A. Fact Pattern:
If an individual owns a condominium and surrenders it to the secured creditor in a bankruptcy can homeowner’s association fees and assessments continue to accrue post-petition?
11 U.S.C. § 523(a)(16)
11 U.S.C. § 523(a)(16) does not discharge an individual debtor from any debt for a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor’s interest in a unit that has condominium ownership, in a share of a cooperative corporation, or a lot in a homeowners association. As long as the debtor or the trustee has a legal, equitable, or possessory ownership interest in such unit, such corporation, or such lot, nothing in 11 U.S.C. § 523(a)(16) shall except from discharge the debt of a debtor for a membership association fee or assessment for a period arising before entry of the order for relief in a pending or subsequent bankruptcy ease.
B. Case Authority:
Under non-controlling law, the answer appears to be ‘no’ in chapter 11 or chapter 7 bankruptcy cases. Under bankruptcy case law a Debtor (who owned an investment property that was subject to homeowner/condominium association fees) stipulated with the secured creditor to lift the automatic stay and foreclose on the investment property. However, the creditor did not conduct a foreclosure sale during the bankruptcy. Meanwhile, the homeowner’s association fees accrued and Debtor eventually confirmed a plan of reorganization. Debtor argued the association fees were discharged as part of the confirmed plan, whereas the association argued the post-petition fees were nondischargeable. In In re Burgueno, 451 B.R. 1 (Bankr. D. Ariz. 2011)
The Court held that “the nondischargeable personal liability for HOA fees continues postpetition for so long as the debtor or trustee has either a legal interest, an equitable interest, or a possessory ownership interest in the property…. [T]he 2005 BAPCPA amendment expanded the exception so that it applies regardless of possession so long as the debtor or trustee retains a legal or equitable ownership interest.” Though Debtor “surrendered” the premises to the creditor, “to terminate the Debtor’s post-petition liability for HOA fees, the Debtor would have to quit claim the property to either the bank or to the HOA.” The Court noted “until there is such a transfer of legal title, the Debtor’s post-petition, nondischargeable liability under § 523(a)(16) continues until the bank forecloses.” The Court also held that any attorneys’ fees incurred in attempting to collect on the fees and assessments are nondischargeable under § 523(a)(16).
However, in a Chapter 13 bankruptcy proceeding the debtor will likely be granted a discharge to the post-petition fees, but the fees will be treated as a post-petition claim.
The Ninth Circuit Bankruptcy Appellate Panel explained that the discharge provision under Chapter 13 is broader than in Chapter 7. Congress’s omission of Section 1328(a) in the exception to discharge language of § 523(a)(16) “evinces a legislative intent to discharge post-petition HOA dues under § 1328(a) when the debtor uses the cure and maintenance provisions under chapter 13 to stay in his or her property after the order for relief.” In re Foster, 435 B.R. 650 (9th Cir. BAP 2010).
In a different bankruptcy case, an association objected to confirmation of the debtor’s Chapter 13 plan because it did not provide for payment of on-going property owner assessments on property the debtor was surrendering. The court overruled the objection and upheld confirmation. In re Heflin, 2010 WL 141777 (Bankr. E.D. Va. 2010).
The Court in Heflin found that the nondischargeability exception under § 523(a)(16) “does not apply in Chapter 13 cases except in the rare instances when a debtor who is unable to complete payments under a plan is granted a so-called ‘hardship discharge’ under § 1328(b) of the Bankruptcy Code.“ The Court further explained that “by contrast, a Chapter 13 discharge that is granted upon completion of plan payments is significantly broader than the discharge granted an individual debtor under chapter 7, 11, or 12 and does not exclude post-petition home owner association dues.” However, the Court noted the creditor may have a claim against the estate.