Paying dues in a case of foreclosure
Question: I filed for Chapter 7 bankruptcy Aug. 7, 2007, and was discharged Nov. 20, 2007. My town home was included in the bankruptcy filing and was foreclosed on this March and sold in May. Since then, a collection agency has been harassing me for unpaid homeowners association dues it says are owed from September to March, and it has thrown in late fees and other fees totaling almost $4,000. The association filed and recorded a lien against my property Jan. 30; however, the association claimed that it was not paid at the time of the foreclosure because there were no excess funds. Am I still responsible for association dues or are the new owners, since they did not clear the lien? Is there any law that I could use to defend myself?
Answer: The general rule is that association dues accrued before the filing of a bankruptcy are discharged by that bankruptcy. Dues accruing after that bankruptcy filing date, in your case after Aug. 7, 2007, are technically the continuing obligation of the owner. After foreclosure, the bank -- the new record owner -- is responsible for those assessment obligations.
If the association liens were lower in priority than the bank’s lien on which the foreclosure was based, those liens were eliminated by the foreclosure. However, the obligation to pay association dues occurring after the bankruptcy filing date will still exist. An assessment for which a lien has been filed attaches at the time of filing to the record titleholder, even if that titleholder is a bank. The only assessments that cannot be collected were those discharged by the bankruptcy.
When a separate interest in a common-interest development is sold, any existing liens already attached to the unit become obligations that are usually resolved before or during escrow. However, depending on some association governing documents, if the seller does not pay outstanding money due the association at the time of sale, it could become the obligation of the buyer. Typically, many of these types of liens go unnoticed by title insurance companies when units are sold because those liens were wiped off the books during foreclosure.
Efforts to collect on an uncollectable debt may be a violation of the Federal Fair Debt Collection Practices Act. There also is a statute of limitations on these actions, so consider contacting an attorney specializing in collection practices to advise of your rights against the collection agency actions. It may only take a letter advising the collection agency of their potential liability (you could recover damages from those trying to improperly collect) to get them to cease and desist.
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