This article deals with the following issue: After you file for bankruptcy will you still owe the HOA dues? And, if so, what can we do about it?
Here is the fact situation I am talking about:
You are in debt over your head. You are way behind on your home mortgage payments. You haven’t paid your HOA Dues in many months. You file for bankruptcy. Then, perhaps 6 months after you file for bankruptcy, the bank forecloses on your home. Then a few months after that, you get a letter from the attorney for the Homeowner’s Association demanding a few thousand dollars for old HOA dues.
Your reaction is “But I thought I put all this behind me with the bankruptcy and the foreclosure. There must be some mistake.”
Unfortunately, since 2005, the rule has been as follows: A bankruptcy discharges the HOA dues that accrue before the date you file for bankruptcy. But you still owe the HOA dues that accrue between the date you file for bankruptcy and the date you no longer are the owner of the property.
When the foreclosure process is completed the title to the home transfers from you to the new owner (either the bank or a 3d party that buys the property at the foreclosure sale.) It may take the bank a long time to actually complete the foreclosure process. If many months pass between the date you file bankruptcy and the date the title transfers in the foreclosure sale then you will owe hundreds and perhaps thousands of dollars to the Homeowner’s Association.
For example, let’s say you live in a condo and the HOA dues are $300 per month. Let’s assume that you file bankruptcy on January 31, 2013. Let’s also assume that, on the date you file you haven’t paid your HOA dues for 10 months. So, on the date you file bankruptcy, you owe the HOA $3,000.
As a result of the bankruptcy, you no longer personally owe the HOA that $3,000. They still have their lien on the property but the HOA can not sue you for the $3,000. The debt has been discharged in bankruptcy.
But let’s say the bank doesn’t complete the foreclosure until December 31, 2013. That means that for 11 months after the date you filed bankruptcy you have been the owner of the condo. Therefore you owe the HOA $3,300 plus interest. If the HOA hires an attorney to collect the $3,300 you will owe attorneys fees on top of that. You won’t be able to file for bankruptcy for another 7 years. The HOA will probably sue you.
One way to handle this situation is simply to not move out of the condo until shortly before the foreclosure sale. That way you get to live in the condo for $300 per month, which is probably a great deal.
It may be a great deal to live in your home while you’re waiting for the bank to foreclose (and only owe the HOA dues dor that time period). But going through a foreclosure will make it difficult to qualify for another home loan…for a long time.
Therefore you may wish to consider a short sale. A short sale in your credit history is probably less damaging to your ability to get a home loan than a foreclosure.
If, however, you didn’t deal with this issue until you received that letter from the HOA attorney, perhaps many months after you file bankruptcy, then, unfortunately, you owe the money. You may be sued.