Condo Lien Strip in Chapter 13 Allowed But…

Fort Lauderdale Bankruptcy Division Judge Olson has recently entered a written opinion allowing a lien strip of pre-petition association fees in chapter 13.  In re Campbell, Case No 12-35903(March 31, 2013).  The court discussed that its decision is consistent with other cases in both the Southern District and Middle District of Florida.  Note that the same issue is currently before Judge Raymond Ray with the same attorney for a different association.

A recent state court decision is important on the issue of foreclosures by condominium associations.   Aventura Management, LLC v Spiaggla Ocean Condominium Association, Inc. , 105 So. 3d 637 (3rd DCA  January 23, 2013)  In this case, the condominium association first completed its foreclsoure and obtained title.  Then, the bank foreclosed.  A third party bidder obtained a certificate of title as the successful bidder at the bank’s foreclosure sale.   The issue was whether the third party bidder was still responsible for the association fees due prior to the completion of the bank foreclosure process.   The trial court found for the bidder, but the court of appeal reversed the trial court.   The Court held in a split decision that the successful third party bidder was still responsible for association fees from prior to the bank’s foreclosure sale.  The condo lien essentially survived the foreclosure.

This decision is being used to argue that the condo lien cannot be stripped in a chapter 13 because the third party bidder still owes association fees even though the bank who foreclosed is out of the picture.  However, the state court case is only dealing with a third party bidder who takes title after the condominium association has already taken title in its own foreclosure. More broadly, the case only involves what happens after a Florida foreclosure, not as in Fort Lauderdale chapter 13 while the debtor still owns the property.  While the debtor owns the property,  the association is typically subordinated or inferior to the first mortgage.  The state court decision is not relevant to the bankruptcy issue.  In chapter 13 bankruptcy, when there is no value to the underlying secured claim,  then that lien can be stripped.    I do, however, have  concerns about Spiagga, and invite any comments.


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