U.S. Bankruptcy Court Says HOA Lien Gets Limited Priority in Chapter 13

U.S. Bankruptcy Court, District of New Jersey, decision (June 11, 2015)

In this case, husband and wife homeowners were the debtors in a Chapter 13 bankruptcy proceeding. At the time of the filing of the Chapter 13, the debtors owned a condominium and were part of a homeowners association in which they were required to pay various fees and assessments as specified in the association’s governing documents. When the Chapter 13 was filed, the debtors owed the association in excess of $14,000.00 for their share of fees and assessments to the owners that were never paid. In their bankruptcy filing documents, the debtors stated that their condominium was worth less than the amount of the first mortgage and they sought confirmation of a Chapter 13 Plan that reflected the association as a secured creditor for $1,494.00, and an unsecured creditor for the total balance owed to the association. The association disputed the amount of its claim that was being treated as secured and sought to prevent the confirmation of the debtor’s Chapter 13 Plan.

The Bankruptcy Court found that the Bankruptcy Act specifically limits the amount of a homeowners association lien that is entitled to priority treatment in a bankruptcy proceeding to an amount that does not exceed the aggregate customary assessments owed by the owners for the six-month period prior to the recording of a lien. All amounts accrued in that six month period that are reflected in the association’s lien constitute a security interest in the subject property and all sums in excess of the those amounts are to be treated as unsecured claims in the bankruptcy proceeding and all liens that purported to secure said additional sums are subject to being stripped off of the debtors’ property.

See case decision: In_re_Rones_(Bankr.N.J.,_201