Homeowner’s Association Fees & Bankruptcy

A frequent issue that arises in bankruptcy cases in Augusta, GA is the treatment of Homeowner’s Association fees (“HOA fees”) or regime fees.  These fees represent an assessment against all homeowners in the association to maintain and improve common areas, such as a pool, gym or clubhouse.  They may also cover road and infrastructure improvements.  When unpaid, a lien can be placed against the resident’s property for the past due charges.  This lien will have to be satisfied if the property is ever sold or refinanced.  In addition, the HOA may be able to file suit against the homeowner to recover the fees directly, through wage or bank account garnishment.   How these fees are treated in bankruptcy will depend upon the homeowner’s desire to keep the property.

If the homeowner wants to keep the property in a Chapter 7, they will have to make the regular mortgage payments on the property.  However, the homeowner will remain liable for any unpaid HOA fees, as these are non-dischargeable debt.  So once the Chapter 7 bankruptcy case is discharged, the HOA may resume the collection of the unpaid fees.  It is important to remember that the assertion of a lien for unpaid HOA dues can be an event of a default with your mortgage company, which in some instances could lead to a foreclosure, even if the mortgage payments are current.

If the homeowner wants to keep the property in a Chapter 13 case, then the unpaid HOA dues can be paid as part of the Chapter 13 repayment plan.  But the homeowner would still be responsible for the HOA fees that came due after the Chapter 13 case is finished, as those fees could not be included as part of the repayment plan.

What if the homeowner wants to surrender the property either in a Chapter 7 or Chapter 13 case?  This is where it can get tricky.  The “surrender” of a property in either type of bankruptcy means that the lender will have permission to foreclose on the property in partial satisfaction of its debt.  Any money still owing after the property is foreclosed would be “discharged” upon completion of the Chapter 7 or Chapter 13 bankruptcy.  When the lender eventually forecloses, the HOA liens would have to be satisfied.  But in some cases the home lender may take months or even years to foreclose on the property.  In the meantime, the former homeowner would still remain responsible for the fees that continue to accrue on the property.

How long the homeowner remains responsible for the ongoing HOA fees depends upon the jurisdiction, but there are essentially two schools of thought.  At best, the homeowner will remain responsible for any HOA fees asserted against the property while they remain in the residence.[i]  At worst, the homeowners could remain liable – notwithstanding their bankruptcy discharge and abandonment of the property – for the HOA fees that accrue prior to the foreclosure of the residence.  This is frequently a problem for former HOA homeowners in jurisdictions where foreclosure is a length process.  Until the title to the property is shifted to the mortgage lender, the former homeowners will continue to be subject to collection attempts on the HOA debt, and could face lawsuits asserting personal liability for the HOA fees in addition to their lien.

If you are a member of an HOA, make sure that you let your bankruptcy attorney know, and also make them aware of any past due fees that may be owed.  If you intend to surrender the property, inquire as to how long you may remain responsible for any unpaid fees that accrue after your bankruptcy case is completed.  This will prevent any unwelcome surprises in the months or years after the receipt of your bankruptcy discharge.

[i] While a Debtor may “surrender” a property in bankruptcy, that alone does not require immediate removal from the property.  The homeowners and their family can continue to reside in the property until the foreclosure process has been completed.