You also owe $50 for interest, and $50 for fines. Additionally, the HOA has assessed a special assessment that is “due and payable” in three installments of $300 each, one immediately, one in 3 months, and one 3 months after that. Thus, the total due immediately is $1,000, and two additional assessments will be due later, along with the monthly assessment of $50.
If you file a bankruptcy, the assessments, fines and interest that accrued pre-bankruptcy are dischargeable, see 11 USC 523(a)(16), but there is a big consideration on whether you will still need to pay them. Any assessments, fines and interest which become “due and payable” after the date that the petition is filed, until legal title transfers, are still your obligation, even after title transfers.
In AZ, our statutes provide that an automatic lien exists for any unpaid assessments. So even if the assessment was due and payable before the date the petition was filed, the lien would remain. Thus, your personal obligation may be discharged, but there will still be a lien on the home. The lien only lasts for 3 years, but the HOA can foreclose on the lien at any point prior. If you want to keep the home you have to pay the assessment, or risk a foreclosure.
If you are surrendering the home, you can remain in it until it is foreclosed. And if you stated in your bankruptcy that you intended to surrender the home, it will be unlikely that the HOA will bother with a foreclosure. Instead, it will be the mortgage lender that does that.
However, you still have to pay any “fee or assessment that becomes due and payable after [the date] the order for relief…” is filed. The “order for relief” refers to the bankruptcy petition; so the date you file the bankruptcy is the demarcation. “Due and payable” has a legal meaning as well. When both terms are used together, “due” means that the amount has been determined, and “payable” means the date that the obligation matures.
If you are surrendering the home, the first part of the special assessment is dischargeable, and you will not need to worry about the lien; but the next two parts are not subject to discharge, and lien or no, you will still owe this. Likewise, the monthly HOA dues which come after the date you filed are still your obligation, as are any fines or interest charges.
If you are surrendering your home, at some point legal title will transfer to the new owner. But any fees or assessments that accrued after the petition date and were not paid before transfer are still your responsibility.
Building on this example, let’s say your lender recorded the foreclosure notice before you file the petition, to take place on the 91st day after recording, which will be one month before the second $300 will be “due and payable”. You file the petition and state your intention to surrender your Mesa home. Immediately after filing, the lender files a motion to lift the automatic stay, and it is granted one month later. Because the sale date is still pending, the lender will be able to proceed on that date. However, the lender postpones the sale for one month, and the sale thus takes place after the date that the second $300 assessment was due, but before the third.
You will thus owe the second $300 installment, but not the third. If you did not pay this before legal title transfers, the debt will still be your obligation; and they can sue you, and collect on any judgment obtained.
Every situation will have unique facts that will impact the outcome. Therefore, although blog entries are intended to be informative, the entries do not constitute legal advice. To get legal advice regarding your particular facts, you should schedule a consultation today.