Bankruptcy Options if You Are Behind on Condo / Townhome Assessments

Behind on your monthly HOAs, late fees or special assessments owed to your homeowner’s association?

Under Minnesota statute, most defaulted amounts due to a homeowner’s association create an automatic lien against the individual unit, which means that these amounts remain secured against the condo or townhome even after bankruptcy. Because of this statutory lien, the association can collect against a defaulting owner either by way of initiating a lawsuit for personal liability or, less frequently, by foreclosing its lien.

Read more about Condo, Townhome and HOA Association Liens in Minnesota.

While bankruptcy typically discharges one’s personal liability for unpaid assessments as of the date the bankruptcy is filed, the automatic association lien that is created by statute still exists in spite of bankruptcy. Therefore the association retains a right to foreclose the unit either after a bankruptcy discharge is received or during bankruptcy with court approval. Because filing of bankruptcy only offers temporary relief for a defaulting condo or townhome owner who wishes to retain the property, a long term resolution of the association arrears is necessary.

Chapter 13 bankruptcy allows a defaulting homeowner as long as three to five years to repay their association for any “pre-petition” amounts due. While in chapter 13, the homeowner must stay current on the monthly HOAs and any new special assessments or they again will risk an association foreclosure of the unit for “post-petition” amounts due.

Chapter 7 bankruptcy discharges personal liability for unpaid association assessments / HOAs but will not resolve the automatic lien if the homeowner intends to keep the property.

There are options in bankruptcy if you are behind on assessments due to the association and these options vary depending on whether you intend to keep the property. If you own a condo or townhome and are considering bankruptcy to stop a foreclosure or lawsuit, it’s important to understand how bankruptcy may impact your liability for association dues, fees and other assessments, your right to continue to use common amenities, and the risks of foreclosure. Especially under these circumstances, it’s best to get advice from a bankruptcy attorney who understands the various forms of bankruptcy relief to protect your interests with regard to the property.

Attorney Lynn Wartchow is a Minneapolis / St. Paul area bankruptcy attorney representing clients in Chapter 7 and Chapter 13 consumer bankruptcy proceedings in Minnesota since 2005.Call for a free bankruptcy consultation to understand your options in Chapter 13 or Chapter 7 bankruptcy.

Homeowners Associations and Bankruptcy: How Does Bankruptcy Affect My Condo or Townhome and My Association Dues (HOAs)?

The prevalence of condo and townhome development in the mid-2000s throughout Minneapolis and the suburbs was hit especially hard by the decline in the real estate market, with prices sinking disproportionately on these urban homes that were often originally overpriced and over-marketed to younger consumers. Owners of condos or townhomes who file bankruptcy should be aware of the Minnesota laws that govern the association’s rights as well as be properly advised of what bankruptcy can and cannot do with regard to unpaid HOA assessments.

Under Minnesota law, a homeowner’s association has a statutory lien for any unpaid HOA assessments, which means that unpaid association dues automatically become a lien against the property much like a second mortgage would be however without the need for the HOA to record the lien with the county. Additionally, the association also has a claim against the homeowner for any unpaid HOA dues incurred prior to filing bankruptcy. With both avenues of relief available, the association has several options to collect against a defaulting homeowner, including restriction of rights to use common amenities, bringing a civil action against the homeowner and even foreclosure of the unit under Minnesota law.

While the bankruptcy of an association member will discharge their personal liability to repay the HOA assessments accrued through the file date of the bankruptcy case, the association nonetheless still retains its lien against the property. This association lien can be foreclosed just same as an unpaid second mortgage. An association lien often also includes additional amounts for unpaid late charges or interest, fines imposed upon an owner for violations of the HOA’s rules and regulations, attorney fees incurred by the association, and any other amounts charged against an owner under the association’s declaration.

In either Chapter 7 bankruptcy or Chapter 13, the rule of thumb is that a homeowner will be liable for most if not all HOA assessments in spite of their bankruptcy, particularly if the property is not foreclosed or otherwise the homeowner continues to own the property. This is because any HOAs arising after the file date of a bankruptcy case are not included in the bankruptcy, and any HOAs that arose prior to the file date of a bankruptcy case usually remain a lien against the property and therefore must be paid off in order for the owner to sell or refinance. If the property is foreclosed, the homeowner generally will owe all HOAs due through the later date of either the foreclosure (i.e., the sheriff’s sale in Minnesota) or the homeowner’s bankruptcy.

In Chapter 13, the homeowner can obtain relief with regard to HOA arrears by paying those off with interest over the course of a three to five year Chapter 13 plan.

If you are considering bankruptcy and own a condo or townhome, it’s important to understand how bankruptcy may impact your liability for HOA association dues and other assessments, your right to continue to occupy the property and use the common amenities (noting some amenities can be denied), and foreclosure. Especially under these circumstances, you should seek advice from a bankruptcy attorney who can advise you on the best way to obtain bankruptcy relief while protecting your interests with regard to your property.

Lynn Wartchow is a Minneapolis / St. Paul area bankruptcy attorney representing clients in Chapter 7 and Chapter 13 consumer bankruptcy proceedings in Minnesota since 2005. Email for a free bankruptcy consultation to understand your options in Chapter 13 or Chapter 7 bankruptcy.