Association Fees

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.

The law pertaining to Homeowner Association Fees in a New Jersey bankruptcy case may depend on the judge that is assigned to a particular case. Pursuant to the 2005 amended bankruptcy laws (BAPCPA), a chapter 7 bankruptcy debtor who is surrendering their house, may eliminate and discharge pre filing association fees, but not post filing association fees, until the deed is transferred out of their name. This means that the chapter 7 debtor may be sued for the payments that are due, after their bankruptcy filing, through the date that their house is removed from their name. Once their name is removed from the deed, the debtor will no longer owe any funds to the association, whether the funds were due before or after the bankruptcy filing.
The New Jersey bankruptcy judges differ on the application of this law about association fees during bankruptcy, as it pertains to a chapter 13 case. All judges agree that a person who surrenders their house in a chapter 13, and vacates the house, prior to the bankruptcy filing, may eliminate their prefiling association arrears. However, under this scenario, depending on the judge assigned to the case, one may or may not be able to eliminate the payments that come due after the filing, even though the property is vacated.
This means that if the judge who is assigned to handle a case does not permit the discharge of the post filing association fees, the debtor is obligated to make the monthly payments, after the bankruptcy filing, until their name is removed from the deed. The fact that the debtor is no longer residing in the property and not deriving any benefit from the association, would not effect a judges decision, who interprets the bankruptcy code as such.
You may contact Robert Manchel, the bankruptcy lawyer in NJ., who will answer your homeowner association questions, at 1 866 503 5655.

Association Fees in Bankruptcy
Typically, if a homeowner files for bankruptcy protection and surrenders their house, any payments connected to the property are discharged. For example, an individual who owns a house can surrender their house and discharge any real estate taxes and mortgages that are associated with the house.
However, the bankruptcy code includes a specific exception for association fees that are incurred after the bankruptcy filing, through the date of the sale of the house. Any debtor that surrenders their house does not discharge the association fees that come due after the bankruptcy filing. This law does not include pre-filing association fee arrears, only payments that are due after the bankruptcy filing. In other words, any fees that are due prior to the filing, are eliminated. However, after the bankruptcy filing, the association may attempt to collect and sue the debtor for after-filing association fees that come due after the bankruptcy filing.
The debt that is due after the filing, ceases to continue to be due, after the debtor’s name is no longer on the deed and the debtor no longer resides in the property. This means that when the deed is transferred to another person, after a sheriff’s sale or short sale, the debtor is no longer responsible for any of the association dues that came due after the filing.
Years ago, this issue was rarely relevant because the entire New Jersey foreclosure action process was less than one year. However, the present condition of the economy and the astounding amount of New Jersey foreclosure actions, has substantially lengthened the foreclosure process, which results in the association’s collection of the fees, between the time of the bankruptcy filing through the transfer of the deed.
Please call the bankruptcy lawyer in NJ., Robert Manchel, at (866) 503-5655 to discuss how association fees are handled in bankrutptcy.