How to get out from under post-filing HOA fees

In re Pigg – 10-10168 (Middle District of TN)

It is common knowledge to readers of this blog that post-filing HOA fees are not discharged in a chapter 7 due to the BAPCPA changes. A little history lesson for all you new practitioners out there. Before BAPCPA came along, HOA fees could not be charged to Debtors in a Chapter 7 who surrendered their property and moved out. Unfortunately, this changed with BAPCPA, and now debtors are on the hook for post-petition HOA fees until the lender finally gets around to foreclosing.

This is the problem – Debtors are at the mercy of lenders who are in no hurry to foreclose. The whole concept of the fresh start for the honest debtor is jeopardized. The HOA fees just keep adding up. It used to be that the HOA wouldn’t go after the owners, they would just wait for the property to sell and then force the new buyer to pony up. Flash forward to today – and properties aren’t selling. HOAs are going after the owner of record – the Debtor.

One judge in Tennessee came up with an interesting solution. He forced the Trustee to sell the property, even though there was not any equity in it for the estate. In this case, the debtor owned property in a section of Nashville that was completed flooded. The property was uninhabitable, the HOA kept charging fees, and the bank would not foreclose. Unfortunately, under 523(a)(16), the post-petition HOA fees are not discharged, they just kept racking up. Also, since the property was uninhabitable (due to the flooding), the Bank wasn’t in any hurry to foreclose.

An adversary action was filed by the Debtor seeking to force the lender to accept a deed in lieu or begin foreclosure proceedings. The court did not grant either of these items, but fashioned its own remedy. Under 105(a) the bankruptcy court is vested with equitable powers. The court ordered the Trustee to sell the property and to distribute the proceeds under 363(f). Under 363(f) one of 5 factors must be satisfied in order for the sale to proceed under 363(f). One of the factors is consent by the party. Here the judge determined that “the bank and the HOA consented to the sale by their inaction.” The Trustee sold the property to a 3rd party and distributed the proceeds to: administrative expenses, the HOA fees and then the Bank.

Finally the Debtor got out from under the HOA and received her fresh start.

Updated: