A condominium association was recently held in contempt and fined. In an Order rendered in In re: O'Mara, 6 FLW Fed. B151 (M.D. Fla, May 19, 1992) Chief Bankruptcy Judge Alexander L. Paskay determined that Greens of Town N' Country Condominium Association, Inc. was guilty of civil contempt. The Bankruptcy Court determined that the association did not follow proper collection procedures; thus, the association was required to pay $500.00 to the O'Maras, association members.

The condominium association erred by pursuing the O'Maras without court approval when the association knew or should have known that the O'Maras had filed a bankruptcy petition. The filing of a bankruptcy petition triggers the "automatic stay" pursuant to Federal law, 12 U.S.C. §362. The automatic stay requires a creditor to obtain a court order before the creditor can take any action, directly or indirectly, to collect money from a debtor who filed a bankruptcy petition. Furthermore, even after the bankruptcy case is closed, usually debts that arose before the bankruptcy petition are discharged and are uncollectible.

In the O'Mara case, the O'Mara's condominium association assessments were delinquent. The O'Maras filed for bankruptcy relief. The bankruptcy court clerk provided the association written notice of the bankruptcy. Nevertheless, the association proceeded to file a complaint to foreclose its lien and to recover assessments which became due before the bankruptcy petition was filed.

A member's bankruptcy does not mean that an association must suffer continuing losses. The O'Mara Order only reminds associations, as any other creditor, to be careful when dealing with a debtor who has sought relief in the bankruptcy courts. If the association had followed the proper procedure, the association probably could have foreclosed on the condominium unit and not have been fined.

When an association member files for bankruptcy relief, and assessments are past due, a Motion for Relief from Stay is generally the right step. Many times the bankruptcy courts will require the member to immediately start paying assessments, and if payments are not made then the association will be permitted to foreclose the member's liened property. The key to obtaining relief is usually fast action.

The O'Mara Order includes a provision very helpful to associations. Judge Paskay took the effort to repudiate the decision of In re: Cohen, 122 B.R. 755 (Bankr. S.D. Cal, 1991). The Cohen decision seemed to hold that an owner's bankruptcy could discharge all assessments, including assessments accruing after the end of a bankruptcy. Obviously a decision allowing an owner to avoid future assessments would have a grave effect upon all associations.

This information is provided only for public information purposes and is provided without obligation or fee. It is distributed to the firm's association clients to provide a general notice of recent changes in the law. This information is not to be considered as legal advice. The changes in the law have not been reviewed by any other courts and may be subject to challenge. Before taking any action you are urged to consult with counsel to ensure that your legal rights are being protected.

© 1992 by Gelfand & Arpe, P.A.