The concept of a Homeowner's Association, Condominium Owner's Association, or any other Owners Association is to elect owner's in the community to make important decisions about the community. Associations are meant to protect the value of the homes by maintaining common areas, landscaping, and amenities and by acting on the best interests of the owners in the community. Generally, the dues or fees associated with an HOA or COA are to maintain said common areas, amenities, etc. and are calculated in accordance with the cost of maintenance and upkeep. Having access to the community pool and gym, seeing beautiful landscaping upon pulling into your community, and knowing that your interests are being protected are all good aspects of the HOA or COA. But what happens if you are unable to pay your HOA or COA dues outside of bankruptcy? What happens to your HOA or COA responsibility in bankruptcy?
In Florida, if you are unable to pay your HOA or COA dues, the Association can then get a lien on your home and foreclose, like your mortgage lender could if you stopped paying your mortgage. There is no minimum amount that must be owed in order for the Association to foreclose. For smaller amounts, you can generally negotiate with the Association to avoid the foreclosure and pay the back owed fees but be aware that Owners Associations have much more power in Florida than in other states when it comes to obtaining an interest in your home.
What if you owe a large amount of past due fees, the Association files foreclosure, and there is no way for you to repay that amount in a short time to avoid the foreclosure? A Chapter 13 bankruptcy can help you prevent the foreclosure process and give you years to repay the Association fee arrears in order to keep your home. What if this happens but you have no equity in your home, and it is not worth paying thousands of dollars in Association fees to keep the home? A Chapter 7 bankruptcy can discharge any Association fees or dues owed prior to filing the bankruptcy, as well as any mortgage liability. The problem with an HOA or COA in Chapter 7 is that you are still liable for any fees or dues incurred after filing the bankruptcy if your name is still on the deed.
Let's look at an example. You owe $5,000 in HOA fees, are behind on your mortgage 3 months, have no equity in your home, and a foreclosure has been filed but is not finalized. You decide to file a Chapter 7 bankruptcy to surrender your home. The mortgage liability and the $5,000 in HOA fees due before filing would be discharged in the bankruptcy. Any fees that would be owed to the Association from the day you file the bankruptcy until the foreclosure is finalized and your name is off the deed are still your liability.
In order for your name to be removed prior to filing the bankruptcy, the foreclosure has to have been completed and the home sold, or you need to utilize another option like a deed in lieu of foreclosure or short sale (these may have tax consequences and it is advised you speak with a tax professional about these options). Unless there are other factors influencing how quickly we need to file a bankruptcy for a client, we advise to refrain from filing the Chapter 7 bankruptcy until the deed has been transferred from the client in order to avoid additional Association fees owed after bankruptcy.
If you are behind on your HOA, COA, or other Association fees, or are behind on your mortgage, bankruptcy may be an option for you. We are more than happy to assist you with a free consultation to determine your best option to keep your home, or walk away from your home without any additional repercussions.
