BEWARE OF HOA!

Dues, Assessments, Liens and Foreclosures

Last week, a person came into my office saying he received a letter from his Homeowners Association (“HOA”) offering to rent his house to him. Needless to say, he was not happy. He knew he was behind on HOA dues, but his lender hadn't even started foreclosing on his house.

Welcome to the new frontier of the mortgage crisis in California. The homeowner's HOA had foreclosed on his property before the lender. While this has been common in Hawaii for years, this is relatively new in California. If you are behind on your HOA dues or assessment, here is the California law you need to know.

HOAs are regulated by the California Davis-Stirling Common Interest Development Act in Civil Code Section 1367 et seq. Pursuant to Davis-Stirling, an HOA can levy dues and assessments necessary for the development. A regular or special assessment is a debt of the owner. If an owner is behind on dues or assessments, the HOA can record a lien against the property. At least 30 days prior to recording the lien, the HOA is required to notify the owner by certified mail.

The recording of a lien does not automatically allow a foreclosure by the HOA. Rather, an HOA may not foreclose until the amount of the delinquent dues and assessments secured by the lien, exclusive of any accelerated assessments, late charges, fees and costs of collection, attorney's fees, or interest, equals or exceeds one thousand eight hundred dollars ($1,800) or the assessments secured by the lien are more than 12 months delinquent. In addition, the HOA still maintains its rights to proceed in state court against the owner for delinquent dues and assessments.

If the HOA decides to proceed with a foreclosure of its lien, in most instances it will proceed with a non-judicial foreclosure pursuant to CC 2924 which will require the a Notice of Default and Notice of Sale. If the HOA does foreclose on its lien, the owner still has a 90 day right of redemption and the HOA would still be taking the property subject to any senior liens.

Therefore, if you are behind on your HOA dues and assessments, you need to be aware that the HOA can foreclose before your lender and become your landlord. If you are trying to buy the maximum amount of time in your home prior a foreclosure, it may be better to keep your HOA dues current.

If you are filing bankruptcy or have filed bankruptcy, there are special rules you need to know. First, all dues and assessments which come due prior to the date of filing are included in the bankruptcy discharge. HOWEVER, under 11 USC 523(a) (16), Congress carved out a special exception as to post-petition dues and assessments. Specifically, the owner continues to be responsible for all dues and assessments which came due after the filing of the bankruptcy as “long as the debtor or the trustee has a legal, equitable or possessory ownership interest” in the property i.e. until someone forecloses or buys your property, you are responsible for the HOA dues and assessments. Therefore, if you do not pay your HOA dues or assessments after a bankruptcy filing, do not be surprised to find yourself being sued in state court by your HOA or having your property foreclosed.

In conclusion, beware of the HOA. They know where you live. This is a complicated area of the law and I recommend you to seek legal counsel prior to allowing your HOA dues or assessments to become delinquent. Like everything else in life, there are consequences to actions as well as inaction. In this case, there may be personal liability and tax consequences. I provide a free 30 minute consultation at all of my three offices located in Walnut Creek, Antioch and Brentwood.

Student Loans & Bankruptcy

If you are thinking about filing bankruptcy, but are worried about your ability to get student loans either for yourself or a dependent in the future, you are not alone.  If you are worried about repaying student loan debt, you are not alone.   These concerns are so common that the Bankruptcy Code specifically addresses them.  

Let’s address the easy issue first: Getting student grants and loans after a bankruptcy.  The Bankruptcy Code provides that no governmental unit may deny a student grant, loan, loan guarantee, or loan insurance to a person that is or has been a debtor in a bankruptcy case.  What this means is that student grants and loans are available to people filing bankruptcy as long as you meet other grant or loan program qualifications.  You should expect a credit report to be run when obtaining a student loan or grant. Therefore, it is a good idea to minimize other debt.

 Now for the more difficult problem: Repaying student loans.  The current Bankruptcy Code provides that student loans or obligations to repay funds received as an educational benefit, scholarship or stipend are not dischargeable in bankruptcy unless it would impose an undue hardship on the debtor. What this means is that 1) the debtor must show an inability to maintain a minimal standard of living based on current income and expenses, 2) that the existence of these additional circumstances is likely to persist for a significant portion of the repayment period, and 3) that the debtor has shown a good faith effort to repay the debt.  These conditions are extremely difficult prove andthere is a recent bankruptcy case in San Francisco where the bankruptcy judge held that a “minimal standard of living” does not mean a middle class lifestyle and the debtor can be required to make “major personal and financial sacrifices.” 

The good news is that on March 30, 2010, Congress enacted legislation to revamp the federal student loan program.  The new law eliminates fees paid to private banks and will expand the Pell Grant Program.  In addition, starting July 2014, the program will allow students to cap repayment at 10% of income above a basic living allowance.  In the meantime, if you have student loan debt which you cannot repay, I suggest you contact your lender and enroll in the Income Based Repayment Program (IBR). This program is designed to help people pay back their loans at a rate proportional to their income. 

The student loan debt crisis WILL be the next big crisis after we finish with the mortgage crisis.  There is more student loan debt in this country than credit card debt.  I fully expect some type of relief to be provided for student loan debt again under the Bankruptcy Code.  It is just going to take time.  However, I expect the relief provided will be dependent on a person showing evidence that some payment has been made on the debt. 

In conclusion, student loan debt should be avoided, unless it is absolutely clear that a future career will be sufficient enough to pay back the debt.  I strongly encourage you to minimize student loan debt for undergraduate school. Live at home, get a part time job.  Don’t sell out your future and the future of your children.   If you have other debt which can be discharged in bankruptcy, seek legal counsel.  Discharging other debt and focusing on the repayment of student loan debt will make it easier for you.  I see people every day for a FREE 30 minute consultation in my offices located in Walnut Creek, Antioch and Brentwood.