Past-Due Condo Association Dues & Fees Are Dischargeable
Will bankruptcy discharge condominium association dues? Condominium association fees pose a special difficulty in Chapter 7 or Chapter 13 bankruptcy, given the deflated values of many condos in this real estate market, the intent of many condo owners to surrender and safely walk away from terribly underwater condominium properties through the tax-free and collection-free bankruptcy process, and the slowness of mortgage-holding banks in foreclosing on surrender condominium properties in Michigan.
The “special difficulty” is with regard to the condominium association fees and dues that come along with the ownership of such properties. While it is true that a bankruptcy surrender of real estate does not “quitclaim” the property back to the mortgage-holding banks immediately and that a Michigan law-based foreclosure is required for the title to transfer from the individual filing the bankruptcy back to the bank after the bankruptcy, does the bankruptcy have an immediate effect upon the association dues?
Past-due association dues and fees are discharged by a bankruptcy just like any other unsecured debt. However, condominium associations (and homeowners’ associations in planned subdivision situations) have litigated the issue of continuing association fees aggressively in the bankruptcy courts, and they have largely come out ahead on this question.
What is the up-shot of that?
Even If Surrendering the Condo, Dues Must Be Paid from Date-of-Filing of the Bankruptcy Petition
A homeowner must continue to pay the association fees so long as they remain the titled owner of the property—even after a surrender of the property in bankruptcy.
Bankruptcy will discharge all association fees incurred prior to the date of the filing of the bankruptcy petition—but the homeowner will be liable for association fees from the date of filing forward, on through the completion of a full foreclosure process by the note-holding bank. In Michigan, this can mean several months to a year or more of continuing responsibility for these fees, even after a bankruptcy. This is because, until a full foreclosure process as required under Michigan state law is completed, the surrendering homeowner remains the titled owner of the property.
A full foreclosure process includes a “redemption period” following the foreclosure sheriff’s sale of the property of 6 months, generally. If you are not in foreclosure at the time you file your Chapter 7 or Chapter 13 bankruptcy in Michigan, you can expect to remain the titled owner of the property and to be required to pay ongoing association dues for at least 9-12 months from the date of filing of your bankruptcy petition. During that period of time after a bankruptcy, you need make no mortgage payment or pay any property taxes, but you will need to make your ongoing association dues payments (and keep the property insured, if that insurance payment is not drawn from the association dues, for your own liability protection).
If you are a Michigan resident and would like to explore your options for a Chapter 7 or Chapter 13 bankruptcy with an experienced Michigan bankruptcy attorney, please contact us at (866) 674-2317 or click the button below to schedule a free, initial consultation.
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