The information in this web site is not intended to constitute legal advice or to create an attorney-client relationship. It is also important to note that the information contained in this article may be outdated.
It is very important that you obtain legal advice from an experienced bankruptcy attorney regarding your particular situation. Consultation before you take action will certainly cost you less than what it will cost to fix your unintentional errors.
HOMESTEAD, HOMEOWNERS’ ASSOCIATION “HOA” and BANKRUPTCY ISSUES
IMPORTANT: This firm makes NO representations as to the accuracy or current status of any law, case, article or publication cited herein or linked to. Warning – some of these references are pre-BAPCPA.
HOMEOWNERS’ ASSOCIATION (HOA) NOTES
Even though the pre-petition obligations are discharged in the chapter 7, the HOA most likely (check the CC&Rs) has a statutory lien for unpaid dues. Therefore the lien is not extinguished in a Chapter 7 even if the personal liability is discharged. But, there is a 3 year statute of limitations on the lien itself. ARS 33-1807(F) establishes a 3 year statute of limitations on each particular assessment, during which time the HOA must foreclose on that particular assessment, or the assessment is removed from the lien. So to the extent there is pre-petition unpaid HOA assessments that are older than 3 years old, then they are not a lien anymore. You will only need to take care of those that are less than 3 years old. But see Section 108 (c) (tolling during chapter 7) (c) Except as provided in section 524 of this title, if applicable nonbankruptcy law, an order entered in a nonbankruptcy proceeding, or an agreement fixes a period for commencing or continuing a civil action in a court other than a bankruptcy court on a claim against the debtor, or against an individual with respect to which such individual is protected under section 1201 or 1301 of this title, and such period has not expired before the date of the filing of the petition, then such period does not expire until the later of—
the end of such period, including any suspension of such period occurring on or after the commencement of the case; or
30 days after notice of the termination or expiration of the stay under section 362, 922, 1201, or 1301 of this title, as the case may be, with respect to such claim.
TWO DIFFERENT TYPE OF LIENS FOR HOAs (Arizona specific)
1) Statutory – Under Arizona planned community and condominium law (Title 33), an HOA has a statutory lien for unpaid assessments on the property which is subject to the CC&R’s. The statutory lien is subordinate only to property taxes and the first mortgage or deed of trust. Arizona law specifically gives an HOA the right to foreclose its statutory lien.
2) Judicial – Any judgment lien that an HOA obtains through a lawsuit would be subject to the same requirements and restrictions that any other judicial lien has, and is potentially voidable in a bankruptcy case.
Limitation Based on Length and Amount of Delinquency
The HOA/COA cannot foreclose unless:
• the owner has been delinquent in paying the amounts secured by the lien (excluding collection fees, attorney fees, charges for late payments, and costs incurred with respect to the assessments) for a period of one year, or
• the delinquent amount is $1,200 or more, whichever occurs first (Ariz. Rev. Stat. § 33-1807(A), § 33-1256(A)).
No Foreclosure for Penalties and Fees Only
Fines, in contrast to assessments, are the penalties that an HOA or COA imposes if you violate the CC&R’s or other governing documents. For example, letting your lawn become overgrown, leaving trash cans outside, and parking in forbidden areas can result in fines and associated fees. The HOA or COA can get a lien for penalties, fines, and related fees after the entry of a judgment in a civil suit, but it cannot foreclose that lien (Ariz. Rev. Stat. § 33-1807(A), §33-1256(A)). Basically, Arizona law makes a distinction between assessments and fines, and allows foreclosure actions only based on liens for unpaid assessments and related charges, but not for fines.
HOA - DO ASSESSMENTS RUN WITH THE LAND?
In re Foster sides with the HOA basically stating that the assessments are a liability that runs with the land. I do not know where that leaves Congress’ leaving out 1328(a) as one of the exceptions to 523(a)(16), – basically it makes no difference even though Congress specifically excluded 1328(a). (L. Karandreas briefed 9/11)
HOMESTEAD and EXCESS EQUITY
In re: Gebhart In consolidated Chapter 7 bankruptcy petitions in which the value of debtors’ homes increased so that they had equity in excess of the homestead exemptions, the bankruptcy court’s order approving the appointment of a real estate broker to sell the home for the benefit of the estate is affirmed where the fact that the value of the claimed exemption plus the amount of the encumbrances on the debtor’s residence was, in each case, equal to the market value of the residence at the time of filing the petition did not remove the entire asset from the estate.
JUDGMENTS AGAINST REAL PROPERTY (HOMESTEAD and NON-HOMESTEAD)
A.R.S. Section 33-964: B. Except as provided in section 33-1103, a recorded judgment shall not become a lien on any homestead property. Any person entitled to a homestead on real property as provided by law holds the homestead property free and clear of the judgment lien. The protection of A.R.S. Section 33-964(B) is good, but not necessarily all-encompassing when the homestead’s equity exceeds $150,000.00. In Judge Haines’ Rand v. United Auto Group decision 400 B.R. 749 (Bankr. Az 2008), he mentioned creditors had another possible recourse, specifically A.R.S. Section 33-1105 whereby the creditor can require an execution sale and obtain a bid in excess of the consensual liens plus the homestead amount and the allowable costs of sale under Title 12. Also see, ARS 33-1103 (A)(4). Except – To the extent that a judgment or other lien may be satisfied from the equity of the debtor exceeding the homestead exemption under section 33-1101. See also Evans vs Young, 661 P.2d 1148 (Az Court of Appeals, Div 1, 1983) (“In conclusion, we find that a judgment lien obtained pursuant to A.R.S. § 33-964 does not extend to homestead property. Given the special protection of the homestead statutes, a judgment creditor can reach excess value in the property over the amount of the homestead exemption only by first invoking the appraisal procedure set forth in A.R.S. § 33-1105.”)
Note: The recorded judgment lien survives the bankruptcy. The creditor can go after real property the debtor owned at the time of filing the bankruptcy that secures that lien. This is the reason why these liens must be avoided under 522, irrespective of the Haines decision in Rand that the lien does not attach to debtor’s homestead. 522 addresses an “interest” in debtor’s property in support of a lien avoidance. Irrespective of the fact as to whether there is equity in the property, or that the homestead exemption is not affected by a lien, a debtor’s interest is impaired, and thus avoidance is appropriate, otherwise, what is the point of 522? The point of 522 is to give the debtor a fresh start and that is not achieved by the refusal to avoid a lien which will remain in place post discharge and could eventually be foreclosed when property values increase.
It appears that the judgment lien and the right to enforce that lien survive a Chapter 7. If the judgment creditor seeks to enforce its lien prior to the expiration of that lien, perhaps the owner could file a Chapter 13 and pay the creditor the value of the excess equity. Sales to enforce Judgment liens are done by Sheriff’s sale and somewhat rare. The expense in the form of bonding the Sheriff of this procedure make it very price prohibitive.
VALUING REAL ESTATE IN CHAPTER 13
Differing opinions on whether to use date of filing or date of plan confirmation: In a real estate climate where values are quickly changing, the question arises when is the value of the residence determined? The date of filing of the Chapter 13 petition, the date of confirmation, the date of the hearing on for determining the value or some other day?
§ 506(a) provides: “Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in conjunction with any hearing on such disposition or use or on a plan affecting such creditor’s interest.” The various approaches all prefer their approach as meeting this standard.
For the proposition that the date of valuation is the date of hearing/confirmation see In re Crain, 243 B.R. 75 (Bankr. C.D. Cal 1999); In re Boyd, 410 B.R. 95, 100 (Bankr.N.D.Cal. Aug 04, 2009). See also In re Zook, 2010 WL 2203172 (Bankruptcy D. Ariz. 2010) [Chapter 11 proceeding in front of Judge Haines.]
For the date of filing, see In re Dean, 319 B.R. 474 (Bankr.E.D.Va.2004) In re Young, 390 B.R. 480 (Bankr.D.Me.2008),
Some Courts ruled in favor a “flexible approach” or a determination of the “totality of circumstances.” In re Aubain, 296 B.R. 624, 636 (Bankr.E.D.N.Y.2003); Wood v. LA Bank (In re Wood), 190 B.R. 788, 794-96 (Bankr.M.D.Pa.1996) [Using an eleven factor analysis].
"SHOW ME THE NOTE"
In re Veal, (9th Cir BAP) 6/10/11 Bk. No. 09-14808 Failure to properly document transfer of interest in note or other formalities results in lack of standing to foreclose: motion for relief from say denied
In this Chapter 13 case the ostensible agent for Wells Fargo Bank could not establish that Wells Fargo had possession of the note or had other right to payment. This lengthy opinion is a thorough stand-alone discourse on the key elements required for standing to foreclose (and hence assert a claim in bankruptcy), and draws an important distinction between assignment of the mortgage and assignment of the note.
Wrote the court: “We hold that a party has standing to seek relief from the automatic stay if it has a property interest in, or is entitled to enforce or pursue remedies related to, the secured obligation that forms the basis of its motion.”
“Thus, unlike the assignment from GSF to Option One, the purported assignment from Option One to Wells Fargo does not contain language effecting an assignment of the Note. While the Note is referred to, that reference serves only to identify the Mortgage. Moreover, unlike the first assignment, the record is devoid of any endorsement of the Note from Option One to Wells Fargo. As a consequence, even had the second assignment been considered as evidence, it would not have provided any proof of the transfer of the Note to Wells Fargo. At most, it would have been proof that only the Mortgage, and all associated rights arising from it, had been assigned.”
“Here, the Veals allege that neither Wells Fargo nor AHMSI have shown they have any interest in the Note or any right to be paid by the Veals. They seek to invoke prudential standing principles which generally provide that a party without the legal right, under applicable substantive law, to enforce an obligation or seek a remedy with respect to it is not a real party in interest.”
” .. while the failure to obtain the endorsement of the payee or other holder does not prevent a person in possession of the note from being the “person entitled to enforce” the note, it does raise the stakes. Without holder status and the attendant presumption of a right to enforce, the possessor of the note must demonstrate both the fact of the delivery and the purpose of the delivery of the note to the transferee in order to qualify as the “person entitled to enforce.”
“As to Wells Fargo, it had to show it had a colorable claim to receive payment pursuant to the Note, which it could accomplish either by showing it was a “person entitled to enforce” the Note under Article 3, or by showing that it had some ownership or other property interest in the Note.”
“In particular, because it did not show that it or its agent had actual possession of the Note, Wells Fargo could not establish that it was a holder of the Note, or a “person entitled to enforce” the Note. “In addition, even if admissible, the final purported assignment of the Mortgage was insufficient under Article 9 to support a conclusion that Wells Fargo holds any interest, ownership or otherwise, in the Note. Put another way, without any evidence tending to show it was a “person entitled to enforce” the Note, or that it has an interest in the Note, Wells Fargo has shown no right to enforce the Mortgage securing the Note. Without these rights, Wells Fargo cannot make the threshold showing of a colorable claim to the Property that would give it prudential standing to seek stay relief or to qualify as a real party in interest.”
“In the context of a claim objection, both the injury-in-fact requirement of constitutional standing and the real party in interest requirement of prudential standing hinge on who holds the right to payment under the Note and hence the right to enforce the Note. “With respect to Wells Fargo’s request for relief from the automatic stay, we hold that a party has standing to seek relief from the automatic stay if it has a property interest in, or is entitled to enforce or pursue remedies related to, the secured obligation that forms the basis of its motion.”
” … the purported assignment from Option One to Wells Fargo does not contain language effecting an assignment of the Note. While the Note is referred to, that reference serves only to identify the Mortgage. Moreover, unlike the first assignment, the record is devoid of any endorsement of the Note from Option One to Wells Fargo.”
“As a consequence, even had the second assignment been considered as evidence, it would not have provided any proof of the transfer of the Note to Wells Fargo. At most, it would have been proof that only the Mortgage, and all associated rights arising from it, had been assigned.
MERS: MORTGAGE ELECTRONIC REGISTRATION SYSTEM
(not bankruptcy case)
U.S. DISTRICT COURT DISMISSES NON-JUDICIAL FORECLOSURE: MERS NOT AUTHORIZED TO FORECLOSE MAY 15 2011
Issues order blocking foreclosure and grants declaratory relief to homeowner
Hooker v. Northwest Trustee Services, Bank of America, MERS District Court District of Oregon case no. 10-3111-PA “Considering what is commonly known about the MERS system and the secondary market in mortgage loans, plaintiffs allege sufficient facts to make clear that defendants violated the Oregon Trust Deed Act by failing to record all assignments of the trust deed.
“While I recognize that plaintiffs have failed to make any payments on the note since September 2009, that failure does not permit defendants to violate Oregon law regulating non-judicial foreclosure.
” … MERS, and its registered bank users, created much of the confusion involved in the foreclosure process. By listing a nominal beneficiary that is clearly described in the trust deed as anything but the actual beneficiary, the MERS system creates confusion as to who has to do what with the trust deed.
“The MERS system raises serious concerns regarding the appropriateness and validity of foreclosure by advertisement and sale outside of any judicial proceeding. “MERS makes it much more difficult for all parties to discover who “owns” the loan. When a borrower on the verge of default cannot find out who has the authority to modify the loan, a modification, or a short sale, even if beneficial to both the borrower and the beneficiary, cannot occur.”
Disclaimer: The information in this web site is not intended to constitute legal advice or to create an attorney-client relationship. The information, documents or forms provided herein is intended for general information purposes only and must not be regarded as legal advice. Laws change periodically; therefore the information in this site may not be accurate. It is imperative that you seek legal counsel in order to ascertain your rights and obligations under the applicable law and based upon your specific circumstances.