If you fall far behind on paying fees and assessments to a homeowners association (HOA), the HOA board can be pretty aggressive in trying to collect. In extreme cases, it can foreclose on your home.
An HOA Can Foreclose on Your Home
When you do not pay your fees and assessments, your HOA can pursue the debt in court and eventually put a lien on your home. With this lien, the HOA has an interest in your home as security for repayment. Depending on the HOA policy and how much you owe, the board can use this lien to foreclose on your home. When this happens, the HOA sells your home and deducts what you owe from the sale proceeds.
Chapter 7 Bankruptcy Stops HOA Collections
Foreclosure by an HOA is an extreme measure, but it does happen. You can protect yourself is by filing a Chapter 7 bankruptcy. If the bankruptcy court grants you protection, all of your debts, including unpaid HOA fees and assessments, will be eliminated. This means your HOA can no longer try to collect the debt from you. It can still foreclose on your home if it obtained a lien before you filed for bankruptcy.
Your HOA Can't Foreclose Once You File Chapter 13 Bankruptcy
Chapter 13 bankruptcy doesn't eliminate all of your debt. It reorganizes your debt to allow you to make smaller payments to your HOA and other creditors over a number of years. And as long as you stick with the court-approved payment plan, the HOA cannot foreclose on your home - even for a lien it obtained before the bankruptcy. Moreover, your HOA cannot bother you with harassing collection efforts.
An HOA Can File for Bankruptcy
Sometimes it's the HOA rather than a homeowner that files for bankruptcy. If your HOA runs into financial trouble, it may file Chapter 11 bankruptcy. In most cases, you and other homeowners will be unaffected. Chapter 11 allows the HOA to continue managing the property, provided it creates a viable long-term financial plan to get back on track.
A Real Estate Lawyer Can Help
The law surrounding the role of an HOA in a homeowner's bankruptcy and foreclosure is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. We hope you found it useful. For more detailed, specific information, please contact a real estate lawyer.