Foot-Dragging BofA Reluctant To F'close On Abandoned House Loses Lien Priority To HOA; Judge To Allow Home Sale, Apply Proceeds First To Junior Claim

In Nashville, Tennessee, The Tennessean reports:

• An outgoing Nashville bankruptcy judge has sided with a local flood victim over the nation’s largest mortgage lender in a decision that could serve as a blueprint for disaster victims who can’t escape mounting homeowners association fees even if they abandon their homes, enter foreclosure and declare bankruptcy.



• At a time when mortgage lenders are taking more than a year to complete foreclosures, Judge George C. Paine II has ruled that Bank of America has consented to the sale of a flood-damaged Bellevue condominium through its inaction and must wait in line behind a homeowners association to get paid.



• The Bellevue condo belongs to Sheryl Lynn Pigg, a filmmaker professionally known as Sherry Paige, who lost nearly everything in the Nashville flood of 2010. She ultimately found a new home, declared bankruptcy, discharged her debts and embarked on a fresh start.



• Or, so she thought. Pigg was surprised when she learned that Belle Management Corp. was still saddling her with homeowners association fees for a unit that she stripped to its studs and abandoned.

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• Pigg sued her mortgage holder, Bank of America, to get the lender to finalize the foreclosure, accept a deed in lieu of foreclosure or allow a sale of the condo.



• Citing the wide latitude courts have to fashion whatever remedy is necessary to achieve justice, Paine said Pigg and others like her have unjustly been left in limbo. In a memorandum opinion, he has asked that Pigg’s bankruptcy be reopened so that a trustee can sell the condo.



• Proceeds from the sale will go first toward settling the homeowners association bill and then Bank of America. When Pigg declared bankruptcy in September, she owed $97,500 on a home that was worth only $55,000.



• “With the real estate collapse, lenders, who otherwise have the right to do so, are choosing not to foreclose on their collateral leaving homeowners in limbo,” Paine wrote. “Congress’ broadening of (the bankruptcy code) to protect HOAs deprives the debtor of a fresh start, and thwarts the goals of the entire Bankruptcy Code.”

For the story, see In rare move, court backs flood victim in foreclosure (Bankruptcy judge says bank unjustly left woman in limbo).

For the ruling, see Pigg v. BAC Home Loans Servicing LLC (In re Pigg), Case No. 10-10168 (Bankr. M.D. Tenn. June 24, 2011).

Go here for the Pigg-Amended Complaint, and here for Pigg - Trial Brief.