CRUZ V. VALERIO TOWNHOMES HOMEOWNERS ASSOCIATION (2022)

A lender held a nonjudicial foreclosure sale on an owner’s townhouse. The sales proceeds were more than owed to the lender, so the trustee gave notice of the surplus to all parties with a recorded interest in the townhouse. The HOA had recorded a lien on the townhouse for delinquent assessments and made a claim for its portion of the surplus funds. Because  the homeowner disputed the HOA’s claim, the trustee deposited the surplus proceeds with the clerk of the Superior Court and the trial court conducted a bench trial on the HOA’s claim. The owner asserted the lien was invalid because the association had violated the Davis-Stirling Act when it recorded the lien. The association claimed  the owner’s failure to object to a proof of claim that the association filed in the owner’s prior Chapter 13 bankruptcy case prevented the owner from challenging the validity of the lien. The trial and appellate courts  agreed, pointing out that a claim in bankruptcy is deemed allowed unless a party in interest objects. The allowance of the claim in bankruptcy is binding and conclusive on all parties and is a final judgment. Since the owner had not objected to the proof of claim, it was a final order of the bankruptcy court and could not be re-litigated in the petition proceeding. The association was awarded the monies owed out of the surplus funds of the nonjudicial foreclosure sale.