BANKRUPT ELECTIONS: CAN A BANKRUPT UNIT OWNER VOTE ON A CONDOMINIUM ELECTION?

Published on: September 24, 2013

Recently someone raised the question:

“Is anyone aware of any statutory law or case law that would prevent a member of a condominium from having his/her vote count on a vote for a declaration amendment when they were in bankruptcy proceedings if the governing documents are silent on the issue?”

While there are no reported cases, the answer may depend on the type of bankruptcy.

In a Chapter 13, the owner most likely retains the right to vote.  In a Chapter 7, however, immediately upon the filing of the bankruptcy, the unit (including all rights related thereto) become property of the estate under Section 541 of the bankruptcy code.  A trustee is then appointed to oversee this property pursuant to sections 701-704. The trustee will make a determination of whether the property has any value (equity is greater than secured debt and any applicable exemptions).  If the property has value, the trustee will sell it.  If the property does not have value, the trustee will formally abandon the property pursuant to section 554 or it will be deemed abandoned if the property is not sold or otherwise disposed of by the closing of the case. During the period between the filing of the chapter 7 and the abandonment of the property, the trustee is technically in control and the debtor/unit owner has no right to take any legal action related to the property even though they may continue to reside in the unit.  During this period it is likely the trustee who has the right to vote, not the unit owner.

Accordingly, in a Chapter 7, the association may reject a vote/consent from an owner after the filing and before the unit has been abandoned. They may reject that vote/approval because pursuant to federal law, the owner has no right to vote, the trustee does.  If necessary, the vote can be solicited from the trustee in the bankruptcy and the trustee may vote any way the trustee wishes, including against the wishes of the unit owner.

This is a possible tool for associations in a close or hotly contested election or a document amendment, and yet another example of the overlap between condominium and bankruptcy law.

For any questions please contact Ed Allcock at eallcock@meeb.com or 781-843-5000 (x150).