Can Chapter 13 Bankruptcy Strip An Unsecured HOA Lien?
A reader sent me a question about Chapter 13 bankruptcy and homeowner association fees. He said he could not find on the internet a discussion of whether a Chapter 13 bankruptcy could strip off a lien filed by a condominium homeowner association when the condominium unit was worth less than the first mortgage balance.
The general rule is that a Chapter 13 plan can remove the lien of a second and third mortgage so long as the first mortgage balance exceeds the property value on filing date. With no property value to secure the junior mortgages, these mortgages are treated as general unsecured debt and the mortgage liens are stripped upon successful completion of the full Chapter 13 plan.
Florida statutes provide at a lien filed by a HOA automatically takes precedence over second and third mortgages, but remains subordinate to first mortgages. So, if a Chapter 13 debtor can strip a second mortgage it would seem that the “strip” would also eliminate the HOA lien. However, Florida statutes (F.S. 718.116) provides protection of HOA liens. A first mortgage lender who forecloses on a property must pay the HOA the lesser of six months worth of HOA dues or one percent of the mortgage balance. The issue is whether the statutes special protection of HOA liens makes HOA liens exempt from stripping in a Chapter 13 plan.
My guess, without research, is that a Chapter 13 plan can treat a pre-filing HOA lien as an unsecured debt where there is no property value securing the lien. The Florida statute applies to first mortgage liability upon foreclosure; not to bankruptcy proceedings. Although a Chapter 13 plan could propose to strip a HOA lien, if the plan fails and the first mortgage forecloses, the mortgage lender would probably remain liable to the HOA for the amounts due under the above Florida statute.
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