– By Laurie S. Poole, Esq. (originally published in April, 1998)

A Florida bankruptcy court has ruled that a judgment obtained for delinquent homeowner association assessments is not the type of lien that can be “set aside” in a bankruptcy proceeding.

Section 522(f) of the United States Bankruptcy Code provides that under certain circumstances, certain types of liens can be removed from a debtor’s title during a bankruptcy proceeding. One of the liens that can be set aside under this Section is a “judicial” lien.

In the case of In re Beckley (Bankr. MD Florida 1997) 210 B.R. 391, the issue before the court was whether a judgment that was based on delinquent homeowner association assessment fees was a “judicial” lien that could be set aside under Section 522(f). The homeowner had failed to pay monthly assessments for two and a half years. The association sued the debtor for the assessments, late fees, interest and attorneys’ fees and costs and obtained a judgment against the homeowner for these moneys.

The homeowner then filed for relief under Chapter 7 of the Bankruptcy Code and brought a motion to set aside the association’s judgment. The court characterized the association’s assessment judgment as a “security interest” and not a judicial lien. In reaching this conclusion, the court reasoned that because the association’s CC&Rs authorized a lien to be obtained if a homeowner was delinquent in his or her assessments, the “substance” of the judgment was more similar to a security interest than a “judicial” lien. The court admitted that it was applying “substance over form” in making this determination. Because the judgment was not a “judicial” lien, the court held that it could not be set aside under Section 522(f).

This case is important because it prevents an owner from avoiding a lien obtained from a judgment for delinquent assessments. However, because this is a Florida case, it may have little persuasive value to bankruptcy judges in California. Nevertheless, in certain situations, an association may be able to use the reasoning in this case to argue that a judgment for delinquent assessments should not be avoidable under Section 522(f).