Many unit owners continue to receive monthly homeowners payment notices or past due post- petition assessments after they have surrendered their property in bankruptcy but, nevertheless, are neither in possession nor actively contesting any foreclosure actions. This issue has come up in quite a number of recent cases we have encountered, and those owners believed that they were not obligated to the homeowners associations for those assessed dues. Their rationale is that by surrendering their home or unit in bankruptcy, they might be able to discharge all of the debts, claims and assessments associated with the property.
This understanding is inconsistent with the law and meaning of the word “surrender” in bankruptcy context. Initially, state and federal courts, interpreting post-petition assessments as used in the Bankruptcy Code, reached conflicting conclusions on whether or not a discharge erases or eliminates the post-bankruptcy homeowners or condominium fees.
What is a Homeowners’ Association? – The RandelleGreen Group
As it seems presently, the assessed fees that a home or unit owner will be able to discharge in a bankruptcy are those that accrued up to the date of filing bankruptcy. Additional fees that accrue after filing for bankruptcy will not be discharged even if the owner surrenders the home in bankruptcy. In addition, new fees will continue to accrue even when the owner is waiting for the bank to foreclose on the property. The owner will remain responsible for the assessed fees until the title changes from the discharged owner to the bank or a new owner. If the fees remain unpaid, the homeowners association might be able to sue the discharged owner personally for any post-bankruptcy assessed fees and, depending on state law, the association can collect attorney fees, late fees, and other charges from the discharged owner.
Eric Nwaubani is the Managing Attorney of Law Group International Chartered, and has experience in all aspects of bankruptcy law and corporate restructuring.
The materials in this website have been prepared by the author for informational purposes only and are not legal advice or counsel. Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship. This information is not provided in the course of an attorney-client relationship and is not intended to constitute legal advice or to substitute for obtaining legal advice from an attorney.