Many of our bankruptcy clients own homes or condominiums in developments where they have an obligation to pay Homeowner’s Association dues (HOA dues). HOA dues are essentially a commitment that runs with the property to share the costs of common, or mutual, expenses. These expenses may include costs for maintaining sidewalks, landscaping, community pools or other amenities shared by all owners in the community.
If the HOA dues are not paid, neighborhood covenants (rules that are tied to the property) will often allow for a lien to be recorded against the delinquent homeowner’s property. When the property is sold or refinanced, the lien will have to be paid. Worse yet, the HOA may be able to sue, or bring a foreclosure action against the property for nonpayment of the dues. And even if the mortgage payments are current, the mortgage company can sometimes take the position that failure to pay HOA dues creates a default on the mortgage and commence foreclosure for this reason alone.
What to Do If You’re Seeking Bankruptcy Protection
As we have explained in previous blog posts, consumers seeking bankruptcy protection usually proceed under either Chapter 7 or Chapter 13 of the bankruptcy code.
Chapter 7, often referred to as straight bankruptcy, provides for the discharge of the consumer’s credit card and other unsecured debt. But, if the debtor wants to keep his or her home, the mortgage payments must be current. HOA dues are likewise not dischargeable in a Chapter 7 bankruptcy. If they are owed at the time the Chapter 7 bankruptcy is over, the HOA can resume collection efforts.
In a Chapter 13 bankruptcy, a consumer can pay the HOA dues on which he is behind as part of his Chapter 13 repayment plan. But HOA fees that become due after the Chapter 13 bankruptcy is filed must be paid or, again, the HOA can take action to collect these “post-petition” dues after the bankruptcy is over.
Surrendering Your Home
Sometimes the individual filing bankruptcy wants to simply “surrender” her home. In these situations, it is important to understand that the home is technically still “owned” by the debtor until the mortgage company gets around to foreclosing on the property. This can sometimes take months – or even years. HOA dues that accrue during this time can still be the responsibility of the owner and could remain owing following the bankruptcy.
At Bond & Botes, we offer a free face to face consultation with an attorney experienced with dealing with HOA dues in bankruptcy. During any such consultation, is it important that you disclose all relevant information. If you owe HOA dues, make sure to tell us about the issue so that we can explain all of your options in detail. If you are facing financial challenges, give one of our conveniently located offices a call so that we can help you obtain a fresh start.
Brad Botes is a principal of each of the Bond & Botes Law Offices throughout Alabama, Mississippi, and Tennessee. He holds a Bachelor of Science from the University of North Alabama, and a Juris Doctorate from Cumberland School of Law at Samford University. He and his team of bankruptcy lawyers have spent over 30 years guiding people through financial challenges. Read his full bio here.