On October 1, 2012, Judge Jaroslovsky of the Santa Rosa Division of the U.S. Bankruptcy Court for the Northern district of California issued an opinion in the matter of In re Cisneros (Case No 12-10468). Mr. Cisneros was the owner of two condominiums in Santa Rosa. He had fallen behind in his HOA payments, and proposed to cure those arrears through his Chapter 13 plan. He did not dispute the HOA’s claim for unpaid dues or actually incurred collection fees, which together amounted to approximately $19,093. What he did dispute, however, was an additional $14,744 in further collection fees tacked on by the HOA’s collection/foreclosure company.
Judge Jaroslovsky found that the HOA had never paid the collection company’s fees, and under the terms of their contract, it was under no obligation to pay them. The collection company’s fees were not incurred by the HOA, and were not necessary to defray costs incurred by the HOA. The fees were thus unenforceable under California law, and so were not allowable as claims against the Debtor in his Chapter 13 bankruptcy case.
As to the rights of the collection company itself against the Debtor, Judge Jaroslovsky found that it had none: “It is not in privity with Cisneros. Any rights it has against Cisneros stem from the HOA, so it cannot have more rights than the HOA against Cisneros.”
This decision represents a substantial victory for homeowners against HOAs and their collection companies, an area which, sadly, remains vulnerable to considerable abuse of the kind represented here.