A homeowner association’s ability to foreclose on a property for failing to pay assessments is a potent tool in collections.
Policy for Collecting Delinquent Dues
It is a rare condominium or homeowner association that has yet to face the challenge of the pecuniary consequences of delinquent assessments.
Prior to the economic downturn that began in 2008, there were many portfolio managers, myself included, who managed associations that had never experienced the financially crippling effects of numerous delinquencies. Because they were so rare and infrequent, there was a tendency toward leniency and inconsistency, and legal action was rare.
But when your neighbors cannot pay their association dues, the balance radically shifts and those who can pay must pay extra just to keep the grass mowed, refuse removed and roofs from leaking. In harder hit associations, reserves are compromised to fund basic monthly operating costs.
Bankruptcy Court Rules that “Absent” Owner in Chapter 7 Must Pay, So Long as They Remain Owner
In a recent decision, our firm successfully defended an Association’s ability to collect post-petition assessments in a Chapter 7 bankruptcy case. The decision reaffirmed the 2005 amendments to the Bankruptcy Code. Following these Amendments, a debtor remains liable for post-petition assessments, so long as he or she holds “mere” legal title ownership.
In In re Brown, Bankruptcy Judge Donald Steckroth held that a debtor remained liable for post-petition association assessments in a Chapter 7 proceeding. This liability remained, even after the unit was abandoned by the Trustee and the debtor did not live at the unit, so long as the debtor held legal title.
The matter was brought before the Court on the debtor’s motion to compel the Association to release monies levied in a bank account, post-petition, after the bankruptcy case was closed. As background, the Association had received a state court judgment for only
Bankruptcy FAQs
Q: What do I do if I receive a Notice of Bankruptcy Filing?
A: You should inform your collections attorney immediately if you receive notification that a homeowner has filed bankruptcy. If we have an active collections file against the homeowner, we are required to suspend further collections efforts against the homeowner while the bankruptcy is pending.
If we do not have an active collections file against the homeowner, we recommend you forward the notice to your collections attorney anyway. We are able to access the Bankruptcy Court’s records and can file any paperwork necessary to be sure that the association is protected throughout the bankruptcy proceedings. We can also monitor the proceedings and update you as to any significant developments in the proceedings.