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Bankrupt, Foreclosed Homeowners Being Hit by HOA Fee Lawsuits

April 27, 2010

As San Juan Capistrano bankruptcy attorneys, we were disappointed to see a recent article noting a disturbing trend: homeowners' associations hitting foreclosed and sometimes bankrupt homeowners with lawsuits over unpaid fees. Even when the home is in foreclosure or part of a bankruptcy proceeding, the Arizona Republic reported April 26, homeowners' associations are holding homeowners legally responsible for continuing to pay the fees. In fact, the HOAs are increasingly filing lawsuits against homeowners who don't pay fees, adding legal fees and court costs that increase the bill dramatically. Spokespeople for courts in Phoenix, Scottsdale and Chandler said the increase in claims is undoubtedly being driven by the economic downturn and bad real estate market.

The trouble is that even after foreclosure proceedings start, banks may leave the borrower's name on the deed. This makes the borrower the homeowner of record, which in turn makes him or her legally responsible for HOA fees. The article featured the story of Paul Cox, 32, who filed for bankruptcy protection after his work as a commercial real estate agent dried up. His debts were discharged in the spring of 2009 and he hasn't lived in the home for more than a year, but his bank has not foreclosed. As a result, he's still legally responsible for all HOA fees that accumulated after the bankruptcy finished. That's only $350, but legal fees added more than $1,000 to the total. Cox now makes $12 an hour and is starting "from the ground up again," he wrote in a court filing. His mortgage holder, Bank of America, could not immediately explain why it has delayed foreclosing on the home.

The article quoted an attorney who specializes in HOA law, who advised foreclosed clients to continue paying HOA fees until the foreclosure is complete. As Moreno Valley bankruptcy lawyers, we agree that that's one way to solve the problem -- but it requires an extra cash outlay from people who are probably financially strained. Ideally, homeowners' associations would have the taste to refrain from suing people who can't even afford their mortgage payments, much less their HOA fees. But since borrowers cannot count on that, those who expect to lose their homes might also consider delaying a bankruptcy until the bank actually forecloses. That way, the debt to the HOA can be discharged during the bankruptcy, and no new, non-dischargeable, fees will be accumulated after the bankruptcy ends.

At Howard Law PC, we help our clients make strategic decisions like that about all aspects of their bankruptcies, so they can get the maximum benefit from their filing. Filing for bankruptcy is a major financial event in your life, and we believe you should do it in a way that helps you meet your financial goals as thoroughly and cleanly as possible, helping you start over and build a new, healthy financial record. When clients come to us, our Inglewood bankruptcy attorneys start by reviewing their financial situations as thoroughly as possible, to determine whether bankruptcy is their best choice, and if so, what kind. We represent individuals and couples in both of the most common types of personal bankruptcy -- Chapter 7, or liquidation, and Chapter 13, or reorganization. In either type of case, we stand by our clients throughout the process, helping defend them from overreaching creditors and build the best plan possible.

If you're considering a bankruptcy in California, don't make your move without arranging a free, confidential case evaluation with Howard Law. To set one up, you can call us toll-free at 1-800-872-5925 or contact us through the internet.