Running with the Land
HOA fees arise out of a "covenant that runs with the land," which is a promise attached to the land itself. This means that when the land is sold, the promise is transferred to the new owner. It also means that as long as the land is in your name, you are responsible for the HOA fees. Until recently, some bankruptcy courts did not enforce this. But an amendment to the Bankruptcy Reform Act in 2005 leaves no room for interpretation. You are responsible for HOA fees arising during the period beginning with the filing of your bankruptcy case and ending with the transfer of the house to someone else. Simply moving out of the house is not enough to free yourself from this debt. The HOA fees that arose prior to the filing of your bankruptcy case are discharged. But new HOA fees continue to arise as long as the property is in your name. You are responsible for these fees until the property is legally transferred to someone else -- in a foreclosure, for example.
Do I Really Have to Pay These HOA Fees?
How to handle the HOA fees depends on your goals regarding the home. If you want to keep the house, then the solution is simple: Pay the HOA fees. But what if you don't want to keep the house? What if you've already moved out? It may seem unfair that you have to pay HOA fees for property that you have given up. Most people in this situation are eager to find a way out of this debt. Fortunately, you may not have to pay the HOA fees after all. To be safe, however, it would be wise to set aside the money in case you do end up having to pay them for some unforeseen reason. But you probably won't have to. Then you can do whatever you want with the money you've saved.
When the bank or other lender finally forecloses on the house, their next goal will be to sell it. In order to do that, though, they must be able to "convey clear title" to potential buyers. In other words, the lender must pay the HOA fees in order to sell the house. Once the lender pays the HOA fees, you are no longer responsible for them. And once the lender sells the house, you no longer have an ownership interest in it. The HOA fees that continue to accrue will be the responsibility of the new owner. Your obligation to the home owners association is no more. The lender may claim that you now owe them for the HOA fees. However, your obligation to the lender arose out of a pre-petition claim. Because this claim arose before you filed for bankruptcy, it has been discharged. As long as this claim is the only source of your obligation to the lender, they have no way of making you pay. You are now home free! (No pun intended.)