May 17, 2011
Middle Tennessee flood victims and other financially distressed property owners have been surprised to learn they can’t escape homeowners association fees even if they are in foreclosure or bankruptcy — or, in the case of Sheryl Lynn Pigg, both.
Having lost nearly everything in the flood of 2010, Pigg, a filmmaker professionally known as Sherry Paige, made the difficult decision to file for bankruptcy and abandon her Bellevue condominium. She found a new home, discharged her debts and embarked on what she assumed was a fresh start.
But because of a recent change in federal bankruptcy law and Bank of America’s delay in foreclosing on her home, Pigg is still being saddled with expensive homeowners association fees for a unit that has been stripped to its studs and that she hasn’t stepped inside in months.
Such charges used to be eliminated in a bankruptcy as long as a debtor no longer lived in the home. In 2005, however, special interests successfully lobbied for changes to the bankruptcy code so that debtors are still liable for homeowners association fees as long as they continue to legally own the home, whether they’ve abandoned it or not.
The issue has started creating headaches nationwide, with debtors arguing that the change denies them the fresh start a bankruptcy is supposed to provide. They accuse banks of intentionally dragging their feet to complete foreclosures so they don’t have to assume the costs associated with ownership. Last year’s flood has brought the issue to the forefront in Middle Tennessee, where flood-damaged homes are an even larger liability than other distressed properties. When Pigg declared bankruptcy in September, she owed $97,500 on a home that was worth only $55,000, according to her bankruptcy petition.
“It feels to me like we have a broken system. I did everything I was asked to do. I’m starting over, but they’re not going ahead and doing the final foreclosure papers,” said Pigg, who was caught on the second story of her River Plantation condominium before being rescued by boat while floodwater rose to the ceiling of the first story.
George C. Paine II, chief judge of the U.S. Bankruptcy Court for Middle Tennessee, was not asked to discuss Pigg’s case or any other specific case, but he agreed to discuss the issue in general. He is not a fan of the 2005 changes to the bankruptcy code.
“What the bank is saying is, ‘I’m not going to foreclose on the property because I don’t want to pay homeowners fees, and I don’t want this bad property on my books,’ ” Paine said. “It just sits there, and all the time homeowners fees are accruing. It just doesn’t work. It really is denying people their fresh start. The first time I saw it, I couldn’t believe it.’’
Owner sues lender
In the first quarter of 2011 the average length from the beginning of a foreclosure to the end was 411 days in Tennessee — up from 199 days in the first quarter of 2010 and 134 days in the first quarter of 2007 — according to California-based real estate firm RealtyTrac. The national average was 400 days in the first quarter of 2011, 340 days in the first quarter of 2010 and 151 days in the first quarter of 2007.
“We are definitely seeing the time it takes to foreclose extending,” said Daren Blomquist, RealtyTrac spokesman. “It does cost lenders money to own a property.’’
To force Bank of America to finalize the foreclosure, to accept a deed in lieu of foreclosure or to allow the sale of the condo to an interested buyer who has approached Pigg, she has sued her mortgage lender in bankruptcy court.
“I know Bank of America is big, and I know that they are busy, but I would really love to see them go ahead and finish the paperwork so I really can go ahead rebuilding my life,” she said. “I can’t pay for two places. There have to be ways for people to get back on their feet.”
Pigg said her homeowners association fees were $150 a month when she moved out, but she suspected they had increased since the flood.
Bank of America refused to discuss Pigg’s case.
“We cannot comment on this situation, as it is a matter of pending litigation,” the bank said in an emailed statement. “In general, bankruptcy or litigation may result in a delay of foreclosure proceedings.”
In court filings, Bank of America argues that foreclosure is an option — but not an obligation — when a property is abandoned, and that the bank can’t be forced to do it. The bank also claims that Pigg has refused to submit the required paperwork for it to consider accepting a deed in lieu of foreclosure.
Her lawyer, John McLemore, said that argument is disingenuous.
“The bank has countered by telling us to get in line, fill out a bunch of forms and probably be turned down because the left hand won’t know what the right hand is doing,” said McLemore, who took on Pigg’s case free of charge. “This is not the time for the bank to start reminding us it has a ‘program.’ … It is for situations that do not involve lawyers and lawsuits.”
McLemore said the homeowners association, Belle Management Corp., has agreed not to sue Pigg and will await the outcome of her lawsuit against Bank of America.
Middle Tennessee flood victims and other financially distressed property owners have been surprised to learn they can’t escape homeowners association fees even if they are in foreclosure or bankruptcy — or, in the case of Sheryl Lynn Pigg, both.
Having lost nearly everything in the flood of 2010, Pigg, a filmmaker professionally known as Sherry Paige, made the difficult decision to file for bankruptcy and abandon her Bellevue condominium. She found a new home, discharged her debts and embarked on what she assumed was a fresh start.
But because of a recent change in federal bankruptcy law and Bank of America’s delay in foreclosing on her home, Pigg is still being saddled with expensive homeowners association fees for a unit that has been stripped to its studs and that she hasn’t stepped inside in months.
Such charges used to be eliminated in a bankruptcy as long as a debtor no longer lived in the home. In 2005, however, special interests successfully lobbied for changes to the bankruptcy code so that debtors are still liable for homeowners association fees as long as they continue to legally own the home, whether they’ve abandoned it or not.
The issue has started creating headaches nationwide, with debtors arguing that the change denies them the fresh start a bankruptcy is supposed to provide. They accuse banks of intentionally dragging their feet to complete foreclosures so they don’t have to assume the costs associated with ownership. Last year’s flood has brought the issue to the forefront in Middle Tennessee, where flood-damaged homes are an even larger liability than other distressed properties. When Pigg declared bankruptcy in September, she owed $97,500 on a home that was worth only $55,000, according to her bankruptcy petition.
“It feels to me like we have a broken system. I did everything I was asked to do. I’m starting over, but they’re not going ahead and doing the final foreclosure papers,” said Pigg, who was caught on the second story of her River Plantation condominium before being rescued by boat while floodwater rose to the ceiling of the first story.
George C. Paine II, chief judge of the U.S. Bankruptcy Court for Middle Tennessee, was not asked to discuss Pigg’s case or any other specific case, but he agreed to discuss the issue in general. He is not a fan of the 2005 changes to the bankruptcy code.
“What the bank is saying is, ‘I’m not going to foreclose on the property because I don’t want to pay homeowners fees, and I don’t want this bad property on my books,’ ” Paine said. “It just sits there, and all the time homeowners fees are accruing. It just doesn’t work. It really is denying people their fresh start. The first time I saw it, I couldn’t believe it.’’
Owner sues lender
In the first quarter of 2011 the average length from the beginning of a foreclosure to the end was 411 days in Tennessee — up from 199 days in the first quarter of 2010 and 134 days in the first quarter of 2007 — according to California-based real estate firm RealtyTrac. The national average was 400 days in the first quarter of 2011, 340 days in the first quarter of 2010 and 151 days in the first quarter of 2007.
“We are definitely seeing the time it takes to foreclose extending,” said Daren Blomquist, RealtyTrac spokesman. “It does cost lenders money to own a property.’’
To force Bank of America to finalize the foreclosure, to accept a deed in lieu of foreclosure or to allow the sale of the condo to an interested buyer who has approached Pigg, she has sued her mortgage lender in bankruptcy court.
“I know Bank of America is big, and I know that they are busy, but I would really love to see them go ahead and finish the paperwork so I really can go ahead rebuilding my life,” she said. “I can’t pay for two places. There have to be ways for people to get back on their feet.”
Pigg said her homeowners association fees were $150 a month when she moved out, but she suspected they had increased since the flood.
Bank of America refused to discuss Pigg’s case.
“We cannot comment on this situation, as it is a matter of pending litigation,” the bank said in an emailed statement. “In general, bankruptcy or litigation may result in a delay of foreclosure proceedings.”
In court filings, Bank of America argues that foreclosure is an option — but not an obligation — when a property is abandoned, and that the bank can’t be forced to do it. The bank also claims that Pigg has refused to submit the required paperwork for it to consider accepting a deed in lieu of foreclosure.
Her lawyer, John McLemore, said that argument is disingenuous.
“The bank has countered by telling us to get in line, fill out a bunch of forms and probably be turned down because the left hand won’t know what the right hand is doing,” said McLemore, who took on Pigg’s case free of charge. “This is not the time for the bank to start reminding us it has a ‘program.’ … It is for situations that do not involve lawyers and lawsuits.”
McLemore said the homeowners association, Belle Management Corp., has agreed not to sue Pigg and will await the outcome of her lawsuit against Bank of America.
