I have been seeing more and more people with HOA issues. HOA’s can foreclose against a property. HOA attorney’s like Fiore Racobs and Power do exclusive HOA work and rack up very large attorney fees on behalf of HOA’s when people are in default. Filing Chapter 7 bankruptcy will wipe out your personal liability against an HOA but they typically still have a secured aspect on there ability to collect against the property. I have seen HOA’s foreclose on people post bankruptcy because although the can’t collect on pre-petition HOA’s against the person, they do collect on HOA’s that become due after the bankruptcy.
One issue that a lot of people are facing with HOA’s is that although they file bankruptcy the bank doesn’t take back the property for a long time. Filing bankruptcy isn’t necessarily surrendering the property back to the bank. The bank still has to foreclose before you are taken off title. HOA’s are able to collect on the property based on who is on title. The benefit of the HOA goes to the title owner so even though you may have abandoned the property if you are still on title the HOA’s can collect against you. I have had clients that have left a property filed a bankruptcy case only to get sued for $5000 dollars two years after the bankruptcy. Because the banks didn’t foreclose my clients are still legally on the hook for post-petition HOA dues. I use the metaphor to explain this as HOA’s are like utilities, if you don’t pay your power bill for a few months, and then you file a bankruptcy case, you can get rid of the money you owed for the benefit of using the power before the bankruptcy. Any utilities that come due after the bankruptcy must be paid.
This makes me give people advice about HOA’s when you are on title, you should rent the place out to at least continue to pay the HOA. If you have a renter in california and the bank forecloses, the renter still has the right to live there for 90 days and then they just pay the bank or new owner. So as weird as it seems to rent a place when you are on the verge of foreclosure its the best thing to do if you have left the property. Many people leave properties under the assumption that the bank will foreclose. I have seen banks take two years to foreclose so the benefit is you get rent money and keep up with the HOA. Its will save you money and headaches in the long run. As weird as it seems to rent a place that you expect to get foreclosed its the best financial decision that you can make and your not screwing the renter, they will have a minimum of 90 days after the foreclosure, so make a month to month contract, rent if for cheaper than fair market value and be sure that you collect the rent and pay the HOA.