Tiffany by the Sea Condominium Association, Inc. v. Zengel

MON-L-0198-95, 1997 WL 741346 (N.J. Super. Law Div. 1997)
  • Opinion Date: October 27, 1997

BANKRUPTCY; CONDOMINIUMS; ASSESSMENTS—Under the pre-1994 Bankruptcy Code, a discharged Chapter 7 debtor is not liable for post-petition condominium assessments and fees if the debtor does not live in, or economically benefit from, the condominium unit.

Under the pre-1994 Bankruptcy Code, the filing of a Chapter 7 bankruptcy petition can discharge the record owner of a condominium unit from liability for post-petition condominium assessments and fees. Under current law, a unit owner that neither lives in nor derives income from the unit after filing is relieved from future assessments. However, because the petition at issue here was filed before enactment of the 1994 amendments, the Law Division examined case law.

The Court first discussed three distinct lines of cases on the issue of the dischargeability of post-petition condominium charges. The first holds that a bankruptcy discharge excuses a party from all liability for post-petition condominium charges. The second holds that post-petition charges are not discharged because they are not debts until each assessment or fee becomes due. Under that line of cases, the condominium association has no right to payment until that time. The third line holds that in order for a debtor to avoid post-petition liabilities, the owner must surrender all ownership interest in the property. One state court decision held that record owners are not responsible for post-petition debt if they vacate the premises and abandon all interest in the unit within two months of filing for bankruptcy. In other words, if there is no post-petition benefit, there is no personal liability for charges. In the instant case, the Court concluded that the right to collect future assessments constitutes a claim which is a dischargeable debt, and that a unit owner who derives no benefit from ownership of the unit is not liable for charges accrued after filing for bankruptcy. In the Court’s view, even though still the record owner, the owner constructively surrenders its rights in the unit by not living there or deriving economic benefit from the unit. This approach was also justified by the policy underlying the bankruptcy code that a person get a fresh start through discharge of obligations; a goal that would be thwarted if the Court found an obligation for post-petition condominium charges.