Homeowners’ HOA Dues Accruing After Filing of Chapter 13 Were not Dischargeable

UNPUBLISHED United States Bankruptcy Appellate Panel of the Ninth Circuit decision (December 1,2015).

In this case, a husband and wife attempted to discharge their liability for over $26,000 in unpaid homeowners’ association dues on an investment condominium that they owned which accrued after they had filed a Chapter 13 bankruptcy. In a Chapter 13 Plan that the owners filed, they: (i) did not provide for any payments to their HOA for the unpaid assessments; (ii) provided for surrendering possession of the condominium unit to their secured lender that held a mortgage on the unit; and (iii) granting secured creditors relief from the automatic stay caused by the bankruptcy filing to enforce their security interests, including taking possession and sale of the condominium unit.

The bankruptcy court granted the secured lender relief from the bankruptcy stay and the right to foreclose on and take possession of the condominium unit. The lender did foreclose on the condominium and the homeowners association obtained an order for relief from the bankruptcy stay to pursue a judgment against the owners for unpaid assessments that had accrued after the bankruptcy was filed plus appropriate costs, fees, and other charges that the association was entitled to under its governing documents. After the association filed a lawsuit against the homeowners, they filed a motion in their bankruptcy proceedings seeking an order that the dues owed to the association that accrued after their bankruptcy had been filed (postpetition dues) were discharged by the bankruptcy and that their confirmed Chapter 13 Plan, which made no mention of the postpetition liability to the association, eliminated the association’s right to pursue a claim for the unpaid postpetition assessments and other charges. After the bankruptcy court denied the owners’ motion, they filed an appeal.

On review, the appellate court determined that the owners’ liability for the association dues that accrued after their bankruptcy was filed continued for as long as they maintained a legal, equitable or possessory interest in the condominium. The court found that, even though the owners had surrendered the condominium to their lender and given up their right to possession of the unit, they had not divested themselves of their legal and equitable ownership interests in it. Because the owners actually retained their ownership interest in the condominium until the lender completed a foreclosure sale, the postpetition dues that had been assessed by the association between the date that the bankruptcy was filed and the date of the foreclosure sale which transferred titled to the lender, were not dischargeable in the Chapter 13 bankruptcy proceedings.

See case decision: Batali_v._Mira_Owners_Ass’n_