Unpaid Assessments: Liens & Personal Obligations- Part II

By: Marlyn Hawkins

Last week, we discussed how delinquencies affect owners and the lots or units they own.  This week, we discuss the effect of bankruptcy, sales and foreclosures on the personal obligation or liens.

Generally speaking, an owner’s bankruptcy affects the owner’s personal obligation to pay the amounts becoming due on or before the bankruptcy filing date, but does not impact the Association’s lien against the unit or lot, unless additional steps are taken in the bankruptcy case.  If the owner wants to try to remove the lien as part of the bankruptcy case, the Association is entitled to notice of the motion and can object.  If an Association receives a bankruptcy motion, legal counsel should be contacted immediately to discuss the Association’s options.

On the other hand, if a lender forecloses on a unit under the terms of the mortgage or deed of trust, the Association’s lien will be impacted, but the foreclosure should not affect the debtor’s personal obligation to pay the assessments that became delinquent when he or she owned the lot or unit.  The extent to which the lender’s foreclosure impacts the Association’s lien depends on the priority of the Association’s lien compared to the lender’s deed of trust, which is determined by state law and the Association’s governing documents. For example, if the lender’s deed of trust is superior and prior to the Association’s lien, then the Association’s lien will be wiped out through the lender’s foreclosure action and will become unenforceable as a matter of law.

Finally, the sale of a unit, which is considered a “voluntary transfer” generally affects neither the lien nor the personal obligation for amounts that became delinquent prior to the sale.  Thus, the former owner can be pursued personally for the prior delinquency or the Association can foreclose on the lien.

This two-part article provides a very cursory summary of some of the tools available for an Association to collect unpaid assessments and how sales, bankruptcy and foreclosure can impact the owner’s personal obligation or the Association’s lien.  The actual options are significantly affected by the governing documents and factual situations.  Legal counsel is often necessary to determine the best options for collection of assessments in each case.