Every homeowners association (HOA) collects assessments to fund its operations, such as common area maintenance, payment of homeowners insurance premiums, and other functions that an HOA typically performs. Assessments are frequently referred to as HOA dues or HOA fees. When you don't pay your HOA dues, your homeowners association can sue you, get a judgment against you, and garnish your wages through a wage garnishment. In most cases, your HOA will first file a lien against your home or condo and threaten foreclosure. But if your property does not have any equity, the association will not foreclosure. Instead, it will sue you.
If you have been sued by your homeowners association, you may be able to file bankruptcy on the HOA fees. Whether you can file bankruptcy on HOA dues and HOA fees in San Diego, depends on whether you are talking about fees incurred before you filed your case or fees incurred after you filed your case. The general rule is that you can eliminate all assessments and fees incurred up to the date that you file your case. However, you remain liable for all assessments that are incurred after the date that your case is filed. From the moment you file your case, your account is zeroed out, but you remain liable for all assessments as long as you remain on title to your property or exercise a possessory interest in your property.
For HOA dues assessed before your file bankruptcy, you can receive a discharge of all amounts due once your case is completed. Your HOA fees before your case is filed are essentially treated just like credit card debt and are eliminated.
If your homeowners association had garnished your wages through a wage garnishment, bankruptcy will stop the wage garnishment and your wages you receive will be restored to your full wages.
If your HOA has recorded a lien for the delinquent assessments, then your bankruptcy filing will eliminate your personal liability for the delinquent assessments but the HOA will still retain its lien. There is conflicting law in California regarding whether or not you can eliminate the lien and remove the lien from your property. Some judges will not let you remove a lien based on the reasoning that an assessment lien is not a lien but rather is a covenant running with the land. If you have a lien against your property, you should discuss this issue (whether the lien can be removed) with your lawyer before you file your case.
Prior to 2005, Federal law provided that you are responsible for HOA fees after bankruptcy only if:
1. You continued to live at your property after bankruptcy; or
2. You rented out your property after bankruptcy.
In 2005, the New Bankruptcy Law changed the existing Federal law. Under the new law, as a homeowner you are liable for all assessments and fees incurred after the date you file bankruptcy so long as you maintain a legal, equitable, or possessory ownership interest in your property.
Since as long as you are on title as owner you retain at least a legal ownership interest, you remain liable for HOA dues, and have to pay HOA fees after bankruptcy, for as long as you remain on the title to your property.
Under the new law, all HOA dues assessed for the months after your bankruptcy filing are your responsibility for as long as you are the owner of your property. You have to pay HOA fees after bankruptcy until either you sell your home or the bank forecloses on your home and title is transferred out of your name.
Since 2005, homeowners association lawsuits against property owners to collect delinquent assessments after bankruptcy are on the rise. Homeowners associations are suffering financially because many homeowners are walking away from their homes or condos and are not paying HOA fees.
Many people, relying on the old, pre-2005 law, proceed on the erroneous assumption that if they move out of their property and do not rent it out, then they are not liable for HOA dues after bankruptcy.
Unfortunately, because the old law is still referenced in judicial decisions dealing with the old law, novice attorneys as well as management companies frequently tell homeowners not to worry about HOA fees after bankruptcy.
At some point, the homeowners association's attorney will get a hold of the file. Homeowners association attorneys are on top of the changes in the law governing delinquent assessments after bankruptcy and they will file an HOA lawsuit against you to collect all delinquent HOA fees that were incurred after the date your case was filed.
HOA lawsuits after bankruptcy are also increasing because more and more homeowners have stopped paying HOA dues on property they no longer want to keep, and homeowners associations are suffering financially and view a lawsuit as, to put it bluntly, a way to make money.