HOA Law Blog
Earlier this month, CAI released a Statement of Moratorium on Foreclosure Actions urging community associations to immediately suspend all foreclosure activity and not begin new foreclosure actions until June 1. We question how well thought out this position is as it is not all that realistic for California community associations.
Do not get this wrong. We at SwedelsonGottlieb are well aware of the impact that COVID-19 has had on our world and the fact that over 10,000,000 people filed for unemployment nationwide (so far). We recognize that community association boards are going to need to be sensitive to the fact that many owners may be temporarily (hopefully) unemployed and not able to timely pay their assessments.
As CAI said in its introduction to the Statement of Moratorium, the collection of community association assessments is a very serious and important responsibility of a governing board. Failing to collect assessments may impair a community association’s ability to pays its bills, provide essential services, acquire financing for continued operations, and may impact the ability of a potential purchaser to obtain a mortgage or impact existing owners refinancing of their loans.
As many of you likely know, when a homeowner files a Chapter 7 bankruptcy, they may be able to “discharge” their obligation to pay the pre-bankruptcy petition debts including the assessments they owe their community association. And you likely know that when an owner files a Chapter 13 bankruptcy, they are looking for a way to reorganize and not discharge their debts. And we all understood, or at least thought we understood that the assessments that became due after the owner filed bankruptcy, the post-petition assessments, would not be discharged.
By Brian Moreno, Senior Associate at SwedelsonGottlieb, Community Association Attorneys
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Many California condominium and homeowner associations end up with units and homes after foreclosing on assessment liens with no third-party bidders at the foreclosure sales. With increased equity, we are seeing more third-party bidders at sales. But that still leaves a lot of associations in the position of being landlords. And many boards do not know the first thing about being a landlord.
The Nevada Supreme Court recently ruled that a super priority lien held by a Nevada homeowners association can extinguish a first deed of trust on a property. The Court stated: “With limited exceptions, this lien is ‘prior to all – other liens and encumbrances’ on the homeowner’s property, even a first deed of trust recorded before the dues became delinquent”
I recently read a newspaper article about Justin Bieber and the problems he is allegedly creating for his homeowners association in Calabasas, California. Homeowners are apparently unhappy that he is racing his Ferrari around the association’s streets, and they threatened to withhold payment of their assessments unless and until their board did something about the situation. That would be a mistake for those owners or any owner who has a dispute with their association, because they simply do not have the right to withhold payment of their assessments as leverage to get their association to do what they want.
At some point, just about every community association will have a delinquent owner who files for bankruptcy. And while a bankruptcy filing is often interpreted as meaning that the debt has become uncollectable, it does not necessarily mean the end of the road for creditors, especially homeowners associations. There are special provisions for homeowners associations in the Bankruptcy Code that may help an association, assuming the association has recorded a lien, and collection of the delinquent assessments may still be possible. Having an attorney who is familiar with bankruptcy law involved at the outset of the case can drastically improve an association’s chances of recovering the money it is owed. Some bankruptcies are quick and easy. Some are not. Some start out looking like they will be quick and easy, and then things change. This article is about the ones that change when a delinquent homeowner’s bankruptcy is converted from one type of bankruptcy to another.
As you likely know, there are different types of bankruptcies that an individual can file. Typically, we see delinquent owners file either a Chapter 13 bankruptcy seeking to readjust their debts, or a Chapter 7 bankruptcy where the owner is seeking to liquidate their assets and eliminate their unsecured debts. This article will deal exclusively with Chapter 7 bankruptcies.
There has been some confusion as to whether a community association’s trustee, after a nonjudicial foreclosure sale (for the collection of delinquent assessments), may record a trustee’s deed upon sale prior to the expiration of the 90-day right of redemption required by California