This question comes up a lot from our association clients, who are often unsure about how to proceed, for fear of violating the automatic stay. Many associations know they should refrain from seeking collection efforts against homeowners for outstanding pre-petition assessments, but what about post-petition assessments? Further, can the association attempt to recoup pre-petition assessments without violating the automatic stay?
Case Study – Montalvo
A recent decision in In re Federico Augusto Montalvo, 546 B.R. 880 (M.D. Fla. 2016) addressed these issues. The owner of two condominium units filed Chapter 13 bankruptcy and specified in his Chapter 13 Plan that he was surrendering his interest in the units, although he held title to units during the pendency of the bankruptcy case.
The association applied rental income it received from tenants in the units to the outstanding pre-petition assessments, and attempted to collect post-petition assessments from the owner. In response, the owner filed a motion for sanctions, claiming the association’s actions violated the discharge injunction and the automatic stay.
The Decision
The Court denied the owner’s motion for sanctions, holding that under Florida law, an obligation imposed under a condominium declaration is a covenant running with the land. The association was entitled to apply the rents to the outstanding pre-petition assessments, so long as the association did not collect the pre-petition assessments directly from the owner. Further, the Court noted that while the owner was relieved of any personal liability that arose pre-petition, the owner held title to the units and remained personally liable for post-petition assessments, despite the owner’s attempt to surrender the property in his Chapter 13 Plan.
Bottom Line
In sum, the bankruptcy stay and discharge protects an owner from personal liability for pre-petition assessments. Notwithstanding, associations maintain some options for recouping pre-petition assessments, and an owner generally remains liable for post-petition assessments, as long as they hold title to the property.
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