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    The Greater Williamsburg area is an exciting place to live and work, especially because of the large number of entrepreneurs who have built businesses from the ground up. These entrepreneurs have taken their passion and made it their profession. Many of us want to take that step. Before you begin, you need to think of the type of business entity you want to form. Our attorneys have extensive business experience, from small one-person companies to publicly traded major corporations. Our attorneys are among the leaders in Virginia in the representation of Common Interest Communities. These communities are generally referred to as "homeowners associations," or "HOAs," and "condominium associations." In the greater Williamsburg area alone, we provide legal assistance to nearly 100 associations. Our attorneys have successfully prosecuted and defended a wide array of civil disputes involving community association covenant enforcement, commercial transactions, construction disputes, contracts, real estate matters, boundary line and easement disputes, employment matters, antitrust litigation, copyright violations, administrative proceedings, and estate issues. Real Estate law encompasses a wide variety of matters, and our attorneys have vast experience to assist you. Whether you need assistance with a commercial or residential closing, or you have questions relating to residential or commercial leasing, we provide experienced advice and counsel to our clients. Zoning law can be a complicated maze of statutes and ordinances. We have ample experience in successful applications for rezoning, variance, and special use permit requests. Finally, commercial and residential construction provide special challenges with respect to financing issues and the construction process. We serve as counsel to various financial institutions.

What can an HOA do to collect past dues when a bankrupt homeowner surrenders property but the lender does not foreclose?

An all-too-common scenario occurs when a homeowners association attempts to collect past dues and the homeowner files bankruptcy. The law is clear that the bankrupt homeowner is still liable for those post-petition dues. The United States Bankruptcy Code at Section 523(a)(16) makes the homeowner liable for “a fee or assessment that becomes due and payable after the order for relief to a [homeowners association] for as long as the debtor . . .  has a legal, equitable, or possessory ownership interest in such unit.”

In other instances the homeowner decides to walk away from the property and surrenders the property to the lender. Instead of foreclosing, however, the lender simply does nothing. Therefore, the title of the property is still in the name of the bankrupt homeowner who walked away from the property, and they are not paying the assessments. The lender has not foreclosed so they are not paying the assessments. How can the homeowners association collect these past due post-petition assessments?

In a recent bankruptcy case from the Middle District of Tennessee, Pigg v. BAC Home Loans Servicing, Bank of America, and Belle Management Corp., the bankruptcy court reviewed that very scenario. The unit owner surrendered her condominium, the bankruptcy court lifted the automatic stay, and the bankruptcy trustee filed a no asset report.

The lender did not foreclose on the property, but it did change the locks and maintain property and liability insurance on the property. The bankruptcy court determined that those actions constituted “taking possession” giving the condominium association priority over the Bank’s interest “for amounts that became due after the [lender] took possession.”

Furthermore, the court exercised its equitable powers to “fashion any remedy deemed necessary and appropriate to do justice in a particular case.” In this case, the court reasoned that the unit owner was being “denied the fresh start promised by bankruptcy” unless the court exercised its equitable powers.

Accordingly, the bankruptcy court ordered the bankruptcy case reopened and it set aside the unit owner’s discharge. The court reappointed the trustee, ordered the trustee to sell the condominium and required that the proceeds of the sale be paid in this order:

  1. To the trustee,
  2. To the unit owners’ association for all its past due fees and expenses,
  3. To the lender,
  4. To junior lien holders, and
  5. To the bankruptcy estate.

The overall effect of this case is unclear at this time.  However, it may provide homeowner and condominium associations another “arrow in the quiver” when dealing with bankruptcy, foreclosure, abandonment of properties and lenders who delay foreclosing on property.

This area of law will continue to change, so remember to check with your association attorney for advice and guidance.


Tarley Robinson, PLC, Attorneys and Counsellors at Law
Williamsburg, Virginia

jt photo 150x150 Why did the Virginia courts determine that Kingsmill HOA should not transition to homeowner control of the Board of Directors?

John Tarley

John Tarley

John is the firm's managing partner and chairs the firm's small business, zoning, and litigation practice areas.

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Filed under: Common Interest Community, General Interest, HOA, HOA litigation, John Tarley, Real Estate Litigation, State & Federal Litigation, Unit Owners Association by John Tarley

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