Florida HOA Lawyer Blog

A couple of weeks ago I wrote an article for this blog that focused on the tactics that we are using to enable community associations to contend with unit owners who file for personal bankruptcy protection. For my first video as part of our new video series, I focused on one of the strategies that we have now been using with considerable success.

Many of these associations are quite surprised when they learn that under Chapter 13 bankruptcy, homeowners can strip away any second mortgages or association liens if they are able to prove that they have absolutely no equity in the home. By submitting to the bankruptcy court a professional appraisal that says that the current market value of their home or condo is actually less than the amount that they owe under the first mortgage, they are able to use the "lien stripping" provisions under Chapter 13 bankruptcy to wipe out everything that they owe to the association or under a second mortgage from prior to the bankruptcy filing.

As you can well imagine, the use of lien stripping has grown quite a bit during the last several years with the meltdown in the housing market, and as a result we are working with a number of our association clients to help them to fight it. To learn more about exactly how we are helping our association clients to successfully contend with lien stripping by their members in bankruptcy, click below to watch my brief video on the matter and scroll down to read my article posted on Sept. 20.

Our firm is very proud to serve as one of best sources for information and sound legal insight for community associations in Florida via our blog and our live weekly radio show. As a complement to the topics that we discuss in both this blog and the radio show, we are launching a new series of online videos featuring brief discussions from our attorneys about some of the most pressing issues that we cover.

The videos will become a regular feature in our blog and on our website, and the best way to make sure that you do not miss them is to subscribe to the blog by submitting your e-mail address in the subscription box on the right.

Click below to watch my first video introducing the new series and discussing the types of topics that we will be covering in our future videos.

The recent report in The Miami Herald stating that the number of South Florida homeowners who owe more on their mortgage than their property is worth remains above 400,000 was very disquieting for the thousands of community associations in the region. Many of these associations have already discovered that their members who file for Chapter 13 bankruptcy have the opportunity to wipe away their association lien and second mortgages or secured credit lines if they are able to demonstrate that they have no equity in their property because it is now valued at less than what they owe on their first mortgage. With so many homeowners underwater on their first mortgages in South Florida, the use of these lien stripping provisions under the bankruptcy code seems destined to continue to rise.

Thankfully for the associations, there is a strategy that we have been using with considerable success to enable them to fight back and avoid lien stripping. It hinges on the fact that the criteria in the bankruptcy code for lien stripping to take place essentially creates an all or nothing requirement for the debtor who is trying to show that they have no equity in the residence. If the association is able to demonstrate to the bankruptcy judge that there is even just one dollar in equity in the residence, then the debtor is unable to strip away the association lien or second mortgage.

The issue becomes a "battle of appraisers." Given that, we are counseling our association clients in these cases to obtain detailed professional appraisals based on recent comparable sales and the condition of the residence that show that it is worth more than the balance due on the debtor's first mortgage. We then submit the higher appraisal to the bankruptcy court, and in many of these cases we are able to reach a settlement to recoup some of the delinquent fees that would otherwise have been eliminated using lien stripping. In one recent case, the association was owed $28,000 and we secured a settlement for $17,000 to be paid through the Chapter 13 bankruptcy, marking a very successful outcome for the association in today's "debtor friendly" bankruptcy world.

The results, of course, will vary based on the amount that the homeowner owes under their first mortgage and the strength of the association's higher appraisal. However, we have certainly realized a great deal of success using this approach, and we plan to continue using it on behalf of many of our association clients that are facing the prospect of receiving nothing for what they are owed from prior to their member's bankruptcy filing.