How To File Bankruptcy If You Owe HOA Liens
When you owe HOA liens (HomeOwner Association Liens) and other liens on your home, a foreclosure or bankruptcy sale is going to be a bit more complicated than if you didn’t. HOA liens have a high priority in Arizona, and can take precedence over your other creditors. Misunderstanding of these Arizona rules can result in a less strategic decision when it comes to how you address your HOA liens and other debts. This subject is complex, and proceeding without the guidance of a legal professional can make it even more difficult. If you have more questions on this subject, call our Chandler, Arizona bankruptcy firm at 480-833-8000 for your free consultation with one of our experienced Chandler bankruptcy attorneys.
Foreclosure Due to HOA Dues
HOAs, or Homeowners’ Associations, exist in many neighborhoods to enforce general rules for the community. These rules can include what color you can paint your home, how many plants you can have on your patio, whether you can list your home on Airbnb or rent out a room to a tenant, and more. In order to enforce these rules, the HOA needs resources, which come in the form of monthly dues from members of the community. HOA dues can also go towards necessary services like landscaping and maintenance and repairs for shared amenities. The HOA dues in some Arizona neighborhoods can be quite significant. If you fail to pay them, your HOA can eventually foreclose on your home. This provision is included in the vast majority of HOA covenants.
HOAs are also typically allowed to charge fees known as special assessments. These are meant to pay for one-time or emergency expenses, like if the entire community’s plumbing is compromised or a community road needs to be repaved. If you fail to pay these special assessments, they are treated just like unpaid monthly HOA dues.
Debts to your HOA automatically attach to your property as liens. Your HOA can include additional fees with your balance, like late fees, interest, attorney’s fees, and fines. The lien for HOA debts attaches to your property the day it becomes due. Your HOA may also record the lien with the county recorder. If you fail to pay off the lien, the HOA can foreclose on your home. The terms by which they may do so will depend on your HOA covenant.
Judicial Foreclosure vs. Nonjudicial Foreclosure
Your HOA may be required to go through a judicial foreclosure per your HOA covenant, or may have the option of using the nonjudicial foreclosure route. A judicial foreclosure requires that the HOA file a lawsuit against you for the unpaid HOA dues and fees. If the HOA is successful in that lawsuit, they will obtain a judgment against you. This judgment will be used to get the court’s permission to sell the home to pay the balance. The standards for a nonjudicial foreclosure will be laid out by the HOA covenant, and also must comply with state law.
What Happens to My Mortgage?
Most people associate a home foreclosure with a failure to pay the mortgage, but you can experience an HOA foreclosure regardless of whether you’re current on your mortgage payments. Your primary mortgage or deed of trust is the first debt that must be paid in your foreclosure, regardless of if it was initiated by your HOA. Sometimes, someone who falls behind on payments will stop making their mortgage payments after receiving the HOA foreclosure notice. The HOA might let the mortgage company proceed with the foreclosure and receive payment after the mortgage lender has taken their share, as they are entitled to it anyway.
What About My Junior Mortgages?
Since your home mortgage takes priority over HOA liens in a foreclosure, it may seem logical to assume that junior mortgages would as well. However, HOA liens take precedence over all other liens on your home, including junior or secondary mortgages. If there aren’t enough proceeds left after the foreclosure sale to pay junior mortgages, they will be eliminated. However, the borrower usually signs a promissory note that gives the mortgage company legal recourse to collect the remaining balance.
Can I Discharge HOA Debts in a Bankruptcy?
Unfortunately, because most HOA debts automatically attach to your home as liens, this makes them secured debts. Secured debts are much harder to discharge in bankruptcy than unsecured debts. Unless you are surrendering the asset in your bankruptcy, a secured debt will either remain after bankruptcy or be part of your bankruptcy payment plan.
If you want to surrender your home and let the bankruptcy sale pay off your HOA liens, you can do this through either a Chandler Chapter 7 bankruptcy or Chapter 13 bankruptcy. Just like in a foreclosure, your mortgage will take the first priority in debts secured against your home that must be repaid. In Arizona, HOA liens take second priority, and will be paid after your mortgage but before any other creditors.
You can also use Chapter 13 bankruptcy to pay off your HOA liens, while protected from home foreclosure. Your Chapter 13 bankruptcy plan will only be approved if you can pay off all of your bankruptcy fees, secured debts, and priority debts with your disposable monthly income over 3-5 years. Debts will also be paid in that order, so as a secured debt, HOA liens will be paid in the second category of a Chapter 13 payment plan. Chapter 13 offers the added potential benefit of discharging secondary mortgages on your home.
Can I Get My Home Back After an HOA Foreclosure?
Arizona is one of the states that does offer the right of redemption after a foreclosure sale. Arizona requires that it must have been a judicial foreclosure, and that the homeowner didn’t abandon the property. If these requirements are met, you will have 6 months from the foreclosure sale to redeem your property. If the home has already been sold, you will need to pay the buyers in full, along with 8% interest and any taxes, assessment fees, etc. that apply. So yes, you can get your home back after an HOA foreclosure, but only if it met certain requirements, and you can pull off a nearly impossible financial feat.
Bankruptcy Expertise in HOA Liens and Other Specialty Issues
Dealing with HOA liens could take intensive legal strategizing. If you choose to address your financial issues through bankruptcy, this is not a case that should be filed pro se. There also may be state limitations on HOA foreclosures that your HOA could be violating. Your bankruptcy attorney should have vast experience in all the issues that are specific to your potential case. You should also look for a firm that offers a full service staff and affordable prices. Our Arizona bankruptcy team has decades of experience helping our clients get the most out of their bankruptcy cases, and move forward with a new start financially. We also offer payment plans tailored to fit your budget – you might even qualify to have your case filed for $0 down! Payment plans include a 0% interest rate and credit reporting, which can help boost your credit score after your bankruptcy is discharged. To learn more, call to schedule your free consultation at 480-833-8000. Our Chandler Bankruptcy Lawyer and debt relief staff are ready to assist you.