4th Cir. : Kingston at Wakefield Homeowner’s Association, Inc. V. Castell (In re Castell)- Homeowner’s dues are unsecured unless Claim of Lien is filed.

Summary: Homeowner’s association filed a Proof of Claim in the Debtor’s Chapter 13 case asserting that it was secured by a lien against the Debtor’s residence. The Debtor objected to the secured status as the HOA had not filed a Claim of Lien with the County Clerk of Court pursuant to the Planned Community Act (“PCA”) at N.C.G.S. § 47F-3-116(a). The HOA argued that its recorded Declaration of Covenants, Conditions, and Restrictions was sufficient under common law to hold a secured claim without the filing of a Claim of Lien. The bankruptcy court and district court sustained the Debtor’s objection. The Court of Appeal held that even if the PCA is not the exclusive vehicle by which a homeowners’ association in North Carolina can enforce a lien for unpaid assessments on a homeowner’s property, the HOA’s common law argument failed as the Declaration required recordation of a Notice of Claim of Lien with the County Clerk of Court. Commentary: This case follows In re Guillebeaux, 361 B.R. 87 (Bankr. M.D.N.C. 2007), which first applied N.C.G.S. § 47F-3-116(a). Now that it is binding precedent throughout North Carolina, the question becomes whether Trustees will begin to insist on documentation showing Claims of Lien before treating HOA assessments as secured, just as proof of perfection of other liens is required. Further, taken with In re Haywood, 2008 WL 5146637 *1 (Bankr. E.D.N.C. 2008), aff'd sub nom, Widewaters Village Community Ass'n, Inc. v. Haywood, 2010 WL 8752024 (E.D.N.C. 2010), aff'd per curiam, 450 Fed. Appx. 238 (4th Cir. 2011), which allowed the strip-off of HOA assessments that lacked equity to which to attach, and that a Claim of Lien recorded within 90 days of the filing of a bankruptcy is likely an involuntary preference (and hence avoidable by a debtor), there are many arrows in the consumer bankruptcy attorney’s quiver to deal with homeowners’ dues. For a copy of the opinion, please see: Kingston at Wakefield Homeowner’s Association, Inc. V. Castell (In re Castell)- Homeowner’s dues are unsecured unless Claim of Lien is filed