The bankruptcy laws were drafted with the intention of providing debtors with a fresh start. Following the subprime mortgage crisis and the burst of the housing bubble, home values have dropped across the country. Many homeowners now owe more on their homes than what the homes are worth. According to housing data from CoreLogic, at the end of 2010, an estimated 11.1 million mortgages were underwater nationally. This was a 22.5 percent increase from the third quarter of 2010, or 10.8 million homes.
For victims of a natural disaster such as the floods that swept through Tennessee this spring, bankruptcy should have been a way to make the best of a bad situation. Now some middle Tennessee flood victims have received an unpleasant surprise when they learn that they are responsible to pay homeowner's association fees even though their homes are in foreclosure or they have filed for bankruptcy.
Association dues used to be eliminated when the debtor no longer lived in the home. But in 2005, lobbyists for special interest groups persuaded legislators to make changes in the bankruptcy laws that ultimately made debtors liable for homeowner's association fees as long as they continue to legally own their homes.
In one case, a homeowner who lost nearly all her belongings in last year's flood filed for bankruptcy and left her condominium. Because of delays by the bank in the foreclosure of her home, she remained liable for expensive homeowner's association fees on a damaged unit she had not lived in for months. In an attempt to force the bank to finalize the foreclosure she sued the mortgage lender in bankruptcy court and won.
In July, a Tennessee bankruptcy judge ordered the woman's bankruptcy case re-opened so the presiding bankruptcy judge could sell the home to pay the association dues. According the judicial opinion, Bank of America agreed to the condominium's sale by their inaction.
Residual association dues are becoming an increasing problem for homeowners as the foreclosure process drags out. In the first quarter of 2011, the average length of the foreclosure process in Tennessee had increased dramatically to 411 days, up from 134 days in 2007, according to California-based real estate firm RealtyTrac.
Banks are delaying foreclosures for a number of reasons. A significant concern for them is the costs that they incur on homeowner's fees as well the maintenance expense of holding a bad property on their books in a market that is already saturated with foreclosed homes. Banks counter that foreclosure is an option and not an obligation when a property is abandoned. Yet when foreclosures are delayed, it in effect, denies a fresh start.
If you are facing foreclosure on your home, it is important to understand the repercussions of foreclosure and your options before it is complete. It may be possible to use bankruptcy to save your home. Alternatively, if your home can't be saved, you should know what bankruptcy can do to protect you after the foreclosure is complete. Anyone facing the loss of their home should speak with a Nashville bankruptcy foreclosure lawyers to review their options.
