“I don’t owe anything else.” “It’s the bank’s problem now.” More often than not, these are the words we hear from an owner after they file for bankruptcy and the association tries to get on-going assessments from them – even when the owners are still living at the property and using the association pool!
Typically an association has two ways to pursue an owner who is delinquent for assessments. First, the association can file a lien and foreclose the property just like a mortgage foreclosure. The second option is a personal money judgment against the owner. Many times an owner will file bankruptcy after being delinquent to the association as they are no longer financially stable or for a variety of other reasons. The amounts that are included in a bankruptcy start from the date the owner files for the bankruptcy and go backwards. Any assessments due after the date of filing are not included in a bankruptcy automatically. In the past, after an owner files for bankruptcy the association would have likely been limited by an order for relief from stay to filing a lien foreclosure only against the property for the assessments due after the date the bankruptcy was filed, but the tides are changing. A recent Bankruptcy Court case has expanded the association’s toolbox for handling an owner who does not pay assessments.
The case is In re Montalvo, 2016 WL 769997 (Bankr. M.D. Fla. Feb. 25, 2016) (Jennemann, J.), the Middle District of Florida made its first order on the issue of personal liability of an owner for assessments that come due after filing for bankruptcy. Up until this point, many Bankruptcy Court Judges only allowed associations to proceed against the property itself and not the individual owners for assessments that come due after the bankruptcy filing date. Under that type of order, an owner would get a free ride from the bankruptcy and then a second free ride after the bankruptcy until either the mortgage holder or the association finally foreclosed on the property. In the case that a mortgage holder foreclosed in a reasonable amount of time, the Association would be left with no recourse for those assessments.
However, that free ride is over – the Court clarified that the relief from personal liability will only come from a change in title, not just surrendering the property on paper in the bankruptcy. That owner remains personally responsible for every assessment that comes due while he or she is owner, even after they file for bankruptcy. Adding this case to In Re: Metzler, Case No. 8:12-bk- 16792-MGW Chapter 13 and In Re: Patel, Case No. 8:13-bk- 09736-MGW Chapter 7 (Bankr. M.D. Fla. May 15, 2015), once the owner surrenders their property in a bankruptcy, they are not entitled to fight the foreclosure action and until there is a transfer of title, the owner is still personally responsible for the on-going assessments. Together these cases give the association tools to use that will help in the recovery of a larger portion of past due assessments, even when the bank is moving forward. Next time your association has an owner that files for bankruptcy, remember that you may have a few more options than you think.
Written by Erin A. Zebell, Esq Originally posted at Community Update by Becker and Poliakoff