Ct Says HOA That Did Not Record Lien Cannot Be Classified as a Secured Creditor in Bankruptcy

US District Appellate Court decision (November 21, 2014).

In this case, a homeowner in a common interest development filed a Chapter 13 bankruptcy. The homeowners association filed a claim as a “secured creditor” in the bankruptcy proceedings for unpaid dues. The homeowner / debtor in the bankruptcy objected to the association’s characterization of its claim as “secured” on the basis that the association had never taken steps to obtain a lien on the homeowner’s property prior to the filing of the bankruptcy. The association contended that such action was not necessary for it to have a lien on the debtor’s property based on the language contained in the association’s declaration.

After the trial court ruled in favor of the homeowner, the association appealed. On review, the appellate court affirmed the lower court’s judgment and held that, irrespective of other language in the association’s declaration that may have purported to create a lien in favor of the association, there was mandatory language in the declaration that compels the association’s board to prepare and record a written notice of assessment lien. Since the association did not follow that procedure, the association did not have a valid lien on the homeowner’s property and thus, was not entitled to be classified as a secured creditor in the homeowner’s Chapter 13 bankruptcy proceeding.

See case decision: Kingston_At_Wakefield_Homeow