02 Dec Chapter 13 Bankruptcy And Home Owners Associations
In Florida, home owners associations (HOAs) can be a blessing for some and a problem for others. When you add a Chapter 13 bankruptcy into the mix, the HOA can become a legal nightmare. According to the recent case of In Re Rosa, the chapter 13 plan and the confirmation order could change the relationship between the two.
Imagine that you retired, purchased a beautiful home in a gated community in order to live the stress free life. The HOA now takes care of the lawn, cable, pest control, etc. Well, life changes or the economy changes or you have medical bills or there is a loss of job and you are forced to file bankruptcy. You have to make a choice: either keep the home and the HOA or let it go and deal with the HOA.
If you file a chapter 13 bankruptcy petition and schedules, you also have to file your plan of reorganization. Your chapter 13 plan must tell the secured creditor exactly how you are going to deal with their collateral. Well, if you are going to keep the home, it really isn’t a problem because you are still obligated to pay the HOA. If your Chapter 13 plan states that you are going to surrender the collateral back to the mortgage holder, that is good news to the secured creditors, but what about the ongoing HOA obligation? In other words, is the chapter 13 debtor still obligated to pay the ongoing HOA dues even though he or she has expressed their intention to surrender the property.This is exactly the dilemma that many chapter 13 debtors find themselves in Florida. Here, it seems that we live in HOA heaven. Naturally, the HOAs have an obligation to not only collect ongoing dues, but to also continue to serve the other residents in the community. Therefore, they need to continue receiving revenue.
In the Rosa Case, the debtor’s chapter 13 plan made three representations: 1) that the real estate in question was being surrendered to the mortgage holder or its agent; 2) that the real estate in question was being surrendered in full satisfaction of the underlying claim; and 3) that upon confirmation, the bankruptcy confirmation order shall constitute a deed of conveyance of the property. Interestingly, it was not the secured creditor who objected to the Chapter 13 plan confirmation, it was the chapter 13 bankruptcy trustee.
The trustee objected to the provision in the plan that created a transfer of the property back to the secured creditor. The Court pointed out that the bankruptcy plan also provided for the “vesting” of the property in the first mortgage holder. This provision is allowed by 11 USC 1322(b)(9).
The Court went on to discuss issues of notice to the creditors. The Court was very concerned that the Plan was properly served on the secured creditor and that the mortgage holder had time to object. Since the mortgage holder failed to object to the plan and was properly notified of the contents of same, the Court deemed the plan accepted by the secured creditor.
So, in order to effectuate “vesting” of the real property to be surrendered back into the mortgage holder, a debtor must draft a plan which clearly and unequivocally follows 1322(b)(9) and provides adequate notice to the secured creditor. Once this is done, then the debtor will have to deal with any objections by the chapter 13 trustee’s office and the secured creditor, if any.
If there is an objection, the debtor will not necessarily lose all of the time. The Court can craft a remedy that will effectuate the intention of both of the parties.
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