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Is CA HOA lien senior to 1st mortgage? Discussion.
Link:
I hope you don't mind, but I copied and pasted that email into my
research file in case I ever need it. I assume there is no copyrighted
material in there. Thanks for making all that clear. I'm running into
HOA issues left and right now.
Steve Lever
The post was migrated from Yahoo.
An HOA is likely concerned with the owner of record. I am not aware of how long a purchaser has to record its interest, but I would expect a lender buying on credit bid to wait as long as possible so as to avoid paying HOA assessments.
Link Schrader, Attorney
Law Office of Link W. Schrader
Mail: P.O. Box 3723, Tustin, CA 92781
Office: 106 W. 4th Street, Suite #308, Santa Ana, CA 92701
Orange County: (714) 542-5922; Los Angeles: (310) 413-6924
San Diego: (619) 952-8342; Fax: (310) 878-4158
www.schrader-law.com
The post was migrated from Yahoo.
HOA assessments are unsecured unless the HOA records a lien. The Davis Stirling Act trumps any language in the CC&Rs to the contrary. There are specific steps the HOA must perform to record a secured interest, a lien. If the HOA does not follow these steps they can be forced to release any lien filed in error, pay the homeowners attorney fees, and start the process all over.
If the HOA does record a valid lien it still falls into line after previously recorded lienholders and, therefore, HOAs are more commonly turning to small claims court to collect rather than going through the process of lien recording.
Unsecured prepetition HOA assessments are dischargeable in any chapter. Postpetition HOA assessments are not dischargeable in any chapter (see 11 USC 523(a)(16).
California Civil Code Section1466 provides that "No one, merely by reason of having acquired an estate subject to a covenant running with the land, is liable for a breach of the covenant before he acquired the estate, or after he has parted with it or ceased to enjoy its benefits."
This section is used by banks to avoid paying HOA fees after they take ownership of a condo through foreclosure. For this reason, lenders frequently avoid transferring title until they are ready to deal with the property. In some instances this can be a year or more after the homeowner has surrendered the property to the mortgage lender.
Some aggressive HOAs file a state lawsuit against the former homeowners for all assessments from the date of filing bankruptcy to the date of transfer of title. The claim is that the assessments were not discharged in bankruptcy and are, therefore a personal obligation of the debtors.
I have only found one California case on point, Cerro De Alcala Homeowners Association v. Burns, 169 Cal.App.3d Supp:1, 216 Cal.Rptr. 84 (1985). In this case, the homeowner merely vacated the property after the first lender notified the homeowner that it was enforcing the "due on sale clause" and would commence foreclosure proceedings. The San Diego Appellate Court held that the homeowner was liable for the HOA dues including those accruing after the homeowner vacated the property. The reasoning was that the homeowner continued to enjoy certain benefits (i.e. could have rented or re-entered the property) and could not avoid HOA assessments merely by physically removing himself from the property.
A different decision might be found where the homeowners filed bankruptcy and surrendered the property as provided in their Statement of Intention, and left all keys according to the instructions of the mortgage lender. If the HOA was listed in the bankruptcy petition, they arguably had notice that the homeowner surrendered the property. In one case I know of where an HOA is trying to collect under along the lines as set forth above, the bank hired a management company to put notice on the property, but did not transfer title for 18 months after the debtors surrendered the property.
A Florida case recently held that a bank that delayed transferring title after taking possession in order to avoid paying HOA dues, was liable for a portion of the HOA dues. I'm not sure of the cite on that case, but it is recent.
The advice I give to debtors who will be surrendering property in an HOA, is to remain on the property and keep current with HOA dues until title the property is sold, or until some agreement is reached with the mortgage lender and the HOA. Otherwise, the debtors may be looking at a collection action by the HOA long after their chapter 7 bankruptcy discharge has been entered. The debtors can also take advantage of the cheap rent (HOA dues only) for a period of time after filing.
Finally, and perhaps obvious to most, even if the HOA has recorded a lien, it is secured by the property and need not be paid if the property is to be surrendered.
Cheers,
Link Schrader, Attorney
Law Office of Link W. Schrader
Mail: P.O. Box 3723, Tustin, CA 92781
Office: 106 W. 4th Street, Suite #308, Santa Ana, CA 92701
Orange County: (714) 542-5922; Los Angeles: (310) 413-6924
San Diego: (619) 952-8342; Fax: (310) 878-4158
www.schrader-law.com
The post was migrated from Yahoo.