Discharging HOA Dues: Summary of the Rules

Summary of the rules governing HOA dues
• HOA dues are a personal unsecured debt of the homeowner at the time the dues are assessed. Cal. Civ. Code § 5650.
• HOA assessments become secured only when the HOA files a lien. Cal. Civ. Code § 5675.
• The lien is not entitled to special priority. Priority determined by the first in time rule. Cal. Civ. Code § 5680.
• Pre-petition, unsecured HOA dues are dischargeable in chapter 7 or 13 because there is no exception to discharge.
• Exception to Discharge: § 523(a)(16): post-petition assessments are not dischargeable in chapter 7 or chapter 13 hardship discharge as long as the debtor has a “legal, equitable, or possessory ownership interest.” Debtor is liable for post-petition assessments in chapter 7 until the debtor is off the title. (usually foreclosure or short sale).
• Post-petition HOA dues are dischargeable in chapter 13 if the debtor surrenders the property because § 523(a)(16) does not apply to regular chapter 13 discharge under 1328(a).
• Post-petition HOA dues are not dischargeable in chapter 13 if the debtor keeps the property because the CC&Rs run with the land and this covenant to pay is part of property ownership. (see In re Foster, 435 B.R. 650) This covenant is the “HOA’s right to impose post-petition assessments pursuant to a recorded declaration of covenants.”
• HOA liens are avoidable in chapter 13 under § 506 if the property is underwater.
• The assessed HOA dues do not run with the land because assessments are separate from the covenant to pay.

The fundamental rule in chapter 13 is that if you keep your home, you have to pay monthly HOA assessments that become due after your case is filed, but if you surrender the home and move out, you don’t have to pay the post-petition assessments. This rule was explained by a court in Washington that held that if you file chapter 13 and you keep the property, then you must still pay the post-petition HOA dues. In re Foster 435 B.R. 650 (B.A.P. 9th Cir. 2010). This case explains the difference between assessments and covenants. The covenant to pay is permanently attached to the land and cannot be removed by bankruptcy, and the homeowner must pay post-petition assessments if they keep the home. It is important to note that the Foster case only addresses the situation where a debtor keeps the home. It does not address discharging post-petition dues when the property is surrendered, and therefore this case does not change the rule that post-petition HOA dues are discharged in chapter 13 when the property is surrendered.

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