Association Collections and Bankruptcy - Info for Board Members

One of the biggest issues facing associations is the ability to collect from delinquent owners who have filed bankruptcy.   It is critical an association has an attorney experienced in creditor bankruptcy law in order to avoid waiving the right to collect those assessments from the delinquent owners, which often is thousands of dollars.  Below is some general guidance for associations:

• Whenever the association receives notice an owner has filed bankruptcy, immediately send the notice to the association attorney, who should file a claim with the bankruptcy court on behalf of the association.  Make sure the claim is filed.  For some reason not all attorneys file these claims on behalf of associations.

• The bankruptcy court issues an "automatic stay," meaning the association cannot contact the owner to collect a debt.  Leave the collections to the association attorney.

• Owners have a duty to pay assessments as they come due after filing.  If the owner does not pay, notify the association attorney, who can file a motion to lift the automatic stay.

• Bankruptcy does not mean the past due assessments cannot be collected. It simply means the association cannot go after the owner personally by garnishing wages or other collection measures.  The association can still foreclose on the property "in rem," meaning against the property only, not "in personam," which is against the person.

• Delinquent owners can strip the association lien in a Chapter 13 bankruptcy if the first mortgage exceeds the value of the property.  It is important for the association attorney to monitor the case and properly object to lien stripping.  There has to be a credible valuation of the property with a thorough survey.

• If the bankruptcy case is dismissed, the automatic stay is lifted, usually 15 days after the order is entered, and the association can pursue it assessments, interest, late fees, attorneys' fees and costs as normal.

Change Your Address with the Association!!

All too often I am asked for advice on dealing with associations filing a lien or foreclosing on a home and the first statement the homeowner makes is "I never received a notice."  Unfortunately, rarely will that work as a defense to save your home from being sold at a foreclosure auction by your association.  

You have to give your association your address where you receive your mail!  It's foolish to think if you don't update your address to get notices and payment coupons a judge not order a sale of your home.  You have a duty to notify the association of your most current address.  You also have a duty to ask for the amount due if you don't receive a notice or payment coupon.  The courts have ruled against homeowners consistently on these issues because if you live in a community that has a sign with the communities name on it at the entrance, you have notice your community is governed by an association and you pay assessments to that association.

Avoiding the mail or a summons does not work either.  All the association has to do is prove they mailed the notice to the correct address. If you avoid a summons the courts allow the associations to serve you by publishing a notice in some obscure small newspaper no one reads.  Its usually too late by the time you find out you have been served by publication because the court can then enter a default judgment against you.  Plus this just adds to the attorney's fees you are required by state law to reimburse the association (that's if you can come up with the money to pay off the demand or judgment and save your home).

The bottom line is don't be foolish.  If you can't afford to pay the association, call them and try to make payment arrangements.  The association can foreclose on your home quickly and faster than a bank because the association is the original creditor and not a third party who took it by assignment.