Community associations should always record their respective Governing Documents and this becomes of particular importance if the documents provide for the creation of a lien upon failure to pay assessments.  This is never more true than as reflected in a recent Bankruptcy Court opinion in In re Nacinovich, Adv. Case No. 13-1074, decided by the Honorable Michael B. Kaplan, U.S.B.J., May 31, 2013, in which the Court considered allegations that a homeowners association remittance of a statement to a debtor which included sums due beyond the amounts due in its pre-petition lien claim was a violation of the automatic stay.  The Bankruptcy Court postured that if the association’s lien claim is limited to only the amount included in the recorded lien, then the additional fees included in the billing statement are unsecured and efforts to collection them constitutes a violation of the automatic stay.  However, if the association holds a lien against the property for the full amount included in the billing statement, then the full amount remains a valid in rem claim and therefore the billing statement in not a violation of the automatic stay because the property was abandoned by the Chapter 7 Trustee. The Court ultimately concluded that the associations’ billing statement that reflected an amount greater than in the recorded lien was not an improper attempt to collect a debt in violation of the automatic stay.

Judge Kaplan reasoned that the language in the associations recorded Declaration of Covenants and Restrictions which provides that non-payment of assessments, together with interest and cost of collection, constitutes a continuing lien on the property.  The Court stressed the importance of the Declaration having been recorded and that by virtue of that it established a fully enforceable lien against the property for the full amount of unpaid assessments and fees.  The Court also noted that certain community associations that are not subject to the Condominium Act (such as HOAs) are not required to record liens so long as the declaration of covenants governing the property has been properly recorded.

While there are many other reasons a community association should record their Governing Documents, protection from discharge violations while pursuing lien claims is a critical reason and a highly worthwhile benefit of recording.