Association Liens and the Judgment Debtor

18
Sep 2014

This a relatively unique set of facts, but one that is occurring more often over the last several years.  The property owner and chapter 7 debtor was the record owner of the lot encumbered by a judgment lien transferred from Florida.  In the Chapter 7 petition, the debtor indicated his intention to “surrender” the property to the judgment lien holder.  However, no deed was ever executed and he remains the record owner of the property.  The assessments have not been paid since the bankruptcy.

 

In this case, a surrender is not a surrender. “Property interests are created and defined by state law.” (Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979)).  The debtor continues to own the property until there is a formal transfer of title.  (See In re Phillips, 368 B.R. 733, 744 (Bankr.N.D.Ind.2007). In re Plummer, 2014 WL 1248039 (Bankr. M.D. Fla. Mar. 25, 2014)).  The discharge does not extinguish the debtor’s ownership of the lot and it does not eliminate the association’s lien on the real property.

 

The Chapter 7 discharge did not void the transferred Florida judgment against the debtor, and that judgment would be first lien against the property under NCGS 47F-3-116.  It is still in the Association’s best interest to initiate foreclosure proceedings.  Otherwise, the parties will continue to let the lot sit in limbo until there is a tax foreclosure.  If the time comes, we can provide further guidance regarding the effect of a forced sheriff’s sale by the Florida judgment creditor on the association’s lien.