The MSBA Consumer Bankruptcy Section recently hosted the Second Annual Stanton J. Levinson HOA Institute via zoom. The program focused on substantial issues involving community association claims including an update on dischargeability issues, revesting and surrendering assets through the Chapter 13 plan, plan treatment of association claims, lien avoidance of association liens, and lien recordation issues. The panel also discussed the recent Court of Appeals decision in In re Walker and examined the treatment of timeshares and similar related interests. The presenters were: Erik Fox, Esquire, Rees Broome, P.C.; Rasneek Gujral, Esquire, Rees Broome, P.C.;. Marc R. Kivitz, Esquire, Law Offices of Marc R. Kivitz; Timothy Larsen, Esquire, Oliveri & Associates, LLC; Richard D. London, Esquire, Richard D. London & Associates, P.C.; David B. Mintz, Esquire, Law Office of David B. Mintz, P.C.; Jeffrey P. Nesson, Esquire, Law Office of Jeffrey P. Nesson; William Steinwedel, Esquire, Maryland Legal Aid Bureau; Robert Thomas, Esquire, Chapter 13 Trustee; and Bud Stephen Tayman, Esquire, Bud Stephen Tayman, P.A.
Ms. Gujral began the presentation with an update on the status of the discharge mobility issues that exist with HOA fees. In Maryland, it is the transaction of purchasing the property that creates the obligation and creates the claim, which makes the assessments and obligation dischargeble pre-petition. Currently, it is unclear whether a post-petition pre-discharge amount is dischargeable.
The discussion then turned to timeshares and campgrounds. Maryland has what’s known as the Maryland Real Estate Time-sharing Act, which, among other things, provides for liens if the lien is recorded and states that the lien or the debt can be collected in accordance with the Maryland Contract Leasing Act, which defines “contract” as a real covenant running with the land and includes a declaration or bylaws recorded under the provisions of the Maryland Real Estate Timesharing Act. Arguably, a timeshare interest in Maryland or a campground is going to be analyzed in the same manner as ACOA fees. The panel then debated whether it mattered that a timeshare only constitutes a fractional interest in a property, noting that no case has definitively stated that it does not.
Next, the presenters evaluated issues surrounding lien recordation and the case of In Re Walker. In that case, a homeowner’s association’s filed a claim and considered the entire claim secured. They had a continuing lien, which was a clause in the claim, that said it included all assessments and other charges that came due after the filing of the lien. The homeowner’s association’s position was that nothing in the language specifically said it could not include ongoing assessments. The debtor disagreed and, therefore, filed an objection to the claim. The question of whether a homeowner’s association could have a continuing lien was certified to the court of appeals. The court ultimately ruled that you can no longer assess post-lien interest accrues before the lien is recorded that is noted in the lien. In other words, once a lien is recorded, the amount listed in the lien is final.
They then moved on to lien subordination and avoidance. If a person has both a lien and a loan modification, it can create issues. Some lenders are reluctant to grant modifications, especially if they are out of state, but under Maryland law, a modification takes the place of an original mortgage, so creditors do not lose their priority status. A person who has a lien and is then granted a loan modification has the option of paying off the lien, but often that is difficult. Parties may be able to enter into subordination agreements in which they essentially agree to subordinate their lien to the new modification document.
Mr. Taymen and Mr. Fox pointed out the differences between how Maryland, Virginia, and D.C. handle certain issues. For example, statutory liens in Maryland are considered to be consensual, but in Virginia, they’re not. Parties argue, however, that liens under the declaration could be seen as consensual because they weren’t created by statute. Parties in Virginia also do not have the ability to state any priority in their liens, and liens are secondary to trusts. In D.C., a lien does not have to be recorded to be a leader, and liens are always secured.