One issue that sometimes arises in a bankruptcy case is the treatment of homes association dues, homeowners’ dues, and timeshare dues. Some property owners live in neighborhoods or developments that charge them a monthly fee for various services, such as grounds maintenance, snow removal, maintenance of public areas, and related things. Not all homes have these, of course. But some do, and it is important to understand how the treatment of these dues interact with bankruptcy law.
If a debtor files bankruptcy, any homeowners’ or association dues that are in arrears at the time of the filing are handled within the bankruptcy case. However, any post-petition dues that arise after the case is filed will need to be paid until the debtor’s interest in the property is terminated. For example, suppose a debtor files a Chapter 7 case and the monthly homeowners dues are $90 per month. At the time of filing there is $850 owed to the homeowners association. Also suppose that the debtor wants to surrender the property. The arrearage amount that existed at the time of filing ($850) is handled like the other unsecured debts (assuming there is no lien on the property), and would normally be discharged along with the other unsecured debts. However, the debtor technically still would be responsible for the ongoing monthly homes association dues until his rights in the property were terminated (normally, when the foreclosure sale is completed and any redemption period has run).
This issue can get complicated. The key questions that normally need to be asked are:
1. Has the homeowners association put a lien on the property? If so, lien avoidance or lien stripping issues can come into the picture.
2. Does the debtor want to stay in the property?
3. What chapter of the bankruptcy code has the debtor filed under? Things can change depending on if someone is in a Chapter 7, 11, or 13 case.
A common problem that can arise is when a debtor wants to surrender a timeshare or home in a bankruptcy case, but the mortgage company takes a long time to complete the foreclosure. The debtor has filed the case, but the mortgage company delays the foreclosure. Technically, the debtor is still responsible for the monthly homeowner dues from the filing of the bankruptcy until the termination of his or her rights in the property (after the foreclosure sale).
Fortunately, in the real world, this problem often has a way of working itself out. Homes associations are often willing to work out resolutions to these issues when they arise. Municipal governments are becoming more sensitive to the problem of abandoned properties sitting idle and awaiting foreclosure. It’s all part of the continuing fallout from the mortgage and financial crisis of the past few years. Make sure you consult with your attorney about any homeowners, homes association, or timeshare dues that you may have, so that you aren’t hit with any surprises.