Bankruptcy lawyer Explains How A Homeowner Association Lien Is Treated In A New Jersey Bankruptcy Case
There are two types of homeowner association (condominium association) liens in New Jersey. One type is derived from a lawsuit that is filed with the superior court of New Jersey, and subsequently filed as a lien on real estate in state court. This type of lien is explained in a separate blog. The second type of lien is created by filing the appropriate documents with the county register of deeds, where the real estate is located.
The state statute NJSA 46:8B-21, permits an association to file and record documents, with the county, reflecting the amount due to the association. The following explanation describes how such a lien has been treated in a New Jersey bankruptcy case, until recently. Until recently, such a lien would be considered a secured interest in the property that cannot be reduced or modified. In other words, the total amount that was due to the association per the lien, could not be reduced. Therefore, a debtor in a chapter 13 was required to pay the entire amount due on the lien to the association, through the monthly bankruptcy plan.
However, recently, NJ.bankruptcy court judge Christine M. Gravelle published her opinion that permits a debtor to modify the secured portion of such a lien to the amount of the lien representing the customary condominium assessment, against the unit owner, for the six month period prior to the recording of the lien. This means that if a lien was filed in the amount of $4,000.00 and the monthly assessment is $200.00 monthly, the secured portion of the lien may be reduced to $1,200.00
Please note that there are a number of exceptions to permitting a person to modify the lien as explained above, including, but not limited to, a debtor that has equity in the property. Also, the remaining balance of the lien in excess of the $1,200.00, in the above example is deemed unsecured debt and must be treated and possibly paid as an unsecured debt.
The judge’s opinion has been appealed and is presently in the appeal process. Also, as my readers know, if a specific issue has not been decided by appeal from the third circuit court, each bankruptcy court judge is not bound by this decision. This means that another New Jersey bankruptcy judge has the power to rule that such a lien may not be modified, which is how this issue has previously been handled. Or, in the alternative, a judge may decide to modify the lien, if he concurs with Judge Gravelles’ analysis.
You may contact Robert Manchel, at 866 503 5644, to discuss your bankruptcy law homeowner association questions.