HOA arrears- secured, undischargable?

[sealpup]

We have approx. $2500 in HOA arrears. They do have a judgement and a lien and we are in a payment plan paying $175/month (which is to include current dues) until it is all paid off. I did not pay them this month to help fund our BK. Don't know if that was good or bad.
From the research I have done, it seems that this debt (pre-filing) is dischargable in BK. Is this correct? I'm assuming just like the mortgages, the lien will remain. So in the event that we sold our house (we are planning on keeping it in the BK) the lien would just need to be satisfied? Or is there a way to get rid of the lien? Would they ever force a forclosure for it? They would be 3rd in line and our house is underwater by at least 50K, so that would be kind of stupid of them as they would not see a penny.
Can anyone shed some light on this?
Thanks!

[AngelinaCatHub]

We have approx. $2500 in HOA arrears. They do have a judgement and a lien and we are in a payment plan paying $175/month (which is to include current dues) until it is all paid off. I did not pay them this month to help fund our BK. Don't know if that was good or bad.
From the research I have done, it seems that this debt (pre-filing) is dischargable in BK. Is this correct? I'm assuming just like the mortgages, the lien will remain. So in the event that we sold our house (we are planning on keeping it in the BK) the lien would just need to be satisfied? Or is there a way to get rid of the lien? Would they ever force a forclosure for it? They would be 3rd in line and our house is underwater by at least 50K, so that would be kind of stupid of them as they would not see a penny.
Can anyone shed some light on this?
Thanks!

Well you have it down pretty good. The Judgment could be handled in the bk (it will cost a little more) but the lien is a bit more complicated to remove. You can remove it I have heard, but it would have to be petitioned and a hearing would probably have to be with the Plaintiff responding also. 'Hub

[AngelinaCatHub]

Written by: Mark Joseph Markus

Attorney licensed in California



Can a judgment lien be removed in a bankruptcy case? What is a lien?

Whether a debt can be discharged depends on the type of debt it is, and how it was incurred. For example, debts incurred through fraud are not dischargeable. Neither are certain tax debts or student loans.

Please note that a judgment and a lien are not the same thing. A judgment is a court order either fixing liability and an amount owed, or ordering someone to do something whereas a lien is the creation of a security interest against an asset or assets, giving the judgment creditor rights against that asset (such as real estate, or a bank account, or wage garnishment).

A judgment lien is not automatic. A creditor must first obtain a judgment from the court. Then, to create a lien, it must be perfected under applicable non-bankruptcy law (usually the State or county in which the asset is located). For real estate, this usually requires getting certified abstract of the judgment from the court that issued it, and recording it with the county recorder's office wherever the property is located that the creditor wants the lien to attach.

So, can one eliminate a judgment lien in a bankruptcy case? The answer is "yes", if certain requirements are met.

http://www.avvo.com/legal-guides/ugc/removing-judgment-liens-in-bankruptcy

[justbroke]

This is very dependent on your State's underlying non-bankruptcy law, as well as some interaction with the BK (federal) laws. Whether a lien can be avoided (removed) is subject to some specific situations.

The reason the State laws are important is that in some States, an HOAs lien is "statutory" and "automatic". It appears that in Colorado, from your explanation of them obtaining a judgment and lien, that it's not an automatic statutory lien in Colorado. That means that they had to actually sue you and win a judgment and then have it recorded as a lien. In Florida, as an example, the laws grant an automatic statutory lien to the HOA on January 1 of each year in which the amounts are due (in the amount of the prior year). We can't avoid the lien.

However, you can discharge HOA dues that are prior to the filing of your bankruptcy, unless they are statutory or are liens. The problem becomes in some States, just as in Florida, that any dues or fees assessed after filing, are your responsibility! This can become problematic if it takes forever to foreclose. So much a problem, that some States, like Florida, leave the liability of HOA dues on the lender for 12 months after filing, or 1% of the balance (whichever is less).

So, the problem will be just as you mentioned. First, remember that the debt, itself, is never eliminated. Your responsibility to repay it, is what's eliminated... the debt remains. The kicker is that the lien is enforceable and if you don't pay the underlying debt, they can use their powers to foreclose. In most States, HOAs have very very strong powers with rights to foreclose in as little as 30 days, for the price of the unpaid fees.

So, don't think that the HOA is 3rd in line. They may have what's known as a "super-lien". (The IRS gets a similar priority as well, but is the highest priority.) That means that if your State allows it, the HOA would get paid after the IRS and before any of the banks! That's why it's important to have an attorney who understands your specific laws in your specific state and how it interacts with the bankruptcy laws.

[sealpup]

I did some further research and found that CO is a super lien state. If a house is forclosed upon- the HOA must be first in line to get at least what is equal to 6 months of HOA dues (some places interpret this as dues plus interest and legal fees). Then the 1st mortgage gets paid, then the rest of the HOA lien, then whatever is next in line.
I'm sure my lawyer will have some good answers when I speak w/him tomorrow, but I wonder what this will mean for a Ch. 7 BK. Will they not forclose if we reaffirm and agree to keep paying them as we have been on the payment plan? Seems it would make more sense for them to let us stay and pay, as would reduce their legal fees. I am not sure if our home would sell for anymore than what our first mortgage is for- so if they are only guranteed 6 months worth of dues they would only get about $350 out of it. Will they seek relief from the automatic stay? Is this alone enough to push a Ch. 7 to a 13- this would be our only priority/secured debt (we have no tax debt, child support, mortgage arrears, etc)? I wonder if it would be worth doing a "Ch. 20" for?

[Howeasy]

just broke

"However, you can discharge HOA dues that are prior to the filing of your bankruptcy, unless they are statutory or are liens. The problem becomes in some States, just as in Florida, that any dues or fees assessed after filing, are your responsibility! This can become problematic if it takes forever to foreclose. So much a problem, that some States, like Florida, leave the liability of HOA dues on the lender for 12 months after filing, or 1% of the balance (whichever is less)."

Our Chapter 7 was discharged on 4/12/10 with our 1st and 2nd IIB. Our 1st mortgage lender filed LP on 8/24/10. Waiting for Sheriff’s sale but nothing, yet. Willing to wait them out and rebuild our emergency fund. Throughout all this we didn’t BK the HOA and have remained current on our HOA dues. Our dues are billed semi-annually in Jan and July. Does this mean that we can stop paying the HOA dues effective July? And, that the Lender will be responsible for future HOA dues?

[BKParalegal]

If you are staying the house then the HOA's are absolutely not dischargeable, and yes those pricks can foreclose and do. HOA's are way too powerful in this country.

Your chapter 7 will only delay the collection but you will need to get into an aggressive payment plan, unless they are nice (doubt it) and will work with you.

@Hub this is not an unsecured judgment lien, they can attach the debt without court approval. Please please understand the law before you cite it.

Good luck

[sealpup]

Just got off the phone with our lawyer. He said to keep paying according to our agreed payment plan w/ our HOA ($175/month, which includes current dues, until balance is $0) and that maybe when we are within days of filing to just call the HOA/their lawfirm and let them know we will be filing but intend to keep paying as agreed. He said this wouldn't be considered a pref. paymnent unless we were to settle on a large lump sum. If we didn't intend to keep the house, things would be different. And just for the record, I hate HOA's!!!!

[justbroke]

Sounds great! I'm glad that your attorney is very helpful and responsive to your questions!