Associations have options to collect from bankrupt owners


Question: Our condo has been suffering from one owner since 2011. She keeps changing the name of the entity that owns the unit and filing bankruptcy to avoid paying maintenance. We settled one case with her and settled for a small amount and a promise (agreement was notarized) that the owner would stay current with maintenance.

We hired an attorney who was unable to process anything for us before she filed bankruptcy again this year. We now have a tenant who is paying the owner rent and we are not able to collect maintenance fees.

We were told we are not allowed to do anything further because of bankruptcy. How long must we be part of this charade? We are not the only property this owner is indebted to. — C.P.

Answer: Bankruptcy is one of the most complicated areas of law, and it is also one of the most vexing issues for shared ownership communities. The bankruptcy laws protect debtors from retaliatory action from their creditors, including imposing suspensions of use rights or pursuing other tools that would normally be available to a condominium or HOA.

There are different types of bankruptcy filings for individuals and for corporations. Some of these are simply reorganizations where the court will approve a plan for the debtor to pay his/her/its creditors, in full, over time. Other types of bankruptcies do wipe out an owner’s debt entirely. However, depending on the type of bankruptcy filed by the owner, there are several avenues by which an experienced bankruptcy attorney can attack the bankruptcy and protect as much of the association’s debt as possible. For example, if a debtor fails to abide by an approved repayment plan, your lawyer may be able to get the plan dismissed. Or, if the debtor fails to pay assessments that came due after the date of filing, your lawyer may ask the court for leave to collect the debt. This is an area of the law where your lawyer’s experience can make a tremendous difference in the outcome. I recommend hiring an attorney or law firm that is frequently in bankruptcy court, as opposed to hiring an attorney or firm that is experienced with collections but rarely handles bankruptcy matters. Further, I find that, as is often the case with collections matters, being aggressive counts. I’m not suggesting you or your attorney should do anything that would violate the bankruptcy laws, but that, instead, you should do everything legally possible, even understanding that it may take a significant investment in legal fees to do so, in order to stop the bleeding and the repeated (and possibly fraudulent) bankruptcy filings.

Even with aggressive action, however, bankruptcy is unavoidable, and every community will have some portion of bad debt that may be unrecoverable as a result of bankruptcy actions by delinquent owners. That’s just the way bankruptcy protection works.

Q: We have lived in our HOA community for six years. Every summer, during the hurricane season, we have left our residence for an extended period of time. We have always put on all our hurricane shutters, turned off our water, and set the air conditioning to 80 degrees so that we could leave our house with the peace of mind that it was protected if a storm did occur. When we returned, we would remove the hurricane shutters within 72 hours. In those six years we have not had any complaints. A couple of weeks ago we received a letter in the mail containing a storm shutter rule approved by the HOA board. The resolution stated that one could “only install hurricane shutters in issuance of a tropical storm or hurricane watch or warning by local authorities. Temporary hurricane shutters must be removed within 10 days after the watch or warning is lifted.” Our question is, can an HOA board do this, without a vote? Is it legal? We feel it should be our right to protect our house, however we feel is necessary, during the hurricane season when we are away from our residence. — G.C.

A: Rules regarding shutters are very common in condominiums and HOAs. Houses with closed shutters pose a number of problems for HOA communities. They make it obvious that a house is unoccupied, which increases the risk of crime. They are unsightly, and closed shutters may give the impression that a community is abandoned — affecting the use and enjoyment for your full-season neighbors. And, they could potentially make emergency management (such as responding to a fire) more difficult. Boards typically have the authority to promulgate “reasonable” rules and regulations, and I do think rules requiring shutters to be open the majority of the time are reasonable. However, as these are rules regarding lot use, they can only be promulgated by the board upon 14-days written notice to the owners of the meeting where they are being considered — that’s something to look into.

Ryan Poliakoff is a co-author of “New Neighborhoods — The Consumer’s Guide to Condominium, Co-Op and HOA Living” and a partner at Backer Aboud Poliakoff & Foelster LLP. Email questions to condocolumn@gmail.com. Please include your hometown.



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