Liens have always been a great way for Associations to secure a debtor’s assessment debt. They make the Association a secured creditor in Chapter 13 bankruptcy, and prevent the debtor from selling their property without fulfilling their assessment obligation. A new trend, however, in the US Bankruptcy Court, Northern District of California, is raising questions as to just how much of the debtor’s debt is actually secured by the lien. In the past two months, two cases coming out of the Northern District have held that assessment liens do not secure debts for unpaid assessments due after the recordation of the lien.
The first of the two cases, In re Guajardo, came to this conclusion relying in part on the Civil Code, and in part on the Association’s CC&Rs. Specifically, the court focused on one clause of the CC&Rs which stated, “Each lienable default shall constitute a separate basis for a lien.” In light of the court’s decision, we recommended that Associations review and amend their CC&Rs to ensure they do not contain any similar language.
While reviewing and amending the CC&Rs is still advised, a second case, In re Warren, has surfaced which suggests doing so may not be enough.
In In re Warren, the Association recorded a lien against the debtor’s property in September 2008, for unpaid assessments, costs, interest, and fees, totaling $5,865.25. Additionally, the language of the lien explicitly accounted for all unpaid assessments, costs, interest, and fees which became due after the filing of the lien, and until all amounts due were paid in full. In 2014, the debtor filed for bankruptcy, and at that time, owed the association close to $90,000.00 in assessments, costs, interest, and fees. This time, relying solely on the Civil Code, the court held that the future debt (almost $85,000.00) was not secured by the initial lien, and was, therefore, discharged as a result of the debtor’s bankruptcy.
So, what does this mean for Associations, and what should they be doing to ensure they secure all, or at least enough, of a homeowner’s debt to collect what’s owed to them? As the cases suggest, in order to secure debt that accrues after the recordation of a lien, Associations will have to be prepared to file consecutive liens against the same property. Doing so will require careful considerations, and the right time to record additional liens will vary from Association to Association, and debtor to debtor.
To protect their interests, Associations must make sure they are aware of the costs and expenses associated with recording liens. Further, they need to be aware of the pace at which a given homeowner is accruing additional debt. Considering these two factors can help Associations make informed decisions as to how often it makes sense for them to record additional liens.
Having a game plan, and a general understanding of the right time to file subsequent liens, could very well be the difference between collecting significant debts and seeing them discharged.
 In re Guajardo (2016) 2016 WL 943613, *5.
 In re Warren (2016) 2016 WL 1460844, *1.