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HOA Fees and Bankruptcy

A bankruptcy will eliminate the personal obligation to pay the HOA for those assessments which came due PRIOR to the Bankruptcy being filed. The lien for the pre-petition dues remains a valid security interest in the property, despite the filing of the bankruptcy. After the filing date, the debtor will be personally liable for any post-petition assessments which come due; and a lien for those dues will also attach to the property.

The HOA has a statutory lien against the property for every assessment or fine levied against he property. This also includes attorney fees and interest. When paid in installments, each installment is a lien until paid. The lien runs with the property – same as a deed of trust. There is also a personal obligation to pay.

There is only a super-priority lien created if: The HOA or a third party lender holding a senior lien institutes action or non-judicial foreclosure or both to enforce of extinguish the lien. The Super-priority HOA lien is limited to the amount which would have become due (Absent any acceleration) during the 6 months prior to the action being commenced.

Basically, no super-priority status at all unless the HOA sues, or the mortgage lender commences foreclosure.

Upon foreclosure of the home, the HOA is entitled to be paid first from the foreclosure proceeds –but only to the extent of their super-priority lien (6 months worth of assessments). The remainder of their claim sits in its’ usual place, based on recording. The lien for any assessments over the super-priority will be extinguished if there are insufficient proceeds from the foreclosure sale to pay the non-priority HOA dues.

By this same method, you can strip (non-priority) HOA dues in certain circumstances in a Chapter 13 case. If a super-priority lien has been created by the commencement of litigation by the HOA or foreclosure by the lender, you can pay the super-priority amount through the plan, use 506 to strip the lien from the non-priority portion and pay that non-priority balance as part of Class 4.