As the housing market continues to slowly recover from the foreclosure crisis in Michigan, and other areas of the country, many community associations are still facing significant challenges with unit owners who file for personal bankruptcy. Numerous unit owners are beginning to utilize an old technique, previously used primarily against second mortgages and other junior liens, against community association liens.
These unit owners are utilizing what is known as the “lien stripping” provisions of the Bankruptcy Code to avoid pre-bankruptcy (pre-petition) assessments that are due to their associations. If these unit owners are able to demonstrate to the bankruptcy court that they owe more to the first mortgage holder than what their real property is worth as of the date of their bankruptcy filing, the bankruptcy laws enable the unit owner to wipe away second mortgages, lines of credit and association liens tied to their real property. Read more