• Gary Busey, actor
• Donald Trump, financier
• Michael Jackson, singer
• Wolfgang Amadeus Mozart, composer
• Elton John, singer/composer
• Kim Bassinger, actress
• Mike Tyson, boxer
• Mark Twain, humorist
• Burt Reynolds, actor
• Thomas Jefferson, patriot and president
• Gary Coleman, child actor
• MC Hammer, rap singer
• Willie Nelson, country singer
• Lorraine Bracco, “The Soprano’s” actress
• Charles Goodyear, inventor of vulcanized rubber
• PT Barnum, circus promoter
• L. Frank Baum, author of “The Wonderful Wizard of Oz”
• Mathew Brady, Civil War photographer
• Oscar Wilde, playwright
• Jerry Lee Lewis, rock singer
• Rembrandt, painter
• Henry Heinz, ketchup magnate
• Milton Hershey, chocolate magnate
• Henry Ford, auto magnate
• Johnny Unitas, football player
• Wayne Newton, entertainer
• Mickey Rooney, actor
• Debbie Reynolds, actress
• John Connally, former Texas governor
• Walt Disney, creator of Mickey Mouse
• Mick Fleetwood, rock singer
• Merle Haggard, country singer
• Ulysses S. Grant, president and Civil War general
• Dorothy Hamill, figure skater
• Larry King, talk show host
• Bowie Kuhn, former baseball commissioner
• Stan Lee, comic book creator of “Spider Man”

The HOA can’t come after me, right?

As an Arizona real estate lawyer and Arizona bankruptcy lawyer, many homeowners who come to see me have already stopped paying their HOA assessments because they have decided to let their home foreclose.  There is a common misconception that the only right an HOA may have for unpaid assessments is to lien the property.  When the property is worth far less than the outstanding mortgage balances, a debtor may erroneously believe that the HOA’s lien is worthless because it is going to be wiped out once the lender forecloses.

It is true that once the lender forecloses, the HOA’s lien is wiped out.  However, most CC&Rs allow the HOA to also sue the debtor to recover the unpaid assessments.  The end result is that the HOA receives a judgment for the unpaid assessments (plus penalties, interest and attorneys’ fees), allowing the HOA to collect against the homeowner by garnishing wages, bank accounts and other non-exempt property.

So, when can I safely stop paying HOA fees?

A homeowner’s obligation to pay HOA assessments does not cease until title of the property is transferred via a sale or a foreclosure.  Because it may take time for a bank to foreclose on a home, it is not uncommon for the homeowner to continue to be liable for HOA assessments many months after the homeowner stops paying the mortgage.  There is no way to force a bank to foreclose sooner rather than later.

But if I file bankruptcy, I don’t have to pay, right?

An Arizona bankruptcy lawyer will commonly advise that although all unpaid HOA assessments accruing prior to fling Chapter 7 or Chapter 13 bankruptcy are discharged, those accruing after the filing date are still the responsibility of the homeowner until a foreclosure or short sale is consummated.  It could be even longer for the lender to foreclose on the property once a debtor files for bankruptcy because the lender is required to lift the automatic stay first before continuing the foreclosure.

I’m doomed!  How can I unload this house?

Sometimes an Arizona bankruptcy attorney will advise a homeowner to wait until the foreclosure or short sale is complete before filing bankruptcy.  The bankruptcy filing will discharge the HOA fees that accrued prior to filing, and no future HOA assessments will be charged because the homeowner no longer owns the property.  Furthermore, it may be best for a homeowner to live in a house for free and pay the HOA assessments until the foreclosure occurs.  After all, a $200/month HOA fee that a homeowner will be responsible for until the foreclosure occurs is still cheaper than abandoning the house before the foreclosure and paying rent of $900/month in addition to the $200/month HOA assessment.  Is that taking advantage and abusing the system?  If the bank makes the business decision to delay the foreclosure, it is neither unreasonable nor immoral for the homeowner to remain in the house without paying the mortgage.  The bank has the full control to repossess the house, and if it wants to delay the process, so be it.

The “Rogue Board”

The “Rogue Board” is a term commonly used to describe an HOA Board making radical decisions that are not necessarily in the best interests of the HOA.   Occasionally Board members will allow politics and personal agendas to influence the decisions they make.  It becomes more about “the power” than serving the best interests of the HOA.  Secret meetings are held, decisions are crafted in private, and favoritism runs rampant.

One of the worst mistakes is for Board members to continuously vote together in blocks regarding serious decisions.  You may think this is their right, and to some extent that is correct.  There is something called “pattern and practice” evidence.  When you have evidence that the same Board members are always voting together and ignoring legitimate criticism and concerns that have been voiced by other Board members and homeowners, it raises serious doubts about the legitimacy of the vote.  Arizona courts have held that all HOA decisions must be “reasonable” and made in the best interests of the HOA.  When there are patterns of similar voting by the exact same Board members despite strenuous objections, this pattern becomes convincing evidence that such decisions are unreasonable.  As such, the court may set them aside.  Both the HOA and the individual Board members may be liable for this kind of practice.  If the HOA has liability insurance that indemnifies the Board members, the indemnity provisions may be void if the insurance company finds blatant abuse of a Board member’s power.  If that happens, such Board members will have to defend themselves on their own dime if actions of abuse or fraud are filed in court.

What are Open Meeting Laws?

Most homeowners don’t understand what open meeting laws are and why they are important.  In a nutshell, an HOA Board has to make almost all of their decisions at a public meeting in front of the homeowners.  The purpose of the open meeting laws is to insure that homeowners are informed about the important decisions that are being considered by the Board.  Notice of the meeting and a reasonably detailed agenda should be available at least 48 hours before the meeting (and preferably longer) so homeowners can decide whether they want to attend the meeting to voice any concerns.  Open meetings hold the Board members accountable to the homeowners.  They will live or die by their decisions, and if they refuse to listen to homeowners’ concerns, they risk not being elected in the next annual election.  The actions at the meeting also are valuable evidence in any lawsuit a homeowner brings against a rogue board.

Why are accurate minutes so important?

Minutes for all Board meetings (including closed Board meetings where the Board discusses sensitive issues in private as permitted under Arizona law) must be accurately and timely prepared.  Many homeowners do not attend meetings, so the only record of what was decided is what the owners are able to read in the minutes.  If the minutes are inaccurate or “selectively edited” to only include those comments that the Board wants to include, the minutes are essentially misrepresenting to the homeowners of what occurred at the Board meeting.  In fact, the Arizona legislature amended the HOA open meeting laws last year to allow homeowners to record the meetings in order to insure that there is an accurate record of what was said and voted upon.  Such recordings are now being used in lawsuits against Board members to convince a court to set aside improperly passed decisions that are not in the best interests of the HOA.

What to do, what to do, what to do

How can homeowners avoid a Board running wild?  First and foremost, elect your Board members wisely.  Look at the CC&Rs to make sure they are qualified to run.  For example, some CC&Rs state that if a Board member has a foreclosure notice, that person does not qualify to run for the Board.  If you have two people who own property, only one of them can run for election.  Make sure your HOA has a way to verify votes to prevent people from stuffing the ballot box with illegitimate votes.  The people elected to the Board will make or break your property values and way of living.

Second, use diplomacy.  Try to talk reason with the problematic Board members.  Most people are fairly reasonable and intelligent, and when they are reminded of the big picture, they may accept responsibility that their conduct needs an adjustment.

Third, homeowners need to organize.  There is way too much apathy in most HOAs because most homeowners don’t realize the detrimental impact poor Board decisions may have until it is too late.  If the Board is paying too much in certain capital improvements or making unreasonable settlements to homeowners that are friends of the Board, the HOA’s financial stability may be adversely impacted.  If poor and expensive Board decisions drain the HOA’s bank account, homeowners will have to cough up extra assessments.  If homeowners can’t afford these additional assessments, they will walk away from their properties, causing a domino foreclosure effect where numerous homeowners stop paying all assessments.  Homes in the HOA will become extremely difficult to sell as a result of the high assessment burden.  Ultimately, the HOA may have to file bankruptcy.

Finally, if the Board refuses to answer to the people and continues to make irrational and unsound decisions, you will have to hire an Arizona real estate lawyer and assert your rights in court.  It is not fun, but it is also not unusual.  That does not mean you run to court each time you think the Board has made a decision you disagree with.  Pick your battles.  In my experience, it is better to wait until the Board makes a series of bad decisions or repeatedly violates Arizona laws governing HOAs before going to court.  Multiple causes of actions listed in your complaint shows the Court that your lawsuit doesn’t just involve one isolated incident.  It shows the Court a “pattern and practice” of abuse and poor decision making.  You can name both the HOA and the individual Board members in your lawsuit.

The moral of this story:  Keep tabs on your HOA Board members.  Attend HOA meetings and be vocal about your opinions.

For example, if you owe about $30,000 for five credit cards, the debt settlement company will try to convince you that it can settle and resolve all accounts for approximately 60% of the debt (approximately $18,000).  They will also charge you an additional $4,500 (15% of $30,000).  Therefore, you will make monthly payments totaling about $22,500 to satisfy your $30,000 debt.

So What’s the Catch?

Don’t get your hopes up.  What the debt settlement company conveniently neglects to tell you is that any one of your creditors can refuse to settle your account.  In other words, the settlement is only effective if the debt settlement company can reach a separate written agreement with all of your creditors.  Those creditors that refuse the settlement amount may continue to pursue you for the full amount of the debt, which could include suing you at any time.

It’s a No-Brainer:  Bankruptcy is Better

Most Arizona bankruptcy lawyers will agree that filing Chapter 7 or Chapter 13 bankruptcy is a better option.  First, the total out-of-pocket cost to file a bankruptcy is a fraction of what you will pay in debt consolidation payments.  A routine Chapter 7 bankruptcy will cost around $1,500 – $2,000 and a routine Chapter 13 will cost about $3,200 – $4,000.  In return, a competent Arizona bankruptcy attorney will help you legally plan before your bankruptcy filing to minimize any non-exempt assets you will have to forfeit in a bankruptcy.  If you hire a competent Arizona bankruptcy lawyer, it is very common that you will have a no-asset bankruptcy, meaning that you will have to give up nothing to receive your discharge.  All of this is cheaper than any debt consolidation plan that will require you to pay substantially more.

Second, although bankruptcy will ding your credit, your credit will rehabilitate itself more rapidly after your bankruptcy is complete.  As the old song says, “time heals everything”.   And speaking about credit, make sure you have your priorities in check.  Is it more important to worry that you may not get the best interest rate for some home loan you may or may not get in the next 4 years, or is it more important to put food on the table and buy school clothes for your kids.

If the debtor is behind on a credit card, the creditor must sue the debtor first and obtain a judgment before it starts collecting.  A debtor has 20 days to answer the lawsuit filed in State court from the time he or she was served with the complaint and summons.  Most debt collection lawsuits go unanswered, causing the judge to enter a default judgment against the debtor.  Thereafter, the collection process may commence, entitling the creditor to seize non-exempt assets to satisfy the debt, including 25% of the debtor’s net wages (i.e., wages after taxes are deducted).

Many people are understandably scared when they are served with a lawsuit.  There is usually enough time to file the Chapter 7 or Chapter 13 before a garnishment begins (even after a lawsuit is filed and served) so long as the debtor meets with an Arizona bankruptcy lawyer as soon as possible and starts filling out the necessary and comprehensive paperwork.  Don’t procrastinate!

An Arizona real estate lawyer, Arizona foreclosure lawyer or Arizona bankruptcy lawyer repeatedly advise potential clients that if property on two and one-half acres or less utilized as a dwelling unit is sold pursuant to a trustee sale (which is the method in which most lenders foreclose on property here in Arizona), the lender generally cannot sue you for any deficiency amount.  Furthermore, if you have a mortgage that was used to acquire property on two and one-half acres or less utilized as a dwelling unit and a deficiency amount exists after a foreclosure, the lender also cannot sue you for any deficiency amount.  How long a borrower can continue to occupy the house before a foreclosure occurs depends on how aggressive the lender decides to be.

For example, assume you have a first mortgage on a residence for $200,000 and a second mortgage for $50,000 as a line of credit you used to construct a swimming pool or remodel the house.  Assume that the residence has a current market value of $180,000.  The Arizona anti-deficiency statute prevents the first lender from suing you for the $20,000 deficiency amount after it forecloses.  However, the second lender can sue you for the entire $50,000 amount because that loan was not used to purchase the residence.  Once the second lender sues you (and yes, the lender will sue), you will most likely have no choice but to hire an Arizona bankruptcy attorney to discharge that liability in either a  Chapter 7 bankruptcy or a Chapter 13 bankruptcy.

What about construction loans?

A recent Arizona Court of Appeals case involved a lender that granted a construction loan used to construct a residence.  Before construction was completed, the borrower defaulted on the construction loan.  The lender foreclosed on the property and sued the borrower for the deficiency amount.  The court held that even though the construction had not been completed and the property had not been utilized as a dwelling unit, the purpose of the construction loan was to construct a residence that the borrower intended to occupy upon completion.  In a surprise ruling, the court ruled that the Arizona anti-deficiency statute was still applicable, prohibiting the lender from suing the borrower for the deficiency amount after the foreclosure.

Yes, it is complicated!

Everyone has a different factual scenario regarding their mortgages.  Does the Arizona anti-deficiency statute apply to refinanced loans?  Does the Arizona anti-deficiency statute apply to short sales?  You must consult with an Arizona real estate lawyer, an Arizona foreclosure lawyer or an Arizona bankruptcy lawyer to educate yourself about the ramifications and liabilities.  Because of the continuing foreclosure crisis in Arizona, such a consultation is necessary in order to protect yourself from making a decision that could expose you to severe liability.

1.  Making a false credit card application.  If you made material misrepresentations on your credit card application, then the issuer may file an action in your bankruptcy to determine that the entire balance on the account is not dischargeable in bankruptcy.  Fraudulent misrepresentations may include exaggerating or misstating your income, failure to disclose your intention to file bankruptcy or lying about your employment status.

2.  Fraudulently using the credit card.  This is the more common strategy for a creditor to argue that the charges should be non-dischargeable.  For example, credit card transactions and cash advances for “luxury items” made within 90 days or so prior to filing Chapter 7 or Chapter 13 are presumed non-dischargeable if the creditor files a non-dischargeability action in your bankruptcy.  What “luxury items” are is unclear, so your Arizona bankruptcy attorney will have to analyze the nature and timing of the charges.  The  judge will consider a variety of factors to determine whether the charges were incurred as a result of fraud, including:

• The nature of the charges (i.e., if you purchased groceries, that may be acceptable; if you purchased a weekend getaway to Las Vegas, that will raise eyebrows)
• The timing of the charges
• Whether you obtained bankruptcy advice prior to making the charges
• Whether you made any payments to the credit card company with respect to those charges (i.e., if you charged $4,000 on a credit card a few months ago, and have made only one minimal payment before filing bankruptcy, that may be indicative of an intent to fraudulently incur credit card debt prior to filing)
• Whether  you continued to use the card up until the time you filed bankruptcy

So, if you made only one minimal payment on a Best Buy credit card for a TV purchased shortly before filing Chapter 7 or Chapter 13, Best Buy may file a non-dischargeability complaint against you with respect to that debt.  And, of course, your legal fees will go up when your Arizona bankruptcy lawyer has to defend the complaint.  As a side note, if the creditor fails to file a non-dischargeability complaint within 60 days after the debtor’s meeting of the creditors, the creditor waives its right to pursue the debt as non-dischargeable.

The moral of this story:  Stop using all credit cards immediately!

Don’t be Depressed

Many debtors feel shame about the need to file Chapter 7 bankruptcy or Chapter 13 bankruptcy.  That is a wasted emotion.  No person could have predicted this devastating “great recession”.  We are still experiencing record high job losses and increased household expenses (have you seen the price of milk lately?).  Unemployment is slowly improving but still remains at historical highs.  Today’s headlines tell us things are getting better, but any slight improvement seems like a miracle compared to where we were in 2009 and 2010.  My point is this:  Don’t feel shame.  Don’t bury your head in the sand.  Pick yourself up, brush yourself off, and take care of business.

Seven Steps to Prepare for Bankruptcy

(1)  Fees.  You will need to have the fees for your Arizona bankruptcy attorney and for the court’s filing fee.  A Chapter 7 bankruptcy will cost about $1,200 – $3,000 in fees, depending on the complexities of your case.  A Chapter 13 bankruptcy will cost more.  For a detailed explanation of the costs to file bankruptcy, click here.

(2)  Credit Counseling Class:  You must complete a consumer credit counseling session and receive the class certificate that must be filed with the court before you file Chapter 7 or Chapter 13 bankruptcy.   There are many courses available.

(3)  Income and Budget:  Review your income and expenses.  An Arizona bankruptcy lawyer can help you identify wasted expenses.   I just noticed on my own credit card statement that I had a reoccurring charge for a subscription I no longer use but neglected to cancel.  You can only obtain a “fresh start” if you identify and modify some of the habits that caused you to have financial problems.  It doesn’t matter whether you are rich, poor, young or old:  we all need to scrutinize and make adjustments to our income and expenses.

(4)  Itemize your debts:  Determine who you owe and how much.   Make a list of all of your creditors, addresses and current debt amounts.  Pull your credit report for free at www.annualcreditreport.com.  If you have been named in lawsuits or your home was recently foreclosed, make sure you provide to your Arizona bankruptcy attorney all relevant papers.

(5)  Be prepared to part with some minor assets:  Understandably, people are attached to their possessions.  However, if you suddenly found yourself with decreased income, you may have to surrender a car with a high car payment.  Have reasonable expectations and allow your Arizona bankruptcy lawyer to set realistic and achievable goals for your Chapter 7 or Chapter 13 bankruptcy.

(6)  Timely provide accurate information:  I always tell my clients that most (if not all) of the work we do together is everything before we file Chapter 7 or Chapter 13.  I always tell clients to pretend I am the IRS auditing you.  Take great care when completing my questionnaire.  Provide to me tax returns, bank statements, pay stubs, and various other documents, some of which may be buried in your file cabinet or lost.  The goal I have as an Arizona bankruptcy lawyer is to make sure everything is correct before you file Chapter 7 or Chapter 13.  This will help insure a smooth bankruptcy after we file.  Listen to and obey your Arizona bankruptcy lawyer.

(7)  Educate yourself:   Educating yourself with some basic bankruptcy information helps you to appreciate and assist your Arizona bankruptcy lawyer.  Read everything you can on my bankruptcy blog.  However, be cautious about what you read on the internet.   Some of it is inaccurate and misleading.

It seems overwhelming, but with a competent Arizona bankruptcy lawyer, your bankruptcy should be smooth sailing

How much does it cost to file a Chapter 7 or Chapter 13 bankruptcy?  Unfortunately, I  cannot quote a fee until I speak to the client and get a snapshot of the debtor’s situation to help analyze any complexities that may arise.  Every debtor’s case is different, and a debtor’s actions (either intentional or otherwise) might require the Arizona bankruptcy lawyer to work harder in order to minimize the problems that may arise.  Click here to learn about the differences between Chapter 7 and Chapter 13.

You get what you pay for

Without trying to sound like a cliche, you get what you pay for. Not every Arizona bankruptcy attorney will provide the same level of service, communication and help when you need information or questions answered.  In fact, many Chapter 7 and Chapter 13 debtors do not even meet with their attorney until the debtor’s 341 meeting of the creditors (and many times, not even then).  Instead, some Arizona bankruptcy lawyers use paralegals and secretaries to meet with the clients and fill out their bankruptcy papers.  Considering how much a debtor pays an Arizona bankruptcy lawyer, this type of conduct is simply unconscionable.

I have heard many horror stories from Chapter 7 and Chapter 13 debtors who failed to use a competent Arizona bankruptcy attorney.  This is big mistake and could cost  the debtor thousands of dollars and problems with a bankruptcy trustee.  Such mistakes could have easily been avoided had the debtor hired a competent Arizona bankruptcy attorney.

Ok, lets talk money

Most attorneys charge flat fees for Chapter 7 and Chapter 13 bankruptcy cases.  The legal fees for a Chapter 7 can range from $1,200 – $3,000, depending on the complexities of your case and the type of service the attorney offers.  The bankruptcy court also charges a filing fee of $306 for every Chapter 7 bankruptcy case.  If you are paying less than $1,200, chances are you are using an attorney that is desperate for business and will provide minimal service with minimal expertise.  All Chapter 7 fees are payable prior to the filing of the bankruptcy.  It is extremely misleading when an Arizona bankruptcy lawyer offers some kind of payment plan.  All that means is that you can make payments to the Arizona bankruptcy attorney for a period of time, but your Chapter 7 bankruptcy will not be filed until you pay the entire fee in full.  This is because a debt owed to your attorney is dischargeable in  Chapter 7 bankruptcy.  And if you owe money to your Arizona bankruptcy lawyer when you file Chapter 7, the attorney becomes one of your creditors, which may create a conflict of interest for the attorney in violation of Arizona ethical rules that govern all practicing Arizona bankruptcy lawyers.

The legal fees for a Chapter 13 range anywhere from $3,000 – $4,500.  If you are trying to lien strip a junior mortgage on your residence, the cost may be slightly more.  The bankruptcy court also charges a filing fee of $281 for every Chapter 13 bankruptcy case.  Unlike a Chapter 7, a Chapter 13 allows the debtor to pay all or a portion of the attorney’s fee in payments as part of the Chapter 13 plan (although most experienced Arizona bankruptcy lawyers expect at least 50% – 70% of the fee up front).  A Chapter 13 bankruptcy is more expensive because it is more difficult.  A Chapter 7 is usually completed in 4 – 5 months after filing.  A Chapter 13 lasts anywhere from 3 – 5 years, and requires more legal work, analysis and negotiation with the Chapter 13 trustee.

Although hiring an Arizona bankruptcy lawyer can be expensive, it will be much cheaper than the problems you will undoubtedly face when trying to file Chapter 7 or Chapter 13 bankruptcy by yourself or using a document preparation service.  I am not just saying that because I am an Arizona bankruptcy lawyer.  I am saying that because it has been proven time and time again.  Filing Chapter 7 bankruptcy or Chapter 13 bankruptcy in Arizona is not as easy as other states.  There are many more traps.  Don’t be cheap with your bankruptcy!

For example, if Kelley Blue Book says your vehicle’s retail value is $7,000, but your loan balance at the time of filing Chapter 7 is $15,000, you can pay off the vehicle for $7,000.  Once you pay such amount, the vehicle lender must release its lien on your vehicle.

Unfortunately, redeeming a vehicle loan is impractical for most Chapter 7 debtors.  A debtor must pay the entire redemption amount within 45 – 60 days after filing bankruptcy, and the amount must be paid in a lump sum.  Most Chapter 7 debtors do not have that kind of money.  Furthermore, the debtor can’t save this money prior to filing bankruptcy because money a debtor possesses as of the bankruptcy filing date will have to be surrendered to the bankruptcy trustee.  It’s a catch-22.

One solution may be to borrow the money necessary to redeem the loan.  Ideally, a parent or friend would lend the money to the debtor on favorable terms.  Another solution is to borrow the money from the debtor’s 401(k) or IRA.  A debtor could go to a lender that specializes in redemption loans, but it has been my experience that such lenders frequently charge a high interest rate, causing the debtor to pay more money in the long run.

Because redeeming a vehicle loan is not a practical solution for most debtors, an Arizona bankruptcy attorney will probably recommend that the debtor reaffirm the loan if the debtor desires to keep the vehicle and if the vehicle payments are still affordable to the debtor.  For more information about reaffirmation agreements, click here.