Most people believe that when they go through foreclosure or file for bankruptcy, their debts will be resolved or forgiven during the process. And, for many, this is true. However, the issue of homeowners association (HOA) fees continues to haunt many former property owners thanks to the massive delays in the foreclosure process that have left banks and homeowners at a loss when it comes to determining who is liable for these fees. For example, one victim of Tennessee flooding whose house was destroyed and who eventually opted for bankruptcy and entered foreclosure is still being assessed HOA fees even though she turned in her keys months ago and her home has been stripped to its studs[1].
The issue is that new bankruptcy laws leave homeowners liable for these fees “as long as the debtor or trustee has a legal, equitable or possessory ownership interest” in the property[2]. This means that even if you file for bankruptcy and have lost your house to foreclosure, if the lender has not actually completed the foreclosure process and taken possession of the property, the HOA can still assess you those fees. And given the prolonged nature of today’s foreclosures – lenders are taking an average of 14.5 months and often longer to actually complete the eviction process – HOAs can target homeowners for fees long after the homeowner may believe that they are in possession of a “clean slate”[3].
So what can homeowners who have long since left the neighborhood and moved on do about these delinquent fees? Some states like California offer protection from such assessments, while others may allow you to bypass the prolonged foreclosure with a deed-in-lieu action. Of course, you should not do anything without legal advice from your own attorney who is familiar with your specific situation. In most cases, HOA fees are ultimately satisfied by the lender during the foreclosure sale. However, if this does not happen or if the sale is not completed, the ambiguity can create problems for you and future owners of the property until the issue of ownership and interest in the property is fully resolved.
How do you think that HOA fees should be handled in this new era of prolonged foreclosure processes?
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[1] http://www.tennessean.com/article/20110517/NEWS/305170054/Foreclosure-bankruptcy-won-t-end-homeowners-association-fee
[2] http://www.bankruptcylawnetwork.com/i-still-owe-hoa-fees-after-i-filed-bankruptcy-and-surrendered-my-home/
[3] http://www.panamalaw.org/average_mortgage_foreclosure_eviction_time_is_438_days.html
May 19th, 2011 at 9:13 AM
Thank you for a great and important post.
It has been my experience that in many cases it is best for a home owner to complete a short sale before filing for bankruptcy if at all possible.
Another strategy that could be employed is to transfer the property into a Land Trust (or similar vehicle) pre bankruptcy / since there is no equity in the property a trustee will not challenge this generally.
As always, competent legal advise is critical. The issue of post discharge liabilities arising from property ownership is a serious concern.
All the best!!
Thomas Heimann
“Mr. Shortsales”
May 19th, 2011 at 1:04 PM
Paying HOA due’s monthly as agreed is a extremely small price to pay for to have a roof over your head, since the people are not paying the mortgage anyway. What gives a person the right to stay anywhere free. Pitch a tent on Government land, or anywhere you can. That’s how you squat for free. What gives them the right to stay 14 months to 2 years for FREE. They should be forced to pay HOA dues, with interest.
May 19th, 2011 at 2:03 PM
Client filed and discharged from Bankruptcy and lender has completed foreclosure. Not clear.
When can HOA begin billing for HOA fees? HOA claims that their fees against bankrupt even though discharged personally remain a lien on property.