The firm’s Jeffrey S. Berlowitz and Jordan G. Weinkle wrote an article that appeared in today’s edition of the Daily Business Review, South Florida’s only business daily and official court newspaper, about how bankruptcy and community association attorneys must work together in order to assess the strength of an association’s construction defect claim against a debtor company that files for an asset liquidation under the state’s Assignment for the Benefit of Creditors statute. Their article reads:
Firm partner Jeffrey S. Berlowitz wrote an article that appeared in today’s edition of the Miami Herald’s “Business Monday” about the recent decision by the U.S. Supreme Court in the case of Bank of America v. Caulkett. His article calls for changes to the bankruptcy code to eliminate lien stripping for community associations. It reads:
The firm’s Jeffrey S. Berlowitz, who has focused much of his work on helping community associations to contend with unit owners who attempt to wipe away association liens by filing for bankruptcy, was quoted extensively in an article in today’s edition of the Daily Business Review on the implications of the recent ruling by the U.S. Supreme Court in the case of Bank of America v. Caulkett. The court ruled that homeowners who are underwater on their first mortgage cannot void second mortgages by filing for Chapter 7 bankruptcy, and the ruling also appears to apply to other secured lienholders including community associations.
Our firm’s Jeffrey Berlowitz has been working closely with many of our community association clients in helping them to contend with bankruptcy filings by unit owners, who can use the bankruptcy code to wipe away association liens. During the last several years, he has also counseled several associations on the prospect of a Chapter 11 bankruptcy reorganization filing to enable them to overcome dire financial circumstances.
Our community association attorneys contribute articles on association issues to a number of publications on a regular basis. In the July issue of Florida Community Association Journal, the leading publication focusing on associations in the state, partner Jeffrey S. Berlowitz wrote an extensive article on the latest court decisions and legal strategies that are offering some relief for associations which are contending with unit owners who file for bankruptcy.
I have written several articles in this blog about the challenges that community associations are facing with unit owners who file for personal bankruptcy and utilize what is known as the “lien stripping” provisions of the bankruptcy code to avoid pre-bankruptcy maintenance assessment arrears due to their associations. If approved by the bankruptcy court, these code provisions enable a debtor in bankruptcy to wipe away second mortgages and association liens tied to their real property if they are able to demonstrate that they owe more to their first mortgage lender than what their home is worth. However, recent court decisions are a boon for the associations that lose certain of their lien rights against these bankruptcy debtors and then attempt to collect the past-due assessments from the subsequent buyers of the properties.
Never underestimate the power of the United States bankruptcy courts. As a much younger lawyer, I was amazed to learn that in a bankruptcy proceeding, rather than requiring a process server to serve the complaint upon the defendants, a debtor-plaintiff can actually serve their bankruptcy complaint on the creditor-defendants by U.S. First Class Mail! Yes, the bankruptcy court is full of surprises. A bankruptcy court might even be able help fix the unfixable, unanswerable problem: How can an association require a first mortgagee lender to pay assessments during the lender’s own self-stalled foreclosure?
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.
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.