She told a board member that she may declare bankruptcy. She says that the association is guaranteed to be paid all the back fees if she does. Is she right?
Answer: Bankruptcies can be complicated, but it is clear that a lien for condominium assessments can be removed in a bankruptcy when the owner is upside down. In other words, the assessments do not need to be paid if the amount of the first mortgage exceeds the value of the property, according to a recent decision of the U.S. Bankruptcy Court, Middle District of Florida.
Associations have argued that its statutory lien was entitled to priority, even if limited priority, since any first mortgagee acquiring title as a result of foreclosure of its mortgage would be required to pay 12 months worth of assessments or 1 percent of the original mortgage debt (whichever is less).
The court rejected that argument, finding Section 718.116(1)9b), Florida Statutes “does not give the Association any lien rights (against a foreclosing lender for outstanding delinquencies). It merely gives it the right to assert liability for past-due assessments against the mortgage holder if the mortgage holder acquired title through foreclosure.”
Association dues and fees can be discharged in a bankruptcy, but the discharge is limited to those dues and fees owed up through the date the bankruptcy petition is filed.
Fees that become due after she files cannot be discharged. In other words, “the court cannot discharge a debt for a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor’s interest in a unit that has condominium ownership for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest in such unit.”
This is a situation that calls for the advice of an attorney.
Attorney Sylvia Heldreth is a certified specialist in real estate law. Her office is located at 1215 Miramar St., in Cape Coral.
This article is not intended as specific legal advice to anyone and is based upon facts that change from time to time. Individuals should seek legal counsel before acting upon any matter involving the law.
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