Real Estate Advisor

Chulak & Shiffman
Attorneys at Law

Q. I am the treasurer of our homeowners association. Recently, a member of our association filed for bankruptcy under Chapter 7.

He owes the association more than $6,000. Our management company has advised us that there is nothing we can do. What is your advice?

A. Section 523(a) of the Bankruptcy Code provides that dues owed to condominiums, cooperatives or other similar membership associations after the filing of a bankruptcy petition are not dischargeable, to the extent that the dues are payable while the debtor either lived in or received rent for the condominium or cooperative unit.

In other words, so long as the homeowner still lives in the unit or rents it out to someone else, the dues will continue to accrue after the date of the filing of the petition. Your association management company can collect these dues.

Q. Our homeowner association is paying a fortune for earthquake insurance. I am on the Board which is seriously considering canceling our earthquake coverage because of its high cost and high deductible. What are your thoughts?

A. While most boards have the authority to decide whether to purchase earthquake insurance, it is wise for boards who have such authority to permit the overall membership an opportunity to vote on this important issue unless the board decides to acquire such coverage.

If a board is opposed to obtaining earthquake insurance coverage, it should always permit the overall membership to vote on the matter in order to minimize its exposure to liability. Such liability can result from an earthquake that results in damage.

It is important to be aware that many directors’ and officers’ liability policies do not cover directors and officers for their failure to obtain correct or adequate insurance coverage.

In order to minimize your liability as well as the Board’s, I recommend that you encourage the purchase of earthquake coverage and arrange for a vote by all members of the association.

Michael Chulak is a partner with Chulak & Shiffman, Attorneys at Law. Questions can be sent to 30343 Canwood St., Suite 203, Agoura Hills, CA 91301. Answers are general in nature. An attorney should always be consulted when legal advice is needed. For more information, visit Web site: www.mtclaw.com.