Not Paying Your Homeowners’ Association Dues Can Put Your Property at Risk for Foreclosure

Delinquent Homeowners’ Association dues can turn into real property liens and ultimately foreclosure. Homeowners Associations have specific rights and powers under the law. Knowing your rights and obligations can protect you financially.

Homeowners’ Associations (HOAs) are non-profit corporations that govern and maintain common areas that homeowners share in a community. HOAs must have declarations and covenants filed in the county records. Most HOAs assess dues to cover the maintenance of common areas. HOAs have the power to file a lien against the homeowner’s real property if the assessments become delinquent, depending on the terms of the declarations and covenants.

If the lien is not paid, the Homeowners’ Association can hire an attorney to file a foreclose action against the real property. Foreclosure lawsuits usually seek judgment for the unpaid Homeowners’ Association dues plus 18% interest on the balance, late charges, court filing fees and costs, and attorney fees. It can add up to a great deal more than the original unpaid balance.

A Bankruptcy Can Resolve Delinquent Homeowners’ Association Dues

When a debtor files bankruptcy, all debts—including delinquent HOA dues—are included, and all legal actions, including foreclosure proceedings, are stopped by the bankruptcy automatic stay. In Chapter 7 the delinquent HOA dues can be discharged, but if a lien was filed before the bankruptcy, the lien itself is not discharged, only the monetary debt. However, in bankruptcy reorganizations such as Chapter 11 and Chapter 13, a debtor has more available options.

“Stripping Off” a HOA lien in Chapter 11 and Chapter 13 When There is No Equity as to the HOA Lien

If the real property subject to a homeowner’s lien has a first mortgage that according to the declarations and covenants is subordinate to the Homeowners’ Association assessments, and the amount owed is greater than the property’s value, the lien can be “stripped off.” Although the words “stripped off” are not in the bankruptcy code, this is the term that is used frequently by bankruptcy practitioners when a HOA claim is “valued” and determined to have no equity to attach to. If the lien has no value, the lien is “avoided,” subject to completing the Chapter 13 and receiving a discharge. This can be a powerful tool if the amount of HOA debt has grown to an amount that is unaffordable to resolve.

Forcing a repayment plan when there is Equity through Chapter 11 and Chapter 13 Plans

If stripping off the lien isn’t possible because the real property has equity after the first mortgage, another option a debtor has in a Chapter 11 and Chapter 13 reorganization is to pay the amount of the total HOA debt over time with interest. Chapter 11 and Chapter 13 plans can provide for the delinquent HOA dues, interest, court costs, and attorney fees to be paid over time, up to 60 months. If the HOA has filed a foreclosure and obtained a Final Judgment, the claim would be paid at the Florida statutory judgment rate. Currently the Florida statutory rate is 4.25%.

Objecting to the Amount Owed to a Homeowners’ Association

In all chapters of bankruptcy, a debtor can challenge the amount that is owed to a HOA. Sometimes HOAs don’t follow their own declarations or misappropriate payments. When we represent debtors in bankruptcy, we carefully review all claims, including claims filed by HOAs. We are committed to strongly advocating for our clients and will object to any inappropriate application of payments, incorrect interest rates, fees or costs.

Our Team is Experienced in Dealing with Delinquent Homeowners’ Association Dues

The team at Branson Law has assisted thousands of debtors in resolving their delinquent HOA dues through bankruptcy proceedings. If you are having financial difficulties paying your HOA dues, contact our office for a consultation at no cost to see if filing bankruptcy might be the best solution for you. We are ready to help. Call today.