Often times, when discussing options with clients, one will say, “…and if the bank does not agree, we’ll just foreclose."
First, foreclosure is something the bank chooses to do, rather than the homeowner – unless by “choosing" foreclosure, the homeowner means that they will intentionally fall behind on payments thus forcing the bank to file foreclosure.
Second, it is very rare that we agree and advise the client that foreclosure is the better choice amongst all of their other options.
Sometimes, however, when dealing with a homeowner or condominium association, allowing the bank to foreclose is the best option.
A basic tenent of Florida law is that a unit owner is liable for ALL assessments which come due while he or she is the unit owner, as provided by Florida Statute 718.116 (Condominiums) and Florida Statute 720.3085 (Homeowner Associations). While both statutes give the association the ability to file and foreclose a lien against the property, trying to collect these assessments purely as money owed provides a much faster resolution to the association. The association may choose this quicker option, especially when the association’s lien may be behind a first mortgage that eliminates any equity in the home.
What about bankruptcy? Is it true that bankruptcy will eliminate the assessments owed to the association?
False. Bankruptcy Code Section 523(a)(16) specifically states, “A discharge … does not discharge an individual debtor from any debt for a fee or assessment that becomes due and payable after the order for relief …" The “order for relief" is the date of filing. Therefore the bankruptcy does not discharge the debtor from assessments that come due after the date of filing.
What about “surrender?" If the debtor surrenders the property then the debtor has no obligation to the property, correct?
Wrong again. The “surrender" of the property in bankruptcy court has no impact on the ownership of the house. Under both bankruptcy and Florida law, property is transferred one of two ways: (1) by sale from the property owner; or (2) by repossession, foreclosure, deed-in-lieu, etc.
Therefore, if the debtor files bankruptcy before any foreclosure has occurred, while assessments that accrued prior to the filing may be discharged, the debtor will still be liable for assessments that accrue after filing.
This situation is one of the few scenarios where we may advise the homeowner to allow the foreclosure to occur (either by the bank or the association) thus transferring title through the foreclosure sale. Once the transfer of title has occurred, a bankruptcy will discharge all previous assessments that were owed, and the homeowner will have no liability for ongoing assessments since they no longer own the house.
This article is for general educational purposes only and does not constitute legal advice. For more information, please visit our AVVO site, or company website, www.YesnerLaw.com.