Bankruptcy Lawyer in Asbury Park NJ.
What happens to Condominium Association Fees in Bankruptcy? Filing for bankruptcy allows consumers to discharge most of their debts. In 2005 when when the bankruptcy laws changed through BAPCPA, various homeowners associations (HOA’s) lobbied Congress for special protection.Due to the efforts of those lobbyists not all homeowners’ association fees can be eliminated through bankruptcy.
We often meet with consumers who are seeking to strategically default (walk away from) on their homes since the real estate is underwater (principal of the loan is more than the value of the home) and therefore is not an asset worth keeping. Filing a bankruptcy can enable a homeowner to eliminate any obligation on a mortgage — even for an eventual deficiency judgment after a foreclosure.
New Jersey, being a very densely populated state has a large number of co-ops and condominiums. When dealing with these units they usually come with HOA and/or maintenance fees. These types of residences have to be dealt with a little bit differently than those properties without such fees.
Homeowner association (HOA) dues and fees, commonly known as maintenance, CAN be discharged in a bankruptcy proceeding. However there is a caveat; only those dues and fees owed up through the date the bankruptcy petition is filed can be discharged. Any homeowner association dues and fees that accrue AFTER the petition is filed CANNOT be discharged. This provision is set forth in 11 USC § 523 – EXCEPTIONS TO DISCHARGE which states that a consumer cannot discharge a debt:
(16) for a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor’s interest in a unit that has condominium ownership , in a share of a cooperative corporation, or a lot in a homeowners association, for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest in such unit, such corporation, or such lot, but nothing in this paragraph shall except from discharge the debt of a debtor for a membership association fee or assessment for a period arising before entry of the order for relief in a pending or subsequent bankruptcy case.
Therefore, if the consumer continues to own the co-op or condo, after the bankruptcy petition is filed, HOA fees will continue to accrue and the consumer will be responsible for those fees. This applies to any home, condo, or other residence owner with those properties in associated communities that have homeowners’ association dues.
This section of the bankruptcy code can create a sticky situation if the consumer is seeking to walk away from the home and the mortgage lender is not moving along expeditiously with the foreclosure process. Since the consumer continues to own the home, whilst the lender forecloses, even if he or she does not reside there, the consumer is responsible for the post-petition HOA fees.
What does this all mean? It boils down to the fact that the homeowners association can pursue the homeowner for these post-petition monthly charges, and sometimes that does happen. However in most cases homeowners associations wait until the unit is sold at auction, at which time they deduct all outstanding HOA fees from the proceeds.
The New Jersey personal bankruptcy attorneys at Riviere Cresci & Singer LLC can answer any questions you may have. If you live in New Jersey, including the towns of East Windsor, Howell, Monroe, Tinton Falls or East Brunswick, call us for a free consultation to find out how we can help you.