Bankruptcy Doesn’t Dismiss Outstanding HOA Fees

Housing represents the largest equity holding for most people in the world. Housing represents the majority of people’s working lives, and often is their security for retirement.

With that in mind, that’s why I fully support all legislation that prioritizes and guarantees that condominium corporations and HOAs have first standing to any monies recovered in foreclosure, bankruptcy or other sale. See, it’s important for government to protect people’s housing because it represents such a vast amount of equity. Government takes steps to protect people’s equity when it’s in a bank, and it does that when your money is “banked” in your house as well.

An owner failing to pay their fees harms not only their own property, but jeopardizes the housing of other, responsible, owners. Simply put, there’s no right for an owner to take a free ride on his neighbours shoulders by failing to pay their contribution, and having it shouldered by others.

Many states and provinces have very proactive laws that ensure HOAs and Condominiums have first standing in foreclosure. In Alberta, Canada, the condominium corporation – on the sale of a property – gets paid any outstanding fees before mortgages and even government taxes. Law makers realized that by ensuring that condominiums receive any money it is owed, it protects the other owners and has the highest return on economic stability.

In a similar vein, an owner in Odenton, Maryland, has found that bankruptcy doesn’t remover the requirement to pay their HOA fees. Indeed, and I congratulate the law makers, they have made those fees “nondischargeable” (a judge cannot dismiss the fees). By doing so, they have ensured the fiscal health of all the other owners. Even though Joan Sullivan no longer lives in the HOA, she is paying installments on the debt she owes.

And that’s a good thing.

Maryland Condominiums Have Right To Force Homeowners to Carry Insurance

I am humbled that there is a US state that has given the power to condominium boards to make carrying a homeowner insurance policy mandatory. For a country that often talks about the absolute right of the individual to make their own decisions (any anything, forbid, otherwise is some strange form of socialism, communism, or other ism), a collective has been given the power to require an owner to purchase specific insurance.

With condominiums, may people think that the insurance policy purchased by the condominium covers their units, when in fact this is normally not the case (there are exceptions).  Normally the insurance policy held by the condominium only covers damages and repairs to the common elements – the building envelope and grounds. It does not cover inside the owner’s unit.

For example, if you owned a unit in a condo that burnt down, and the condo is repaired, the corporation policy would rebuild the structure, but not the interior of your unit – the “betterments and improvements.” What’s a betterment or improvement – anything inside your unit. That would include the toilet (yup – the piping would come in, but the actual porcelain toilet is a betterment). It likely wouldn’t include your cabinets, your flooring, your paint, your sinks, and all sorts of stuff. You would have a shell, to fill as you would.

Additional insurance, bought properly, would cover those betterments and improvements (seriously, we don’t see the toilet as an improvement – we think it’s part of the unit, but it is). And because of the danger of fire or water or other loss, I always encourage people to buy the additional insurance.

It’s nice then, having been in the industry long enough to see several major losses, that Maryland will allow the boards to make this additional insurance required to be purchased by their owners. I’m not sure how they will enforce it (it seems a little toothless – what are you going to do, evict the owner?) – but it is good intention.

Some may wonder how few people actually pass on buying insurance – I have a great example. In Calgary, March of 2010, a massive condominium fire in the Millrise left hundreds homeless. Less than half, half, of the owners had additional insurance. That meant more than 100 people would have been left with just a shell of a unit when they were rebuilt, and would have had to pay the additional living expenses of shelter during the months and months to rebuild. Fortunately, the board had made a decision to carry the additional insurance for everyone – which allowed all the units to be rebuilt completely, and the homeless have their expenses covered during the rebuild.

Maryland’s insurance requirement is slightly different than what I described, as it’s a requirement to carry insurance against a deductible (of the common property insurance) for damages originating from their unit. But in general it is the same idea – forcing insurance and reducing the risk of catastrophic loss.