Ongoing Homeowners Association Assessments Dischargeable

Posted by NCBRC - September 29, 2014

Approximately a year and a half after the debtors abandoned their condominium and stopped paying their homeowners assessments, they filed for chapter 13 bankruptcy. Their plan proposed to transfer title to the secured creditor, Bank of America, and made no provision for payment of ongoing Homeowners Association assessments. Both the bank and the HOA objected to confirmation of the plan. The bankruptcy court sustained the Bank’s objection but denied the HOA’s and confirmed the plan insofar as it did not include payment of ongoing HOA assessments. In re Coonfield, No. 14-2533 (Bankr. E.D. Wash. Sept. 25, 2014).

Citing 17 WILLIAM B. STOEBUCK AND JOHN W. WEAVER, REAL ESTATE: PROPERTY LAW, WASHINGTON PRACTICE SERIES, at 497 (2d. ed. 2004), the court agreed with the Bank that, under Washington law, transfer of title is conditioned upon acceptance by the transferee. Therefore, no party can be compelled to take title.

But that holding did not resolve the question of whether the debtors were entitled to confirmation of a plan that did not include payments toward ongoing HOA assessments. In finding that they were, the court distinguished the case of Foster v. Double R Ranch Association (In re Foster), 435 B.R. 650 (B.A.P. 9th Cir. 2010). Unlike in the present case, the debtors in Foster continued to reside in their condominium. While the Coonfield court agreed with the “you stay, you pay” principle on equitable grounds, those grounds did not apply to the situation where the debtors had abandoned the property. In that situation, the court noted a split among the courts. One camp, represented by Foster and River Place E. Hous. Corp. v. Rosenfeld (In re Rosenfeld), 23 F.3d 833 (4th Cir. 1994), reasons that the obligation to pay ongoing HOA assessments is a covenant that runs with the land and is non-dischargeable. The other view, represented by In re Rosteck, 899 F.2d 694 (7th Cir. 1990), is that the obligation arises from contract and may be discharged in bankruptcy. Unsatisfied with this bare distinction, the court found that to “resolve the issue of whether Mr. and Mrs. Coonfield must include ongoing association assessments in their plan, the court must determine whether the assessments are a debt owed to the Homeowners Association as contemplated by the discharge provision under 11 U.S.C. § 1328(a).”

Parsing the language of section 1328(a), that a debtor may be granted a discharge of all “debts,” the court found that “debts” are defined as “liability on a claim,” which, in turn, is defined in section 101(5)(A) as “[a] right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.” Based on this language the court concluded that “the claim against Mr. and Mrs. Coonfield for association assessments arose pre-petition and includes obligations for ongoing assessments.” As pre-petition debts they are dischargeable under section 1328(a) and the exceptions set forth in section 523(a) are not applicable.

In support of its finding the court noted the corollary argument that the fact that Congress delineated a specific exception to discharge for HOA assessments in section 523(a)(16), it may be inferred that where section 523(a)(16) does not apply, those assessments are not excepted from discharge. The court concluded that “It is not for this court to add this exception.”

Coonfield Bankr. E.D. Wash opinion

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