Chapter 13 Bankruptcy – Can the Association’s Lien for Unpaid Assessments be Stripped Off? YES

In New Jersey, the United Stated Bankruptcy Court held in In re. Smiley, 569 B.R. 377 (2017) that a Unit Owner/Debtor can modify the Association’s lien and strip off all but the six month super lien allowed under the state’s condominium act.  The facts at the time were that the Association was owed $9,000 for filed liens and another $4,700 that it recognized as unsecured.  At the time of the bankruptcy filing, the monthly assessment was $250.  The fair market value of the property according to the bankruptcy schedules was $142,000, but it was under water because of a $174,000 first mortgage on the property.  Based on these facts the Unit Owner/Debtor claimed, and the court found, that despite the proper lien filings, the Association only had security for $1,500 ($250 x 6 months).

Lesson.  Don’t wait to file and foreclose your liens.  Start the process in 90 days, including timely filing all liens, and then foreclose when it makes sense (normally immediately for a condominium and in year two for a homeowners association).  If you don’t, the bankruptcy courts are not going to protect you and your Association will lose even more, because it will be stuck with an owner who is not paying for even longer.

Categories

Three bars icon gold

Recent blog Posts

Three bars icon gold

Did Fannie Mae Just Update its Condominium Lending Guidelines Again?

Maintaining mortgage eligibility is one of the most important aspects of protecting property values. If your condominium ...
Read More →

Are Reverse Mortgages a Hidden Risk for Your Association?

Reverse mortgages allow homeowners aged 62 and older to convert home equity into cash without ...
Read More →

What is a reasonable late fee for delinquent community association assessments?

Community associations depend upon the timely payment of assessments to maintain operations and protect property ...
Read More →

Owner to Owner Dispute – Lessons in Property Transactions

Owner to Owner Dispute – Over a Driveway Easement and Boat Slips:  A recent case perfectly illustrated the importance ...
Read More →