When you file for Chapter 7 bankruptcy and owe money to a homeowner's association (HOA), you may be able to discharge (wipe out) those dues. This is often a good idea if you give up your home or condo in the bankruptcy. However, if you intend to keep your home or condominium, you will probably have to keep paying the dues in order to keep the property. And even if you do give up your home, you won't be able to discharge any HOA fees that accrue after you file for Chapter 7 bankruptcy.
Giving Up Your Home or Condo in Bankruptcy
One of the papers you must fill out and sign when filing bankruptcy is called a Statement of Intention. On this form, you indicate whether you intend to “retain” or “surrender” your real property. If you, like many homeowners filing bankruptcy, find that your home is under water and cannot afford to keep it, you can surrender it in a Chapter 7 bankruptcy.
By surrendering your home or condo in Chapter 7 bankruptcy, you may be able to discharge all of the debts associated with the property, including the HOA fees.
Post-Bankruptcy HOA Fees: Watch Out
The HOA fees subject to discharge include those that accrued up to the date of filing bankruptcy. Any additional fees that accrue after you file for bankruptcy, like other post-bankruptcy debts, will not be discharged. In days of your, most people didn't have to worry about these fees. But things have changed.
How it used to work. In previous times, most homeowners giving up their homes didn't have to worry about post-bankruptcy HOA fees. This is because the HOA fees were often paid out of the proceeds of a foreclosure sale or picked up by the new owner (assuming the HOA followed proper procedures to reduce the fees to a lien).
Nowadays. With the rise in foreclosures and resulting foreclosure backlogs, the “do-nothing” strategy often doesn't work. Nowadays, new HOA fees often accrue while you wait for the bank to foreclose. If the homeowner's asociation is not paid for the fees out of the proceeds of the sale of the property, or does not want to wait to be paid, then it may be able to sue you personally for any post-bankruptcy HOA fees during the time the property was titled to you.
Options for Dealing With Post-Bankruptcy HOA Fees
If you don't want to be saddled with post-petition HOA fees, consider other options to avoid this open-ended debt.
- Negotiate a deal with the HOA that provides for waiver of the HOA fees in exchange for agreeing to letting it take the property to foreclosure sale.
- Try to sell the property as a short sale, rather than wait for the mortgage lender to foreclose.
To learn more about foreclosures and short sales, visit Nolo's Foreclosure topic area.
HOA Fees If You Keep Your Home or Condo
If you intend to keep your home in a Chapter 7 bankruptcy, then you should probably treat the HOA as you would any other bank holding mortgages on the property. This means you may have to pay HOA dues that are owed before and after you file bankruptcy. If you don't, the HOA could foreclose on your home. This is because the lien will remain on your home, even if your personal liability for past dues is discharged. (See, Your Home in Chapter 7 Bankruptcy, for more.)
Avoiding HOA Late Fees, Attorney Fees, and Other Charges
HOA fees are most expensive when you fall behind on the dues. This is because the HOA will assess late charges and, in many cases, attorney fees. Very often, the late charges and attorney fees exceed the balance of the normal HOA assessments and dues. It is not uncommon for attorney fees to reach three times the balance of the HOA dues or more.
State laws vary on whether the HOA can collect attorney fees and other charges from you. In many states, HOAs are allowed to charge you attorney fees. As a general rule, if the HOA by-laws or articles allow attorney fees, late fees, and other charges, then you are on the hook for those charges. Your state's statutes may also give the HOA authority to charge you these fees. But that does not mean this right is open-ended. Usually, HOA attorney fees must be “reasonable.” If you believe that the HOA's lawyers are charging you attorney fees that are excessive, inaccurate, unfair, or otherwise unreasonable, consult with a local attorney or raise this as a defense to any foreclosure collection lawsuit that the HOA files against you.