Education
Conroy Law's Community College
Introduction
(Uploaded 04/24/2026)
Transcript
[THIS TRANSCRIPT WAS CREATED USING YOUTUBE’S TRANSCRIPT FUNCTION. IT MAY CONTAIN ERRORS.] Hi everyone, my name is Evan Conroy. I’m an attorney at Conroy Law. Our office has created a video series that we are calling Community College. The idea behind Community College is to provide free educational videos to board members and property managers concerning community associations such as HOAs and condominiums located in the state of Indiana. The videos are intended for informational purposes only. We will do our best to have the information within these videos to be accurate and reflect the current law. Please note though that laws do change and as humans we are not perfect. So, we cannot make any promises or guarantees about the accuracy or completeness of the information contained within them. I truly hope that you find these videos helpful and entertaining. Thank you for watching and I hope you have a great day.
Collections 101
Collections
(Uploaded 04/24/2026)
Transcript
[THIS TRANSCRIPT WAS CREATED USING YOUTUBE’S TRANSCRIPT FUNCTION. IT MAY CONTAIN ERRORS.] Hi everyone, welcome to Community College brought to you by Conroy Law. My name is Evan Conroy, an attorney with Conroy Law. Today’s goal is to provide a brief introduction to Indiana HOA and condominium association collections. You might be asking why do we need to try to collect dues from people that are not paying them? Well, there’s multiple reasons. First, assessments are what’s used to pay for all the expenses incurred by the association from repairing and maintaining common property such as entrance signs, paying for landscaping, paying for insurance premiums, reserve funds. All these expenses are provided by assessments. If one owner does not pay their fair share, then other owners need to make up the difference. That isn’t fair to the other due paying owners within the community. Second, the board has a duty to enforce the community association’s covenants. One of those covenants is going to be the obligation to pay assessments. Third, if the other members of a community believe that there is no consequence for not paying dues or they believe many other people aren’t paying their fair share, then those due paying owners may become delinquent owners, right? They might make that transition where they choose not to pay their assessments. So, you want to avoid that for sure. Now, let’s go over some common misconceptions about the collections process. One misconception is that the board loses control over the collections process. That should not be the case. Boards should be as involved as they want to be in making final decisions, right? One helpful compromise between wanting to stay involved and not having to deal with the sort of day-to-day affairs of the collection matter is to provide a debt collector, whether it’s a law firm or a debt collection company with some settlement authority. Things like giving them the payment plan lengths or letting the debt collector know what things can be waved, if anything, such as late fees or interest. Those sorts of things help empower the association to have a voice when interacting with the debt collection company. Another misconception is the time it takes to collect dues. Sometimes all it takes is a demand letter. You send the demand letter, they pay their bill. Other times, owners need to be served with a lawsuit or have receive a notice of a court hearing or some other sort of not so gentle nudge that this matter is moving forward and they need to come forward to try to work out a deal. Still, other owners will refuse to even pay even after a judgment’s awarded against them. When that happens, typically you need to do post judgment collections, whether that’s scheduling a foreclosure sale or doing garnishment proceedings. It might take more time. Consequently, there really isn’t a one-size-fit-all time frame for when a matter will get resolved in collections. Now, let’s talk about the the power to assess and what can be collected. Community associations are subject to lots of types of authority, including state and federal law, documents recorded in the land records, and this includes things like restrictive covenants and easements, corporate documents such as bylaws and articles of incorporation, and finally um a community’s own rules and schedules. That being said, a lot of what can be collected depends on the language in a specific type of document called various things, but typically the declaration of covenants. It’s also called the declaration, the CC&Rs, the CCRs, the covenants. What makes it different from other community association documents is this one’s recorded in the land records and it contains those restrictions, conditions, and covenants which everyone has to abide by that’s subject to those documents. And typically when you talk about assessments and those rights and obligations pertaining to the obligation to pay assessments, you’ll find that in the Declaration of Covenants. Other than assessments that fund the common expenses, there are often other types of charges that can be collected. For example, most if not nearly all declaration of covenants allow for the collection of cost of collections. This includes things like attorney’s fees. This makes sense as an association should be able to make the delinquent owner responsible for those costs that are incurred due to their behavior. And so therefore, generally speaking, double check your governing documents. An association can seek to collect the unpaid assessments and related charges. One type of charge that has caused confusion in Indiana is are the fines. There had previously been a long-standing Indiana court decision going back to the 1980s that called into question whether community associations could impose fines. However, new changes in Indiana law um that will take effect this summer expressly permit associations to impose fines. Now, of course, the right to do so is subject to very specific requirements. Uh please feel free to check out our video on fines to learn more about those sorts of requirements for imposing fines. Finally, let’s talk about late charges and interest. Indiana court decisions indicate that assuming it’s permitted in the association’s governing documents, a community can seek to collect late charges and interest. It’s important to keep in mind though that the amount of those those types of charges cannot be viewed as by the court as being a disproportionate penalty. That’s legal jargon, has specific meaning in the case law, but essentially, you know, if it’s an outrageous amount, a court’s not going to be willing to award it. So, if you have questions about whether or not the amounts you’re seeking are collectible, there’s late charges and interest, ask your attorney. Let’s now go over the types of uh procedures and documents that you can do to set up your community for success when it comes to collections work. First, make sure what you are seeking is permitted in your community’s governing documents. Second, make sure you are complying with the proper budget approval process as the budget will dictate the amount of the assessments. Third, make sure you are keeping accurate ledgers listing the individual charges being assessed and the payments being received. Fourth, have a collections policy in place for things like how many notices that will be sent out to an owner that’s delinquent. um things like um you know just making sure that everyone is treated the same that’s in a similar situation when it comes to delinquencies. This should carry over when the matter’s transferred over to a debt collection company or a law firm. U making sure that you comply with those those steps. This is especially important if you’re seeking fines. You need to make sure that you have the proper fine schedule and you’re complying with it when moving forward through the collection process. Finally, let’s briefly talk about the various stages of the collection process. First, you have the pre-litigation stage. This includes the notices sent out by the board or the management company as well as the pre-litigation notices and work done by a law firm or debt collection company. This is also the stage when a notice of lean would be filed to encumber the the delinquent owner’s property. Next comes litigation. This is when a lawsuit is filed seeking to collect the debt um by getting the courts involved. Depending on the type of community as well as the language in the governing documents, the type of reh relief that you’ll be seeking uh could vary. So for some communities, they’ll have the option to only seek a money judgment whereas other communities will be empowered to seek to um coordinate uh obtaining an order allowing for foreclosure. After a judgment is obtained, you’re in the post judgment collections phase. Right? This is where if you’ve got a money judgment, you’re going to look to try to garnish them. If you have an order allowing for foreclosure, you’re going to be looking to coordinate the the the scheduling of the sale of the property. Finally, at any stage during the collections process, an owner may file a bankruptcy petition. If so, then the association will definitely want to have an attorney monitoring the bankruptcy action to best ensure their interests are represented in the bankruptcy case. Thank you for taking time to listen to our introduction to seeking to collect HOA and condominium assessments in Indiana. My name is Evan Conroy, an attorney with Conry Law. I hope you all have a great day.
Pre-Litigation
Collections
(Uploaded 04/23/2026)
Transcript
[THIS TRANSCRIPT WAS CREATED USING YOUTUBE’S TRANSCRIPT FUNCTION. IT MAY CONTAIN ERRORS.] Hi everyone, my name is Evan Conroy. I’m an attorney at Conroy Law. This is a brief introduction for Indiana HOAs and condominiums seeking to collect assessments before a lawsuit is filed. So, this will be the pre-litigation stage. First, we have the work performed by the community association before a law firm or debt collection company gets involved. That includes things like sending out delinquency notices and entering into payment plans with delinquent owners. At this stage of the collections process, it’s important that community associations have procedures in place to ensure that they treat every owner in the same manner. To do this, a community association should have a collections policy. Now, what is a collection policy? A collection policy is a is a set of documents that provide instructions to both the current as well as future boards on how collection matters are handled. Um, if the community is professionally managed, then a collections policy will also be incredibly helpful for that management company to sure it aligns its its actions, its procedures with what the board wants to see happen year after year, treating uh similarly situated delinquent owners in the same or similar manner. For example, the collections policy should provide how many delinquency notices are sent out to homeowners before the matter is transferred over to a debt collection company or a law firm. If the amount of the charges or interest rate is going to is determined by the board according to the association’s declaration of covenants. Some declarations will just set whatever the late charge or whatever the interest is, but other um sets of declarations will have like language that’s like, you know, based on the board’s determination. then you want to make sure that language that determination is in the collection policy listing the amounts that have been approved by the board. The collection policy should also provide guidelines on the type of payment plans that a board is willing to accept such as like the length of the plan. Um whether late charges or interest can be waved as part of the settlement discussion as part of the a payment plan. Um whether there’s an initial good faith payment that needs to be uh paid before there’s a payment plan. Things of that nature. If the assessments continue to go unpaid, the next step would be of course to transfer the matter to a company that performs debt collections work, right? A specialist who do this for a living. There are two types of debt collectors. One, it would be a law firm that performs debt collection work. The other is a debt collection business that is not a law firm, but they specialize in collections work. To keep things simple, I will be calling these types of companies that aren’t law firms as debt collection companies. Though the way they’re both law firms and other types of debt collection companies are treated under the law, particularly under federal law is very similar. They’re all treated as debt collectors. Each type of business has its own benefits for a community, right? Each one has its pros and cons. A law firm is going to employ lawyers and so they can practice law. This means that a law firm can prepare legal documents. It can file collections lawsuits, things of that nature on behalf of their clients. Additionally, there are going to be law firms that specialize in representing community associations, which should include uh at least one attorney within that firm that is comfortable handling collections litigation and post judgment collections specifically for community associations. Often these firms will either be paid by the amount of time the attorney or paralegal assigned to a matter uh how much time they spend on the matter at their billable rate or there’ll be a flat fee charged for a particular task. That’s that’s more common when it comes to things like demand letters and recording of leans. Debt collection companies that are not law firms typically focus on those types of collections work that someone would think about when thinking about debt collection, right? Such as uh calling delinquent homeowners, sending letters, sending emails, the debt collection sort of work that uh most people think of when they think of debt collectors. One of the benefits of using a debt collection company is that they often have alternative payment arrangements, right? Sometimes they’ll work on a contingency uh manner, which means that they don’t get money until the association gets money and they get a percentage of that. Um, other collection companies will do a deferred fee bas um form of collections. Well, they won’t charge you until you get paid. Um, or others will have some sort of like um uh cost splitting, things of that nature. While both law firms and debt collection companies have their own unique advantages, it’s important to uh be sure to thoroughly review any engagement agreement with any company, not just collections company, but any companies that do business with a community association just to make sure that uh one, the company that that’s being contracted with has the necessary experience and then two, that the manner in which they operate aligns with the association’s goals and the board’s comfort level. Let’s go more in depth on the sort of work that’s going to be performed by a law firm at the pre-litigation stage. After a file has been created and reviewed for some initial possible roadblocks, things like the owner being in the military because there’s unique protections for active duty service members, collecting, checking for bankruptcy status. You don’t want to be going after someone trying to collect a debt if they’re in bankruptcy. Um after you get through those initial checks, a law firm would then typically send out an initial communication and initial letter to the owner. This uh initial communication has really important ramifications for law firms and collection and the collection process uh because there’s a set of laws in place uh called the Fair Debt Collection Practices Act, often called the FDCPA. The FDCPA is federal law that has very specific requirements for debt collectors to follow, right? they they’re going to make sure they comply with that law um as part of the debt collection process. And one of those requirements is sending a letter with specific language in it. That that that’s not necessarily a bad thing for associations hiring a law firm or a debt collection company cuz that initial letter in itself um can help motivate people to try to to to resolve the matter. Uh another benefit of these having to send these initial letters is that they tend to be relatively inexpensive. their form letters. Um, that just makes the owner aware, among other things, that, hey, your matter’s been transferred to a debt collection company. If that doesn’t resolve the issue, the next step would be for a law firm to prepare a more a demand letter, essentially a more aggressive letter along with typically recording a lean or notice of lean for the association. Um, notice of leans, leans are very important. closing firms um typically find them as part of you know refinance or selling the property and we’ll want to pay off the debt if they’re found. Um another important reason to have these notice of leans or leans is to ensure that if someone files for bankruptcy, the debt is viewed as secured debt. That’s incredibly important for, for example, Chapter 13 bankruptcy filings. Um, another reason that a great benefit for recording a lean or a notice of lean if you’re a condominium association is that it just informs the owner that you’re you mean business. Their property is now encumbered uh for the whole world to see by that unpaid amount that’s owed. Let’s now focus on some important requirements that must be followed when preparing and recording an HOA lean in Indiana. This is very specific Indiana law in this point. So, if you’re watching this video and your associations in a different state, this part probably won’t apply to you. Maybe some of the broad concepts will, but not the details. This is very specific Indiana law. So, for example, in Indiana for HOAs, the the lean um that the prop that that is encumbering the property um only takes effect when the actual lean documents recorded. Uh so, you don’t want to wait to prepare a lean. The lean doesn’t automatically spring into existence for HOAs. you need to uh actually record something in the land records and that that document needs to align with the applicable requirements. So this is really important. Uh this is also important because you want to make sure that if the property is about to get sold that the documents recorded so that the if a new owner buys the property they can be jointly and severally liable for the debt assuming it’s recorded before the sale takes place. It’s also important to note in Indiana there are time constraints related to the recording of leans. Um, and you need to make sure there’s big consequences if you’re not being mindful of those time constraints. For example, a foreclosure complaint cannot be filed earlier than 90 days before the lean is recorded with some exceptions. Right? So, if another party forces the association to do so, then there’s language in the Indiana statutes that permits filing the action earlier, but typically it’s 90 days. Also, once a lean is recorded, the the clock the clock starts ticking for when the association has the ability to file a foreclosure complaint. If they don’t do it timely, the lean becomes void. There are also specific requirements for how HOA leans are to be prepared. It needs to include the name and address of the HOA. It must also include the address and the legal description of the property that is going to be subject to the lean. You must also include the name of the owner of the property that is subject to the lean as well as the amount of the lean. Additionally, you need to make sure that it is signed that the lean is signed by an officer of the HOA and appropriately acknowledged with the proper language for the acknowledgement. As you can tell, there are a lot of particulars that the association needs to get right in order to have a proper lean recorded, which is why it’s often very helpful to have a law firm involved in helping make sure that the lean is properly prepared and recorded. Now, condominium leans in Indiana are different. They’re subject to a different part of the Indiana code. So, they’re they’re they’re just very different. The a major difference is that condominiums enjoy an automatic lean. So, that the lean springs into existence when an assessment goes unpaid. You don’t technically have to record a document to have a lean. Now, it’s a very good idea to go ahead and file a notice of lean. Again, for the reason some of the reasons we talked about before it um a big one is that closing firms uh they see those things. They see the notice of leans and it helps better ensure that the lean does get paid if there’s a refinance or a sale of the property. And for that reason, I strongly encourage condominium associations to go ahead and have notice of leans prepared and recorded. They’re inexpensive, uh, relatively speaking, or they should be, and it helps ensure that people are aware of the incumbrance. Now, I’ve been saying the word recorded a lot or recording. Um, let’s briefly take a moment to talk about what it means to have something recorded, right? So, a document is recorded when it’s provided uh to a county’s recorder’s office for processing. They’re going to place it in the land records. If it’s accepted, they’ll mark the document with the date is recorded and make it available to view as part of, you know, for anyone to view as part of the land records. There are two ways to submit a document for recording. The traditional old school way is to go to go in person or mail the original document to the recorder’s office. than the in the old days they’d have a physical stamp to to record it to mark it as recorded. However, um the the more common way to do it now is to have the document e-recorded. Uh this has become increasingly the preferred method around the nation. It’s faster. Um it just makes more sense to do it electronically and that’s what a lot of counties have moved to, including Hamilton and Marian County and other counties in Indiana. Now, let’s talk about what happens when a delinquent owner actually reaches out and says, “Hey, I want to enter into a payment plan during this pre-litigation phase.” Like we we’ve previously talked about, um, it’s important to treat owners in the same way or similar way as other delinquent owners. So, you want to make sure that that during the settlement negotiation about trying to get this debt resolved, whether it’s a payment plan or a uh just a settlement payment, that it aligns with uh your collections policy. with any sort of settlement, payment plan, whatever, it should be in writing. Um, this is important to avoid confusion between the parties. Uh, because the requirements of what needs to be done to resolve this matter are in writing so that people can review back to it if needed. And worst case scenario, it’s if it’s signed by the parties, it’s potentially legally enforceable if you have to take it to court. There are things that are important to put in a payment plan or some sort of settlement agreement include like when payments are due, how payments should be sent, how payments can be made, can it be made with certified funds, personal check, ACH, those sorts of things. Um other things to talk about is, you know, um what happens when there’s a failure to timely make your payment, right? Are they is there a cure notice that needs to be sent out like to let the owner know they’re delinquent? These sorts of things are important to ensure again there’s not ambiguity between the parties about what their relative um obligations are pursuant to the terms of the payment plan. Now given all this work that we’ve been talking about like what happens next. One hopefully the debt gets paid off. The owner comes forward. They want to pay off the debt. Great. If that happens then there’s going to be a lean release and you’re going to be done with it if there is a lean file. two, the owner does not pay off the debt, at which point the association will need to to figure out if it makes sense to move forward with litigation or strategically if it should wait a year, you know, come up with a game plan. Finally, one other thing that could possibly happen is the owner could file for bankruptcy. This is pretty uncommon at the pre-litigation phase, but it does happen. If that occurs, then you’ll want to make sure that the association takes part in the bankruptcy proceeding. oftentimes it’s helpful to have a law firm involved so they can monitor the bankruptcy proceedings um to try to advocate on behalf of the association if the matter is goes to bankruptcy. It’s a very important as we talked about before hopefully a lean’s been recorded prior to the bankruptcy filing because that’ll be incredibly helpful um particularly if it’s a chapter 13 bankruptcy proceeding which if you want more information on that please watch our video on bankruptcy filings. Well, thank you for taking time to watch this video on the pre-litigation collections for HOAs and condominiums in Indiana. If you’d like to learn more about other community association topics, please feel free to check out our other educational videos. Regardless, I just want to say thank you for taking the time to watch this video, and I hope you have a great day.
Radon
Restrictions & Enforcement
(Uploaded 04/24/2026)
Transcript
[THIS TRANSCRIPT WAS CREATED USING YOUTUBE’S TRANSCRIPT FUNCTION. IT MAY CONTAIN ERRORS.] Hi everyone, I’m Evan Conroy with Conroy Law. Today we’re going to discuss radidon and its impact on community associations. What is radon? Radon comes from the natural breakdown of uranium found in ground throughout the United States.Radon gas can get into any type of building and can travel up through the ground and enter into homes through the flooring and foundation. High concentrations of radon can cause cancer. Unfortunately, you cannot smell, see, or taste radon. And so, special tests have to be used to see if dangerous levels of radon are in someone’s home. There are various types of radon testing which can be divided into two broad categories, short-term and long-term test. Short-term testing equipment is placed in a home from 2 to 90 days, whereas long-term testing equipment is going to be left in a home for over 90 days. Often times, the initial test performed for a home’s radon levels will be that short-term test. If the radon detected from that short test is greater than what the EPA says is safe, then it’s probably a good idea to do a long-term test. This is because radon levels tend to vary from day to day and season to season. And so one test showing high levels of radon may not accurately show the average amount of radon typically found in the home. If additional testing confirms that there are high levels of radon, the next step is to explore how to reduce radon levels. Also, if you’re in a community association with common property near the affected area, you should figure out who is responsible for having the remediation work done. It’s not always intuitive. For owners of single family detached homes, the burden will generally fall on the affected owners as they will usually be responsible for maintaining and repairing most if not all the structures on their property. However, since every set of governing documents is different, a homeowners association board approached by concerned owners should confirm that the association is not responsible for the mitigation work by reviewing their governing documents regarding maintenance and repair covenants. For town home style developments and condominiums, you’re definitely going to need to review your governing documents to figure out who is responsible for reducing radon levels. This makes sense given that these types of community associations are generally responsible for maintaining and repairing more of the property within the condominium or community development and the units are closer to one another. For example, the association would very likely be the party responsible for mitigating high radon levels found in the common elements or the common property such as within crawl spaces maintained by the association. The association is not always responsible for the mitigation cost for these types of communities though. If elevated levels of radon gas are found within the owner’s unit and the association did not cause the increase in radon gas by failing to address cracks or defects in the foundation or other structural components that the association may be required to maintain, then the owner will likely be the party that will ultimately be responsible for paying for the mit mitigation cost. This may seem counterintuitive as the gas may have passed through the building materials that fall under the association’s maintenance responsibility before entering the unit. However, again, assuming those structural components are not damaged in a state of disrepair or were defectively constructed, there likely would have been nothing the association could have done to prevent the underground natural process of the radon exiting the soil and entering the building. Additionally, governing documents often provide that the owner is responsible for maintaining all portions of the unit’s airspace. Consequently, the owner in such a case would likely be responsible for the mitigation cost. That being said, the association’s board should still thoroughly review its governing documents to confirm responsibility. The board should also review the contractor’s reports to ensure that the radon gas is not coming from property maintained by the association and the radon is not present in the unit due to association’s failure to repair or maintain common elements. The association should also take strides to ensure that high levels of radon gas are not also found on or around the common elements or common property under the association’s authority. If so, the association’s board should explore reducing the radon levels. Now, let’s talk about fixing the problem of having high levels of radon. For town home style developments and condominiums, the assoc association should work with the affected owner as the mitigation method will likely require modification of the common property. Like other types of repair work, the association should get multiple quotes to ensure a cost-effective option is chosen as there can be more than one mitigation option available. In some instances, a simple ventilation system can be installed to vent the gas out of the unit. By working with the affected owner through the mitigation process, the association will help those occupying the affected unit avoid adverse health effects associated with exposure to high radon levels, help ensure that the unit remains marketable, and help ensure that the mitigation work does not have a negative impact on other units. Additionally, it will also help the association be prepared in the event another unit or portions of the common elements or common property are found to have high levels of radon. In the event that high levels of radon are found throughout the community or if the parties cannot resolve the issue amicably, the association should consult with an attorney experienced in such matters. The association should also consult with legal counsel if its board becomes aware of high radon levels within a unit that are not being timely addressed by the affected owner as a proactive approach by the board may help limit the negative future effects of the high radon levels on the development. Working together, owners and their associations can often resolve such matters without litigation or ongoing hard feelings between the neighbors. Thank you for taking time to listen to our video on radon and its impact on community associations. I hope you have a great day.
Bankruptcy
Collections
(Uploaded 04/30/2026)
Transcript
[THIS TRANSCRIPT WAS CREATED USING YOUTUBE’S TRANSCRIPT FUNCTION. IT MAY CONTAIN ERRORS.] Hi everyone, my name is Evan Conroy. I’m an attorney at Conroy Law. This video is an introduction to bankruptcy law and how it affects community associations. First, let’s go over what people typically mean when we say someone filed for bankruptcy. Bankruptcy laws are mostly federal laws that are intended to allow debts to be collected by having debtor’s assets distributed among creditors while preserving a debtor’s ability to have a fresh start. Essentially, bankruptcy law is intended to address two competing interest. One, creditors want to get paid, and two, debtors want a fresh start. The bankruptcy code is divided into chapters. This is why you will hear uh people say things like chapter 7 or chapter 13 bankruptcy. Chapter 7 and Chapter 13 bankruptcies are in fact by far the two most common types of bankruptcy filings that community associations have to deal with. Another far less common type of bankruptcy filing for community associations would be what’s called a chapter 11. A chapter 7 bankruptcy case is likely what most people think of when they think bankruptcy. This is a this case is a type of liquidation. And what that means is that all the debtor’s assets that are not protected from liquidation are collected by the bankruptcy trustee. they’re sold and the proceeds from the sale are distributed to creditors that have filed a proof of claim. The reason some of the assets are protected from liquidation is to per permit the debtor to have a fresh start after the bankruptcy case. Unfortunately, people that are eligible to to file chapter 7 bankruptcy cases don’t have many assets. So, in practice, typically u creditors don’t get paid in a chapter 7. At the end of the bankruptcy case, the court generally enters an order of discharge which prevents creditors from seeking to collect the debts. Technically, there are certain types of debts that cannot be discharged, but community association assessments and related charges are not one of those types of protected debts. There is some good news for community associations having to deal with the Chapter 7 filer. First, many homeowners are not eligible for Chapter 7 because they are too well off. Also, a bankruptcy discharge does not include debt that arises after the discharge. Additionally, so long as there’s a lean on the property prior to a bankruptcy case being initiated, generally a lean will survive unaffected by a bankruptcy case, allowing the association to use its lean rights after the discharge. A chapter 13 bankruptcy case is different. It involves a payment plan being monitored by the court and the bankruptcy trustee. The owner keeps all their assets and rather instead pays their disposable income to the trustee and the trustee disperses the payments according to the terms of the chapter 13 plan. The payments are not evenly distributed though. Secured creditors, those creditors with their debts encumbering the owner’s property, get paid first and typically are paid in full. Unsecured creditors get paid whatever is left over, if anything. This is why it’s so important to have a lean recorded before the owner files a bankruptcy petition. Now, let’s go over the folks that will be involved in the bankruptcy case. There’s the debtor, which is the party that owes the money and is seeking a fresh start. There are the creditors that are owed the money. They can be further divided into secured and unsecured creditors. If you are a creditor, you definitely want to be treated as a secured creditor. Then there’s the trustee whose job it is to manage a debtor’s estate during the bankruptcy proceeding. And then there’s also the judge who enters rulings that affect the bankruptcy proceeding, including whether it’ll move forward or be dismissed. Before we go any further, let’s discuss the three things that have the largest impact on community associations when discussing bankruptcy proceedings. They are the automatic stay, property of the bankruptcy estate, and the discharge. The automatic stay essentially bans all collections work for the pre-etition debt. This includes things like sending demand letters, filing leans, continuing litigation, scheduling a foreclosure sale, continuing garnishment work, turning off access to community property, as well as any other type of active collections work. It takes effect immediately when the bankruptcy petition is filed. It protects the property of the bankruptcy estate. And there are some ways that however that the court could be asked to lift the automatic stay if the debtor is not doing what they’re supposed to be doing. However, the general rule is all collections work for the debt owed at the time the bankruptcy case was started is prohibited. Now, property of the estate. Property of the estate includes all the debtor’s legal and equitable interest in property when the bankruptcy petition is filed. Anything that is property of the state is going to be off limits for seeking to collect or exercise control over. For community associations, this means that both the debtor’s money and the property in the community is essentially offlimits during the bankruptcy case. A bankruptcy discharge is a court order that stops the debtor from being personally liable for debts. It’s the primary reason why debtors start the bankruptcy process. They want the discharge so they are no longer personally responsible for those debts that were incurred at or before the time of the bankruptcy. This would include any assessments and other charges owed to the association when the owner filed their bankruptcy petition. Generally, it only affects personal liability and does not affect the association’s lean and foreclosure rights. The court is typically going to grant a discharge at the end of the bankruptcy case. This is assuming that the debtor complies with bankruptcy law. If the debtor fails to do something they are supposed to, chances are the bankruptcy case will instead be dismissed without a discharge. This means that the association can still seek the debts owed at the time the bankruptcy petition had been filed by the owner. That pre-etition debt, they can still go after assuming there’s a dismissal without a discharge. Now, what can a community association do to protect itself? First, if you’re an HOA, it’s incredibly important to record that lean. You need to record the lean prior to the case being initiated. And because of that, community associations um not knowing when a bankruptcy will be filed should have in their collection policy that that the lean would be filed near the beginning of the collections process. As we discussed before, leans are important because the creditor’s claim will be given better treatment in the chapter 13 bankruptcy case. The association’s lean rights will typically not be discharged for assessments and related charges owed before the bankruptcy case was initiated. That’s true for both chapter 7 and chapter 13 bankruptcy cases. There is however one exception regarding lean rights and that is when a debtor involved in a chapter 13 case moves to remove the secured status of a junior lean holder. They do it under a u using the authority provided in section 506 of the bankruptcy code. Uh put another way the debtor um argues that there is more debt encumbering the property than what the property is actually worth. This is called lean stripping or 506 valuation for community associations. This happens when the outstanding mortgage is greater than the uh the market value of the property. If the debtor is successful, then the junior lean holder uh in this case the association would have its claim be treated as unsecured instead of secured. This reduces the chance that the association’s claim will ultimately be paid. Lean stripping is a much bigger threat to communities associations when the real estate market takes a downturn, and that was seen in the Great Recession from 2007. Thankfully, it is far less common in the 2020s when property values are often much greater than the purchase loan amounts. However, it’s still a good idea for associations to actively monitor bankruptcy matters to watch out for things like lean stripping. Thank you for watching this video on bankruptcy laws and their effects on community associations. If you’d like to learn more about other community association topics, please check out our other educational videos. Thanks again and I hope you have a great day.
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