BILL VAUGHAN, SBN 118654
Law Office of Robert McCoy & Associates, P.C.
204 N San Antonio Avenue
Ontario, CA 91762
Telephone: (909) 467-1169
Facsimile: (909) 494-7600
Attorney for Plaintiffs,
CLIENTS
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
|
CLIENTS
Plaintiffs, vs.
HOA, a home owners association,
Defendant. |
Chapter 7 Bankruptcy No.:
Adversary Case No.:
MOTION FOR SUMMARY JUDGMENT |
COME NOW PLAINTIFFS, CLIENTS, and request this court to apply the law to the undisputed facts in this case and to determine therefrom that Plaintiffs are entitled to judgment in their favor as a matter of law.
This SUMMARY JUDGMENT MOTION is based on the accompanying STATEMENT OF UNDISPUTED FACTS, the accompanying MEMORANDUM OF POINTS AND AUTHORITIES, the attached DECLARATION OF CLIENT, the attached DECLARATION OF ATTORNEY BILL S. VAUGHAN, the Documents and Pleadings on file in the underlying Bankruptcy filed on DATE. All documents and matters of which that Court may take Judicial Notice, the Documents and Pleadings on file in Defendants Superior Court Case, Any future documents filed in this matter, Oral Argument, as well as any other allowable information as the Court deems applicable and proper.
SUMMARY OF THE FACTS OF THE CASE
Prior to March xx 2007, Plaintiffs were the title and possessory owners of the subject property, and owned the subject property with co-owner JOINT TENANT all as joint tenants. The subject property is within the boundaries of Defendant’s Home Owners Association and subject to its assessment of dues pursuant to a valid set of CC&Rs.
The subject property was encumbered with a First Mortgage and Trust Deed for approximately $280,000 and a Second Mortgage and Trust Deed of approximately $125,000 and both were, supported by trust deeds. BANK held the First mortgage and the combined total of both loans was an amount which was more than the fair market value of the property as of March xx, 2007.
In March xx, 2007, Plaintiffs moved out of the subject property and sent a letter to the First Trust Deed holder BANK, giving notice that Plaintiffs were surrendering the property to BANK., along with a set of keys to the property. (see Exhibit “C”) Approximately two weeks later, believing they had accidentally left an item at the subject property, Plaintiffs went to recover it and discovered that the locks on the doors of the subject property had been changed (seeExhibit “I” –Declaration of CLIENT).
On Dec. xx 2007, Plaintiffs herein filed a Petition for Chapter 7 Bankruptcy wherein they named, among others, Defendant Home Owners Association, as a creditor for past due Association Dues. In that Petition and its schedules, Plaintiffs gave notice that they were surrendering the subject property. (see Exhibit “A”) Plaintiffs’ Bankruptcy was discharged on May xx, 2008, and notice was sent to all creditors, including the First Trust Deed holder BANK, and Defendant herein HOA.
On June xx, 2008, Defendants filed with the County Recorder a “NOTICE OF DELINQUENT ASSESSMENT” (approx 3 weeks after discharge) for “$930.01 and such future sums which may accrue under the terms of the CC&R’s”. (see Exhibit “D”)
On July xx, 2009, HOA filed with the County Recorder a “RELEASE OF DELINQUENT ASSESSMENT” referencing the notice filed on May xx, 2008. The “RELEASE OF DELINQUENT ASSESSMENT” was signed and dated July xx, 2009. (see Exhibit “E”)
Title to the subject property remained in the name of Plaintiffs until July, 2009 (approximately thirteen months after they received a discharge) when BANK foreclosed on the property and changed the title owner by filing the sale with the County Recorder.
Over that thirteen month period, Defendant herein, HOA, continued to make numerous claims for past due association dues against Plaintiffs. Plaintiffs repeatedly informed Defendant that they had surrendered the property to BANK. as well as through the Bankruptcy petition, that they no longer had any ownership in the subject property and therefore they were not liable for the association dues. (see Exhibit “B”)
On March XX, 2010, Defendant herein, Chapman Heights Community Association, filed their Superior Court lawsuit claiming that plaintiff owed unpaid association dues ($59 per month) for the period of Dec. xx 2007 through July xx, 2009 (19 months), plus late fees, reasonable costs of collection and other charges lawfully assessed and imposed for a total of $4,144.23 plus attorney fees and costs to be added thereto. (see Exhibit “F”)
On April XX, 2010 Plaintiffs filed their answer to HOA’s Superior Court complaint. Plaintiffs’ Answer to the Superior Court Complaint included the Affirmative Defense that the case was barred by the Permanent Injunction of the Bankruptcy Court.
On April XX, 2010 Plaintiffs filed with the Superior Court a “REQUEST FOR JUDICIAL NOTICE OF BANKRUPTCY FILED AND DISCHARGE OF DEBT FILED BY CLIENT”.
On October XX, 2010 Plaintiffs filed their motion to Re-Open the Bankruptcy and on October XX, 2010 the motion was granted. On November XX, 2010 Plaintiffs filed their Adversarial Complaint.
November XX, 2010 Defendant HOA filed its Answer to the Adversarial Complaint.
SUMMARY OF CASE LAW AND FACTS
PERTINENT TO THIS CASE.
A. THE ISSUE
This case has a unique fact pattern that puts it squarely in the middle of case law that is in controversy throughout the United States.
The issue here is whether and when the surrender of real property by a Chapter 7 Bankruptcy Petitioner, who has nothing further to do with the property, severs the petitioner’s relationship to the property so as to cut off any further liability for Home Owners’ Association dues that become payable after the Bankruptcy is discharged, at least in a “Title State” such as the State of California.
It should be recognized from the start that this issue is before us because of the conflicting rights and interests between the Trust Deed Holders, the Homeowners Associations, and the Bankruptcy Petitioners.
The Bankruptcy Petitioner wants what is guaranteed to him by the bankruptcy code and therefore what is his right, “A Fresh Start”.
The Homeowners Association wants what is guaranteed to them and what is their right, the right (running with the land) to assess expenses for maintenance against a property owner.
And the First Trust Deed Holders want what is their right, to not be forced to take possession or title or both of real property unless and until they desire to do so.
The problem is that those rights are conflicting and therefore someone must be made to give in, at least to a degree.
The homeowners association knows that it can collect its dues as a personal liability of the owner, so long as he has not “relinquished all rights” to the property. The homeowners association also knows that it can place a lien on the property to collect its dues, but that lien will be erased if there is no equity in the property and the lender forecloses.
The lender knows this too, and in addition, knows that, so long as there has been no foreclosure, the lender is not liable for those dues. So it is in the best interests of the lender to put off any foreclosure, as long as possible so as not to be liable for HOA dues from that point forward. In addition, the lender knows that accepting a “Deed In Lieu of Foreclosure” would move its first lien position to a position behind any other liens on the property, whereas a foreclosure would cause their lien to be paid off and would wipe out any other liens.
And more importantly, the homeowners association (HOA) wants special treatment as a creditor in the bankruptcy laws so as to be able to collect the dues that fall between the bankruptcy and the foreclosure from the prior owner. In other words the HOA wants to be one of those few special creditors (such as taxes, student loans, etc.) that don’t lose anything as a result of a bankruptcy, just like any regular creditor would.
B. PRIOR CODE AND CASE LAW
The issue itself is not new, and prior to the 2005 changes to 11 U.S.C. §523(a)(16) and to 11 U.S.C. §521(a), the cases throughout the country were divided into three groups, as was quite succinctly explained in In re Christopher N. Eno, 269 B.R. 319, 47 Collier Bankr. Cas.2d 383(2001).
“Courts reviewing this issue are quite evenly divided. About half of those courts find that those assessments accrue post-petition and, therefore, their collection is not barred. (citing River Place East Housing Corp v. Rosenfeld (In re Rosenfeld), 23 F.3d 833 (4th Cir. 1994) et. al.)…..The other half conclude otherwise and hold that all assessments are part and parcel of a pre-petition arrangement and therefore are discharged by the bankruptcy. (citing In re Rosteck, 899 F.2d 694 (7th Cir. 1990) et. al)….”
The Eno court went on to say –
“As if two ‘halves’ were not sufficient, a few courts have endeavored to ‘split the baby’ and have concluded that future collection efforts ‘depend’ on post-petition circumstances, such as continuing occupation by the debtor. (citing Matter of Pratola, 152 B.R. 874, 877 (Bankr.D.N.J. 1993) et. al.) …In this opinion, I embrace all three categories.”
The Eno court explained that, although HOA dues are an entitlement belonging to the HOA because of a covenant running with the land, thereby supporting those courts that hold that HOA dues may still be collected post petition, the decisions concluding that the HOA dues obligation ceases with the discharge turn on the broad definitions attributed to debt, and therefore conclude, “quite correctly”, that the continuing obligation to pay assessments is discharged. And – “Those cases alluding to the circumstance of continuing possession as a factor in determining the dischargeability of the obligation, appear to rely on equitable grounds as a basis for their decisions – a sort of moral obligation based on the ‘use and occupation’ of association services.” In re Christopher N. Eno, 269 B.R. 319,at 321
And finally the Eno court concluded that it was the personal obligation of the debtor that is dischargeable based on his disassociation with the property. The court further found, however, that the assessments still constituted a lien on the land and therefore the HOA could still exercise its rights to foreclose on the property to collect any assessments due. In re Christopher N. Eno, 269 B.R. 319, at 323.
The Eno court ended its decision stating:
“This ruling recognizes the primacy of Pennsylvania’s view as to property interests while continuing to further the significant bankruptcy goal of enabling the debtor to obtain a fresh start. Such conclusion is also consistent with the rather limited exceptions to discharge in this area now included in §523(a)(16) of the Code.”
C. PRESENT CODE AND CASE LAW
In 2005, congress added the amendments to 11 U.S.C. §523 and to 11 U.S.C. §521 in its attempt to clarify the exceptions to discharge of HOA assessments. Unfortunately, the clear meaning of §523(a)(16) and 11 U.S.C. §521(a) was still not readily understood as it applied to those Chapter 7 petitioners who completely surrendered real property, and especially as to how it was to coexist with the different state laws and views regarding real property interests, as demonstrated in the dicta of In re HEFLIN,(slip copy, 2010 WL 1417776(Bkrtcy.E.D.Va) (April 1, 2010)
“The court is aware of anecdotal complaints by attorneys representing debtors that mortgage holders, even after being granted relief from the automatic stay, often delay many months in conducting foreclosure sales and sometimes do not immediately record foreclosure deeds when they have bid the property in at sale, leaving chapter 7 debtors saddled with substantial post-petition condominium or homeowner association assessments even though they may have moved out of the property many months before.”
The new amendments made to 11 U.S.C. §523 and 11 U.S.C. §521 read in pertinent part as follows:
“11 USC § 523. Exceptions to discharge
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt--
(16) for a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor's interest in a ….. lot in a homeowners association, for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest in such unit….”
11 USC § 521. Debtor’s duties
…….
(2) if an individual debtor's schedule of assets and liabilities includes debts which are secured by property of the estate--
(A) within thirty days after the date of the filing of a petition under chapter 7 of this title or on or before the date of the meeting of creditors, whichever is earlier, …. the debtor shall file with the clerk a statement of his intention with respect to the retention or surrender of such property ….;
(B) within 30 days after the first date set for the meeting of creditors under section 341(a), …. the debtor shall perform his intention with respect to such property, as specified by subparagraph (A) …;
In the instant case, Pursuant to 11 U.S.C. §521(a) Plaintiffs had the right to “Surrender” the property and if he did so, he had the obligation to act on that decision within 30 days. Plaintiffs herein, having already moved out of the property months previously, were left with the only thing further to do to act on that decision was to cooperate with the trustee and the lender, if needed, in transferring the property. This they stood ready to do if asked.
Defendants in this case assert that the HOA dues sought by them fall within the description of “11 USC § 523(a)(16) and therefore are not discharged. Plaintiffs disagree. So the question then boils down to the definitions of “legal ownership”, “equitable ownership” and/or “possessory ownership” as set forth in 11 USC § 523(a)(16). In the instant case, all parties agree that as of the date of their bankruptcy petition, wherein they surrendered the property (having already moved out months before), with the subject property being up-side-down financially, Plaintiffs had no “Equitable ownership” or “Possessory Ownership” in the property. At that point Plaintiffs only connection to the property was that their names were still on the “Title” until the lender got around to changing it by a deed or a foreclosure. And remember, the lender is under no obligation and is in no rush to do so. So the issue really is the definition of “Legal Ownership/Title”.
Barron’s Real Estate Dictionary: says that “Legal Title” is:
“A collection of rights of ownership that are defined or recognized by law or that could be successfully defended in a court of law. Example: Legal title is vested in the mortgage lender in Title Theory States although the real owner has constructive ownership.” [emphasis in original]
And Barron’s Law Dictionary: states that “ownership” is:
“ones exclusive right of possessing, enjoying, and disposing of a thing. .. The term has been given a wide range of meanings, but is often said to comprehend both the concept of possession and, further, that of title and thus to be broader than either” [underline in original]
When it comes to Deeds of Trusts, California is a “Title theory” State. [Bank of Italy Nat. Trust & Sav. Ass'n v. Bentley 217 Cal. 644, 655, 20 P.2d 940, 944 (CA. 1933)] So what does that mean?
In California, as a “Title Theory State”, when Plaintiffs purchased the subject property, they retained only possessory ownership and equitable ownership and gave “Legal Title” to the Lender, along with the right to sell and take possession of the property if the loan was not paid. Those rights given to the lender were established by signing the loan contract and the “Trust Deed”, which was recorded with the county recorder.
It is important to distinguish and understand the role of the county recorder in this or any transaction. The county recorder maintains documents certified to be representations of the true facts of the transactions and events recorded on them, and nothing more. In other words it is not as though the county maintains a book or registry wherein the legal owner with or without right to possession is listed and as such whoever’s name is put in that registry is the one with those rights, and just being listed there makes it judicially enforceable. NO. That is not the case.
Recording deeds and trust deeds and other documents with the county merely makes a certified record of those documents and the transactions and events that they represent. It is those documents and those transactions that actually declare and grant the rights contained in them. Not the recording itself.
As defined above, “Legal Ownership” is not the same as “Legal Title”. “Legal Ownership” is said to “comprehend both the concept of possession and, further, that of title and thus to be broader than either”. (Barron’s Law Dictionary)
Therefore, in the instant case, “Title” alone is not sufficient to maintain or establish “Legal Ownership” as set forth in 11 USC § 523(a)(16), so unless Plaintiffs had some other connection or received some kind of benefit from having their name still on the “Title”, the HOA dues claimed by Defendant do not fit within the exceptions of 11 USC § 523(a)(16).
SO THE LOGICAL QUESTION IS -- WHO WAS THE “LEGAL OWNER” OF THE PROPERTY AFTER PLAINTIFFS’ DISCHARGE???
Under California law, all real property has an owner (California Civil Code § 669). Applying the definitions explained above it would seem clear that when Plaintiffs turned over the keys to the lender, and surrendered the property, abandoning all rights thereto, because the lender already had “Legal Title”, the lender then became the “Legal Owner”. And as the “Legal Owner”, it was the lender who received the benefit of the homeowners association care and services, insurance policies, and oversight. as the “Legal Owner”, the lender would then be the beneficiary of any increase in value of the property. As the “Legal Owner”, the lender then had the right to sell, lease, rent, improve or destroy the property. Plaintiffs were no longer the “Legal Owners”
D. LOCAL APPLICABLE STATE LAW
Which brings us to Cerro De Alcala Homeowners Association v. Harry Burns, 169 Cal.App.3d Supp. 1, 216 Cal.Rptr. 84 and to California Civil Code §1466.
The case of Cerro De Alcala Homeowners Association is a California Appellate Court case, and is not a bankruptcy case, but it is the Non-Bankruptcy controlling and decisive case in California for determining California’s views and laws specifically regarding California Civil Code § 1466 as it applies to real property. In Cerro the Defendant, Harry Burns, after being advised of foreclosure proceedings, and as a result, vacating his condominium property, claimed to be no longer liable for HOA assessments while waiting for the foreclosure. His claim of non-liability was based on California Civil Code §1466, which states in pertinent part:
“no one, merely by reason of having acquired an estate subject to a covenant running with the land, is liable for a breach of the covenant … after he has parted with it or ceased to enjoy its benefits”.
The court determined that the key issue was “whether a vacating of the premises constitutes either a parting or ceasing of enjoyment of the property (as described in Civ.Code §1466).”
The court found that a mere vacating of the premises does not constitute a “parting or ceasing of enjoyment of the property”. The court went on to explain the difference between merely “vacating” a property and actually “abandoning” all rights of ownership. The court concluded by stating:
“In order for an owner to abandon a unit in a community association so as to divest himself of the duty to pay assessments, the owner must give the association record notice of the abandonment through the recording of a quitclaim deed, notice of abandonment or other recorded instrument which makes it clear that the owner is relinquishing all of the rights of ownership. Thus, vacating of the premises (mere relinquishment of possession) does not release a homeowner of liability arising from maintenance assessments becoming due.” (italics in original)
The Cerro court reasoned that the owner continued to benefit from the HOA’s maintenance and repair of the property as well as benefiting from a HOA general insurance policy, and “Also, at all times prior to the transfer of title, respondent was entitled to lease, encumber, assign, exchange or sell the property as well as reoccupy the unit at no expense.”
It should be noted here that the Cerro De Alcala court did not say that the only way to give notice to the homeowners association was by recording a document with the county recorder. In fact the court made it quite clear that the purpose of recording a document of intent was to do something “which makes it clear that the owner is relinquishing all of the rights of ownership.”
Merely recording some kind of document with the county recorder stating their intent to relinquish all of their rights to the property would not in this case have actually made their intent known to Defendant, HOA unless someone from the association happened to do a search at the county records. Obviously, recording a document merely places that document in a position to be seen, if the prospective seer goes there to search it out and see it.
In this case, prior to filing their Bankruptcy Petition, Plaintiffs notified the lender, BANK., by letter of their abandoning of the property and of their intent to relinquish to BANK. all rights to the property when they sent them keys to the building. Plaintiffs also notified Defendant, HOA, by email and verbally of their abandoning of the premises and of sending the keys to BANK, and thus of their intent to relinquish all rights to the property. In addition both BANK and HOA were notified by the filing and recording the official bankruptcy petition documents stating that Plaintiffs were surrendering the property to the First Trust Deed holder. And finally even after the bankruptcy discharge Plaintiffs gave actual notice to Defendant, HOA, by email and verbally of their abandoning of the premises and of sending the keys to BANK, and thus of their intent to relinquish all rights to the property. Clearly it would not have made any difference whatsoever had Plaintiffs “recorded” a notice of their intent to relinquish all property rights with the county recorder.
Also, after they surrendered the property in their petition, Plaintiffs herein were NOT “entitled to lease, encumber, assign, exchange or sell the property as well as reoccupy the unit at no expense.” Cerro De Alcala Homeowners Association v. Harry Burns, 169 Cal.App.3d Supp. 1, 216 Cal.Rptr. 84 at 86.,
Therefore, Plaintiffs did meet the requirements for severing their relationship with the property to bring them within the meaning of California Civ.Code §1466 establishing that they had abandoned their rights to the property and had parted with and ceased to enjoy the benefits of the property.
E. COMBINING STATE AND FEDERAL LAW
Now we come to In re FOSTER, BAP No. WW-09-1377-JuHRu. (May 21, 2010)(United States Bankruptcy Appellate Panel of the Ninth Circuit). The Foster case dealt directly with the issue of the discharge exception for debts arising from unpaid post petition Homeowner’s Association dues as it applies to Chapter 13 cases.
However, although Foster was about a chapter 13 case, the court therein thoroughly reviewed and revisited the cases of Rosteck and Rosenfeld, Id. After pointing out that “state law governs the substance of claims.” (citing Butner v. United States, 440 U.S. 48, 57, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979) et.al.) The court concluded that under §523(a)(16) post petition HOA dues do not constitute “claims” or “debts” which can be discharged under a chapter 13 plan, based on the court’s determination that the affirmative covenant to pay HOA dues is one that runs with the land and is not a contract under Washington State law.
The court then went on to say:
“Accordingly, we hold that, as a matter of law, debtor’s personal liability for HOA dues continues postpetition as long as he maintains his legal, equitable or possessory interest in the property and is unaffected by his discharge. In essence, the ‘running’ covenant rule in this case boils down to one of ‘you stay, you pay’ since debtor’s confirmed plan indicates he will stay in his home by curing his prepetition default on his mortgage and maintain on-going payments through his confirmed Chapter 13 plan. [quotation marks in original]
Finally, we observe that congress’ linking of the nondischargeable nature of HOA dues assessed after the order for relief with a debtor’s continued interest in real property under § 523(a)(16) is consistent with the case law that holds the affirmative covenant to pay HOA dues is one that runs with the land. See Rosenfeld, 23 F.3d at 837-38 (noting that the debtor ‘must transfer title to the property, if necessary by a deed in lieu of foreclosure’ in order to terminate liability for HOA assessments); Beeter, 173 B.R. at 122 (noting that debtor’s liability for assessments was an incident of ownership, and only termination of that ownership can bring an end to the ongoing liability).”
Regarding Deeds in Lieu of Foreclosure, the following are excerpts from "Miller and Star" [Miller, Harry D., and Marvin B. Star, et. al., Miller and Starr California Real Estate (3d Ed.), St. Paul, West Group, 2000 (Updated Oct. 2010)]:
Volume 4, Chapter 10:43
Chapter 10. Deeds of Trust and Mortgages
By Edmund L. Regalia, with contributions by Karl Geier and James Tiemstra[FN1]
§ 10:43. Deed in lieu of foreclosure
…a deed in lieu of foreclosure does not necessarily cancel the secured debt FN7]…
Disadvantage to the beneficiary. The major disadvantage to the beneficiary from accepting the deed in lieu of foreclosure is that the title is received from the grantor instead of the trustee by foreclosure. A beneficiary of a senior lien who forecloses the lien receives title free and clear of junior liens; the junior liens are eliminated upon the foreclosure of a senior lien.[FN8] However, a beneficiary who accepts a deed from the trustor in lieu of foreclosure is a successor of the grantor, and the title may be subject to the junior liens if there is a merger of the senior lien.[FN9] …
Effect of trustor's recordation of a deed to the beneficiary. In some cases, a trustor may execute and record a deed to the beneficiary without the beneficiary's knowledge or consent and with the intent to preclude foreclosure. Recordation of a deed raises a rebuttable presumption of the delivery and acceptance of the conveyance by the grantee,[FN11] but the deed does not effectively transfer title if it is not accepted by the grantee.[FN12] …
So, as pointed out above, a deed in lieu of foreclosure was not possible in this case, because it would have moved BANK’s lien from first place to last place after the second mortgage. Clearly BANK would not be so stupid as to accept a deed in lieu of foreclosure in this case. Besides, they didn’t need to. They already had “Legal Title” and the right to possession because the loan wasn’t paid, plus Plaintiffs had already turned over and abandoned all rights, giving them up to the lender.
This is supported by In re CORMIER, 434 B.R. 222, U.S.Bankruptcy Court D. Massachusetts (July 15, 2010). In Cormier the court confirmed that a creditor/mortgagee could not be forced to accept a “Deed in Lieu of Foreclosure”. However, the court also confirmed that the right to “surrender” property in a Bankruptcy is indeed a “RIGHT” that belongs to the petitioner. The court found that any Massachusetts State right of a creditor that interferes with and thereby denies petitioner’s right to surrender the property is preempted by the Bankruptcy Petitioner’s right to surrender the property.
So, In Re FOSTER brings us back to the requirement of terminating “Ownership” to effectively sever any liability for Postpetition HOA dues.
F. APPLICATION OF THE LAW
So the question in the instant case is whether we can integrate California State law with Federal Bankruptcy law to reach the goal of providing a bankruptcy petitioner with “a fresh start”, while applying 11 USC § 523(a)(16) and 11 USC § 521(a) to postpetition Homeowners Association dues.
More specifically, was the purpose and intent of California Civil Code §1466 met when Plaintiffs “surrendered” the subject property and did the other things they did in this case? That is, were the actions taken by Plaintiffs sufficient to sever Plaintiffs’ ties to the subject property enough to relieve them of the obligation to pay HOA dues for the period between the bankruptcy discharge and BANK’s foreclosure?
NOTICE, RECORDED OR OTHERWISE
Although Petitioner/Plaintiffs herein did not record a notice with the County Recorder's Office, the court should find that sufficient notice was provided to Defendant HOA for the following reasons.
11 USC Sec. 521 (a) does not require the debtor to file documents with the County Recorder in order to effectuate surrender. And case law establishes that debtors are required to do what is necessary and cooperate with the lien holder to effectuate the stated intent regarding the property. (see In re RIVERA, 256 B.R. 828, 835, 37 Bankr.Ct.Dec. 43)
A Chapter 7 debtor desiring relief of the personal obligation to pay assessments accruing postpetition to homeowners' associations, should follow the procedures for filing and carrying out the statement of intent to surrender the property within the time limits contemplated by Bankruptcy Code Section 521(2). The debtor should then cooperate with the Chapter 7 trustee, the homeowners' association or other creditors secured by the property to be surrendered, as appropriate, such that the debtor relinquishes possession and ownership of the property within a reasonable time.
The debtor may be held responsible for postpetition assessments, subject to further determination of the Bankruptcy Court, if the debtor deliberately engages in unreasonable delay. A party in interest may address the particular problem with the Bankruptcy Court as necessary or appropriate, if the facts of a particular case create uncertainty whether the debtor remains responsible for postpetition assessments. The debtor's obligation to pay assessments ceases accruing no later than the debtor relinquishing ownership and possession of the property.” (In re RIVERA, 256 B.R. 828, 835)
Here, BANK did not request and certainly would not have wanted the Plaintiffs to file or convey to it a Deed in Lieu of Foreclosure, and even had Plaintiffs attempted to do so, BANK would have rejected it. We know that BANK would have rejected it because BANK would have had too much to lose. BANK would have had to pay the HOA dues after the date of acceptance, and the other junior lien and encumbrance would not have been extinguished on this "upside down" property, but would have been moved in front of BANK’s position.
In the instant case, Plaintiffs gave even better than mere record notice, and Plaintiffs did this on numerous occasions, including prior to the bankruptcy petition, as part of the bankruptcy petition, and after the bankruptcy discharge.
Exactly what kind of notice did Defendant HOA receive in this case?
Plaintiffs herein gave Defendant, HOA, notice that they had surrendered the property and were relinquishing all rights thereto to BANK in the form of: Actual Notice; Legal Notice; Judicial Notice; Public Record Notice; Inquiry Notice; Equitable Notice; and Constructive Notice.
Actual Notice: Plaintiffs gave actual notice to Defendant in their emails and verbal discussions. See exhibits __ and ____.
Legal Notice: The bankruptcy court served legal notice on Defendant when it served the Petition and again when it served the Notice of Discharge.
Judicial Notice: The Bankruptcy court file shows that Defendant was named as a creditor in the Bankruptcy Petition, and that Plaintiff/Petitioner indicated his intent to surrender the collateral.
Public Record Notice: The Petition and schedules filed with the Bankruptcy court are public record.
Inquiry Notice: A debtor, in his bankruptcy schedules, as a matter of law, is required to state his intentions regarding secured collateral. This statement must be made under penalty of perjury, and must be performed within 30 days unless that period is extended. (11 USC Sec. 521 (a)). Thus, Defendant was put on inquiry notice to ascertain the disposition of Debtor's property.
Equitable Notice: Within 3 weeks of service of the Debtors' Notice of Discharge, the HOA recorded a lien with the County Recorder's Office, thereby securing its interest in the property.
Constructive Notice: The property lay abandoned for approximately two and one half (2 ½) years.
Thus, when Plaintiffs gave written notice of abandonment and sent the keys to BANK and informed Defendant, HOA, by email and verbally of their abandoning of the premises and of sending the keys to BANK as well as all of the other notices listed above, pursuant to California Civil Code §1466, Plaintiffs should have been relieved of liability for the homeowner association dues/assessments.
The purpose and intent of 11 U.S.C. §521(a) was satisfied when Plaintiffs filed the petition and exercised their right in giving notice of their intent to surrender the property and then (pursuant to §521(a)) acted upon that noticed intent by continuing to notify anyone concerned that they intended to and had already relinquished all rights to the property, and were standing ready to cooperate in any way needed to complete the property transfer to BANK.
The specific terms of 11 U.S.C. §523(a)(16) make it clear that those exceptions do not apply in this case because, pursuant to the definitions of legal, equitable, and possessory ownership, after the bankruptcy discharge Plaintiffs herein had no benefits, rights, or connections to the property. Plaintiffs had surrendered Possession, Relinquished all rights thereto, and were no longer “entitled to lease, encumber, assign, exchange or sell the property as well as reoccupy the unit at no expense”, and therefore they did not fall within those exceptions to discharge of the Homeowners Association Dues/Assessments.
And finally, as explained above, once Plaintiffs abandoned all rights to the property and gave them up to the lender, BANK then became the “Legal Owner” of the property and responsible and liable for the HOA dues. As such, Defendant HOA is pursuing the wrong person/entity for its HOA dues. Pursuant to California Law, the HOA dues became a personal debt of BANK, and notwithstanding its foreclosure, BANK is still liable for those dues.
Therefore, Plaintiffs urge this court to adopt the reasoning of all of those cases cited above, as well as the analysis and application of those decisions, which we believe leads to the following conclusion.
If a “Title State” Chapter 7 petitioner (such as in California) surrenders real property that has no equity over and above the lien holder’s lien, and the petitioner follows through pursuant to 11 USC § 521(a) and in so doing notifies the homeowners association of his intent to relinquish all rights to the property to the lender, and the petitioner thereafter has nothing further to do with the property, then the petitioner’s final discharge is effective to sever the relationship between the petitioner and the property such that no liability remains to the petitioner for any post petition homeowners association dues/assessments.
And based on that conclusion, this court is urged to find in favor of Plaintiffs herein and Rule that:
1. Plaintiffs discharge actions in this case were effective to sever Plaintiffs connections to the subject property and therefore Plaintiffs are not liable for any postpetition HOA dues; and
2. Defendant was and is subject to the court’s permanent injunction and precluded from any attempts to collect postpetition HOA dues from Plaintiffs; and
3. Defendant violated the court’s permanent injunction precluding it from collection efforts for both prepetition and postpetition HOA dues when it filed its Superior Court case against Plaintiffs; and
4. Defendant be ordered to pay Plaintiff expenses, including Attorney’s fees and costs both in the Superior Court Case and this Adversarial Complaint case; and
5. Defendant be sanctioned for violating the court’s permanent injunction in an amount the court deems just and reasonable.