Question: I'm on our homeowners association board. We have several properties that are in foreclosure and they are all upside down. Their value in today's market is much less than the mortgage held by the bank. They all owe the HOA fees. We have liens on these properties.
A board member from another association told me that in a bankruptcy when the foreclosure happens, the bank will get it's share of the money when the property is sold, but the association will get nothing. Can this be right?
ANSWER: There have been two court decisions about this in recent months. In one, the U.S. Bankruptcy Court, Middle District of Florida, repeated its position that a lien against an owner's principal residence for assessments can be stripped away when the amount of the first mortgage exceeds the value of the property.
In this case, involving a condominium, the association argued that its statutory lien was entitled to priority, even if limited priority because any first mortgagee acquiring title as a result of foreclosure of its mortgage would be required to pay 12 months worth of assessments or 1 percent of the original mortgage debt (whichever is less).
The Court rejected that argument, stating that Florida Statutes "does not give the Association any lien rights (against a foreclosing lender for outstanding delinquencies). It merely gives it the right to assert liability for past-due assessments against the mortgage holder if the mortgage holder acquired title through foreclosure." (Section 718.116(1)9b).
In other words, association dues and fees can be discharged in a bankruptcy proceeding but only those dues and fees owed up through the date the bankruptcy petition is filed. Fees that accrue after the petition is filed cannot be discharged because a consumer cannot discharge a debt for a fee or assessment that becomes due and payable after the order. (Bankruptcy Code 523(a)(16)
This is not a simple matter and you should seek the advice of an attorney who is familiar with community association and bankruptcy law.
Attorney Sylvia Heldreth is a certified specialist in real estate law. Her office is located at 1215 Miramar St. in Cape Coral.
This article is not intended as specific legal advice to anyone and is based upon facts that change from time to time. Individuals should seek legal counsel before acting upon any matter involving the law.