Debtor May Strip Unsecured HOA Lien Off Homestead

Debtors living in homes with upside down mortgages can strip their second mortgages off their homestead in a Chapter 13 bankruptcy when their home is worth less than the first mortgage balance. What if the debtor does not have a second mortgage but owes his HOA dues and assessments incurred prior to bankruptcy, and the HOA has recorded a lien to secure repayment.

A Florida bankruptcy court recently held that an under-water debtor may strip wholly unsecured and subordinate HOA liens. The HOA lien is treated like a second mortgage when the first mortgage balance exceeds the property value on filing date.

In this case, the HOA Convenants stated that HOA liens are subordinate to institutional mortgages. The HOA argued that the first mortgage was no longer an “institutional mortgage” because the mortgage instrument had been assigned to MERS (Mortgage Electronic Registration Systems, Inc). The Court found that the fact that MERS is not specifically defined as an institutional lender does not change the loan status as an institutional mortgage for purposes of characterizing the HOA lien as subordinate and therefore subject to strip. Case No. 6:12-4962

The post Debtor May Strip Unsecured HOA Lien Off Homestead appeared first on Orlando Bankruptcy Law Blog.