Home Owner’s Associations

An HOA May Sue Even After Bankruptcy!

Can sue you even after a bankruptcyTHE BANKRUPTCY CODE SPECIFICALLY ALLOWS IT!

The Rule is that you can eliminate your personal liability to pay your Home Owner’s Association up to the date that you file your case.  But what happens AFTER?

YOUR HOME OWNER’S ASSOCIATION CAN SUE YOU IF:

While filing bankruptcy stops Foreclosure, you must still either work out a loan modification or setup a CHAPTER 13 payment plan in order to strip off the 2nd mortgage and catch up the arrears on your 1st mortgage.  If all goes well, you won’t ever have to think about your HOA, you just continue to pay it and move on.

Short Sale

IF THE ABOVE DOESN’T WORK OUT, YOUR AIM MUST BE FOR A SHORT SALE to avoid a Foreclosure after Bankruptcy.  Doing a Short Sale will take the Home Owner’s Association into account as part of the final deal and that will be that. It also keeps a foreclosure off of your credit.  A foreclosure is a lot worse on your credit than either a bankruptcy, a short sale or even the two of them combined.

But if you end up with a Foreclosure after Bankruptcy . . .

FORECLOSURE AFTER BANKRUPTCY:

If you can’t pay a Chapter 13 payment (YOU MUST CONSULT A BANKRUPTCY ATTORNEY TO BE SURE, NEVER ASSUME ONE WAY OR THE OTHER WITHOUT A CONSULTATION FIRST), & if you cannot pay your 1st, you are going to lose your property.  So, File a Chapter 7 Bankruptcy: Your 2nd or HELOC will no longer be able to sue once your Chapter 7 has discharged.  You can stay in the property a bit longer while saving up to move. You could get a couple or even several extra months Rent-Free! But if you don’t do a short sale, you will eventually have a foreclosure.

Your HOA Can Sue You

Your HOA will be able to sue you from the date that you filed your Bankruptcy until the day your property is foreclosed.  I have seen this more than once, a couple assumes that a short sale is on track, and then it doesn’t go through.  Meanwhile they have not been paying the Home Owner’s Association fees.  Probably they haven’t paid for a year prior to filing the bankruptcy so they are out of the habit of paying it.  Once the bankruptcy took place, they still didn’t pay because they couldn’t afford to, or they assumed that the short sale would take care of it.

You may still be trying for a short sale even during your Bankruptcy.

However, if you don’t pay, and there’s a foreclosure, you’re going to owe all HOA fees and assessments from the day that you filed until the day that you no longer owned the property. Because they banks don’t want to pay the HOA fees either, I have seen them take a couple years to actually repossess a house, especially if the family has already moved out.  $150/mo in HOA fees plus special assessments, attorney’s fees and costs adds up pretty quickly.

SO CONTINUE TO PAY THE HOME OWNERS ASSOCIATION FEES UNTIL THE PROPERTY IS SOLD OR FORECLOSED.  If you don’t want to pay the HOA Fees to the HOA because you expect a short sale to take care of it, put the HOA Fees into a savings account just in case the short sale doesn’t go through.  If it doesn’t go through you just pay them.  If it does go through, you have a small savings account to use as moving money, or maybe replacing your appliances.

2 Responses to Home Owner’s Associations

  1. Karen Kavin says:

    Hi:

    The HOA foreclosed on their own lien. HOA has title to the property. HOA did not pay the mortgage. I am in default also. Been trying a loan mod and now in the appeals process for loan mod. Filed bk7 on 10/30/12. Bank has not foreclosed on loan. What will happen to the house ?

    • David Nelson says:

      If you filed your bankruptcy with the aid of an attorney, then I recommend you discuss the issues with your attorney. If you did not use an attorney, I cannot advise you if you are outside of California. So, I do have 2 questions, where are you? When did the HOA foreclose the house? Call me for a free consultation at 951-200-3613.

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