LITIGATION
PRIVILEGE
Q.
Is there ever a time when it is appropriate for the board of directors
of a homeowners association to inform the membership of a serious
delinquency in the payment of monthly assessments?
A.
Yes. A board may disclose a delinquency when its collection action
has reached the stage of a lawsuit. When an association becomes
involved in litigation, the members are entitled to notice. The
filing of a suit places the matter in the public domain and is
material to the financial condition of the association. California
Civil Code Section 47 protects the association as plaintiff from
liability for defamation or disclosure of private information
under the “litigation privilege.” Top
SMALL CLAIMS
COURT
Q.
Can our homeowners association assign our claim against a member
for nonpayment of monthly assessments to another party for collection
in small claims court?
A.
No. The California Code of Civil Procedure prohibits such an assignment
for collection purposes in small claims court. You should consult
with a collection attorney about the remedies that are available
to your association. Top
RIGHT TO
PRIVACY
Q.
I am on the board of directors of my homeowners association in
Long Beach. May
the board discuss individual delinquencies (identifying names) at regular board meetings?
The association's law firm has advised us that we may do so. I
do not feel comfortable in having these types of matters discussed
in public. What is your opinion?
A.
Discussions concerning individual delinquencies (identifying names) should only take
place during executive sessions. This means that members of the
association will not be present other than board members. The
California Civil Code requires that the board of directors must
adjourn to executive session to consider litigation and member
discipline.
The California Constitution
guarantees the right to privacy. While it is unclear whether the
Constitution protects a person from an invasion of privacy by
a homeowners association (as opposed to the state), it may. The
right to privacy has been liberally interpreted by all courts.
Lastly, the intrusion into private affairs by an individual may
constitute a court for which the plaintiff may collect damages
including punitive damages.
I strongly disagree with
your counsel's opinion and suggest that your board discuss association
delinquencies only during executive committee sessions. Top
LIEN SERVICE
LIMITATIONS
Q.
Our homeowner association board hired a lien service to foreclose
on a member who is delinquent in her assessments by more than
$10,000. At the time of the non-judicial foreclosure sale, our
association received about $1,000, based on the highest bid. We
have now been advised by the lien service that we have no recourse
to collect the remaining $9,000 plus. Can this be possible?
A.
Yes. If your board had hired an attorney to foreclose judicially,
the association could have obtained a deficiency judgment for
the $9,000 and could have commenced any one of several available
collection procedures to collect the balance owing.
Judicial foreclosures,
which require an attorney, allow for deficiency judgments. Lien
services almost always foreclose non-judicially because they are
rarely law firms. These lien services cannot obtain deficiency
judgments.
Using the judicial foreclosure
method also has many other legal advantages and is highly recommended. Top
MOVE-IN FEES
Q.
May our homeowners association charge a $500 move-in fee whenever
a new owner moves in?
A.
No. Under California law, an association may not impose or collect
an assessment or fee that exceeds the amount necessary to defray
the costs for which it is
levied. Top
CHARGING
MEMBERS FOR LEGAL ADVICE
Q.
When a homeowners’ association is required to obtain legal advice
in order to respond to a member of the association, can it charge
the member for the attorney’s fees?
A.
No. A homeowners’ association is entitled to recover its attorney’s
fees from a member only when it prevails in a court proceeding
or arbitration, usually in connection with the enforcement of
the governing documents of the association. Top
HUD COLLECTIONS
Q.
I am on the board of a large association in Saugus and have just been advised
that we cannot foreclose on a unit owned by the Department of
Housing and Urban Development (HUD) even though payments have
not been made for more than six months. Is this correct?
A.
Yes. The supremacy and property clauses of the U.S. Constitution
have been interpreted by a Federal District Court to prohibit
an association from foreclosing on a unit owned by any agency
of the federal government.
Notwithstanding this ruling,
there are actions an association can take to protect its position. Top
SMALL CLAIMS
COURT
Q.
Our homeowners association has a management company that assists
us with collections. Is it permissible for our management company
to appear in Small Claims Court on behalf of the association in
collection matters? We are a non-profit corporation.
A.
Yes. However, in accordance with section 116.540 of the California
Corporations Code, a corporation may appear and participate in
a small claims action only through a regular employee, or a duly
appointed or elected officer or director who is employed, appointed,
or elected for purposes other than solely representing the corporation
in Small Claims Court. Technically, a member of the association
must represent the association while a representative of the management
company may appear as a witness. Often, Small Claims Court commissioners
and judges ignore this rule, however, it would be unwise to count
on it. Top
ADVANTAGE
OF LIEN
Q.
Will the recording of a lien against the home of a member of our
homeowner association, who is delinquent in her assessments, protect
the association against her filing for bankruptcy?
A.
It may. Recording a lien before a bankruptcy filing will
make the association a secured creditor instead of an unsecured
creditor. This can sometimes make the difference between getting
paid and not getting paid. Top
LIEN TO COLLECT
FINE
Q.
I live in a townhouse development with an association in
Torrance. The management
company recently fined me for an alleged parking violation and
then liened my property for non-payment. The fine was only $25.
The lien fee is $350. What can I do?
A.
A monetary penalty imposed by an association as a disciplinary
measure for failure of a member to comply with the governing documents,
except for late payments, may not be treated as an assessment
which may become a lien against the member’s separate interest.
In short, the lien must be removed because it is not permitted
by law. In addition, your management company may be in violation of
the Federal Fair Debt Collections Practices Act. They have created
a legal liability for your association as well as themselves. Top
COLLECTION
AFTER BANKRUPTCY
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 over $6,000.00. 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 call collect these dues. Top
FORECLOSURES
Q.
How does a foreclosure on real estate work in California?
A.
After being instructed by the beneficiary (lender) that the trustor
(borrower) is in default, the trustee prepares a Notice of Default
(NOD), and files a copy with the County Recorder’s office in the
county where the property is located. The borrower has three calendar
months to cure the default.
If the borrower does not
cure the default within three months from the recording of the
NOD, the trustee schedules a trustee’s sale and records a Notice
of Trustee’s Sale.
After advertising the property
for sale during a twenty-one day period, the trustee will sell
the property to the highest bidder. Any bid made by the beneficiary
(lender) is normally equal to the unpaid principal of the loan
plus accrued interest, advances for taxes, prior encumbrances,
insurance and foreclosure costs. After the sale is made to the
successful bidder and the trustee is paid the amount of the highest
bid, the trustee delivers a Trustee’s Deed (and title to the property)
to the buyer. Top
LIEN PROCEDURES
Q.
Our association management company filed a lien against my home
after giving me only ten days notice to pay my monthly assessment.
They also charged me $495.00 for recording the lien. Can they
do this?
A.
No. Management companies are required to comply with the California Civil Code and other laws. Among other requirements
of the Act, a thirty day written notice is required before a lien
can be recorded to enforce payment of an assessment. Your management
company should immediately release the lien, waive the fee and
obtain legal advice before they get themselves and your association
into serious legal trouble. Top
BENEFIT OF
HOMESTEAD
Q.
A creditor just obtained a large judgment against me. My home
has a recorded homestead. Will the homestead prevent the judgment
creditor from forcing the sale of my home?
A.
Possibly. A homestead will protect your equity up to a limit depending
upon certain factors, but it can not prevent a judgment creditor
from obtaining a court order to have your home sold. However,
if the anticipated proceeds available to the judgment creditor,
from a sale, will not be significant (due to the homestead exemption
and other encumbrances), the creditor may not find it economically
feasible to proceed to sale. Top
COLLECTION
OF JUDGMENT
Q.
Our homeowners association recently obtained a small claims judgment
for $5,000 against a member for non-payment of assessments. What
is our next step?
A.
If you have a management company, they should be able to take
any appropriate collection action. This should include filing
an "Abstract of Judgment" in any county where the debtor owns
real estate and/or resides. Other options include:
(1)
Garnishing the debtor’s wages;
(2)
Seizing bank accounts;
(3) Seizing non-exempt personal property, such as accounts receivable; and
(4) Conducting a debtor’s examination in order to obtain the information needed to collect the debt. Top
ABSTRACT
OF JUDGMENT
Q.
What is an "Abstract of Judgment", and what does it accomplish?
A.
An Abstract of Judgment is a legal form filed with the County
Recorder’s Office that puts everyone on notice that you have a
judgment against the debtor. Most importantly, it causes the judgment
to attach to all of the debtor’s real estate, including any real
estate acquired by the debtor within ten years of the entry of
the judgment. The Abstract may be renewed after ten years, if
necessary.
The recordation of an Abstract
of Judgment makes it nearly impossible for a debtor to sell or
refinance real estate or to obtain new unsecured credit at favorable
interest rates and terms. Thus, it is an excellent collection
tool.
Judgments currently accrue
interest at the rate of 10% per year. Also, certain post judgment
costs may be added to the judgment amount. Top
NO EXCUSE
- NONPAYMENT OF ASSESSMENTS
Q.
One of the members of our homeowner association refuses to pay
her monthly assessments because the developer has not made repairs
to the interior of her individual home. The developer is still
in control of the association. What should the board do?
A.
The board must enforce the established delinquency policy and
should assume no responsibility in assisting the owner in her
dispute with the developer. An owner’s dispute with the developer
is not an effective defense to the payment of assessments. Top
COLLECTION
OF JUDGMENTS
Q.
Our homeowner association is holding several unpaid small claims
court judgments resulting from the non-payment of assessments.
How can we collect the amounts owing?
A.
There is insufficient space available to describe all of the collection
alternatives available to you.
Assuming you have a management
company, it should be able to assist you by holding a debtor’s
examination and then selecting one or more courses of collection
action. This is a service that high level management companies
generally offer their clients. Some alternatives include:
(1)
Garnishing wages,
(2)
Seizing accounts receivable,
(3)
Seizing rental income,
(4)
Seizing bank and/or savings accounts,
(5)
Seizing securities and
(6)
Seizing other non-exempt personal property.
Regardless of the course(s)
of collection action taken, an abstract of judgment should always
be recorded in the county or counties where the debtor is most
likely to own or acquire real property. The recordation of an
abstract of judgment will cause the judgment to "attach itself"
to any real property owned or later acquired by the debtor. It
is effective for ten years and can be renewed. Top
RESTRICTION
OF VOTING BY MEMBERS
Q.
Our townhome association has a provision in the bylaws that prohibits
members from voting at association elections if they are delinquent
in their assessments. Is this provision legally enforceable?
A.
Yes, with one possible exception. If a delinquent member has filed
for bankruptcy, any attempt to penalize the member for unpaid
assessments accrued prior to the filing may be considered by the
court a violation of the automatic stay. While I am not aware
of a case on this point, I do not recommend that your board take
such action in the event of a bankruptcy. Top
COLLECTION
PROCEDURES
Q.
The management company for our homeowner association recently
hired a lien service to collect delinquent assessments from a
member of our association. The lien company sent the debtor a
written notice stating that he had 30 days to dispute the debt
and that a lien would be recorded if the debt was not paid within
ten days. The debtor did not pay within the ten days and the lien
service has recently started a foreclosure. The debtor claims
that our lien service has violated the law and demands that we
stop all collection action. The lien service is owned and operated
by an attorney. Who is correct?
A.
The debtor is correct. The federal Fair Debt Collections Practices
Act requires that a debt collector provide the debtor with a 30-day
notice before taking any collection action. Your association should
immediately consult with another attorney that specializes in
collection law. Your association may be liable for substantial
damages, however, it appears that your association may have an
excellent malpractice claim against the lien service. Top
LENDER FORECLOSURES
IN ASSOCIATION
Q.
We have had several homes foreclosed by lenders within our homeowners
association over the last few years. Our board never seems to
know when a homeowner is delinquent on his loan payments or if
a foreclosure is in process. Is there an easy way for our board
to stay informed on these matters?
A.
Yes. Most good management companies subscribe to a service that
provides the information you need to know on a daily basis and
will provide it to you as part of their service. Top
HOW TO COLLECT A PERSONAL JUDGMENT
Q.
How can our HOA collect a personal judgment?
A.
Following are eleven ways to collect a personal judgment:
1. Place a lien on real property owned by the
debtor.
2. Conduct a debtor’s examination under oath at the court where
the judgment was entered.
3. Conduct a debtor’s examination under oath of the debtor’s
clients or customers at the court where the judgment was entered.
4. Garnish or seize the debtor’s wages.
5. Seize (levy on) bank or savings accounts owned by the debtor.
6. Levy on (collect) debts owed to the debtor by third parties.
7. Seize and sell the debtor’s vehicle if not exempt.
8. Seize and sell non-exempt personal assets of the debtor such as
art and jewelry.
9. Obtain a court order requiring the debtor to turn over specific
personal property.
10. Obtain a court order requiring the debtor to transfer or
assign certain rights such as rents or royalties.
11. Force the sale of real property owned by the debtor.
Top
SUSPENDED CORPORATION
Q.
Our Association’s management company recently informed the board
that the corporate status of the association had been suspended.
How does a homeowner association become suspended and what are the
consequences?
A.
Possible reasons for suspension are:
| • |
Failure to pay taxes, |
| • |
Failure to file taxes, |
| • |
Failure to file a Statement by
Domestic Nonprofit Corporation, or |
| • |
Failure to file a Statement by
Common Interest Development |
The consequences include the loss of:
| • |
The right to bring and defend lawsuits, |
| • |
The right to collect assessments, |
| • |
The right to enforce contracts with contractors and
vendors, and |
| • |
The right to enter into contracts. |
A suspended corporation (association)
can be revived. When this occurs, a Notice of Revivor is
provided by the Secretary of State.Top
DISPUTE WITH DEVELOPER
Q.
One of the members of our homeowner association in Palmdale refuses to pay her monthly assessments because the developer has not made repairs to the interior of her individual home. The developer is still in control of the association. What should the board do?
A.
The board must enforce the established delinquency policy and should assume no responsibility in assisting the owner in her dispute with the developer. An owner's dispute with the developer is not an effective defense to the payment of assessments. Top
SUIT FOR DELINQUENT ASSESSMENTS
Q.
Our board is intending to file a suit against a member for failing to pay assessments. The delinquency now exceeds $4,500. Are we required to sue in small claims court or may we sue in Superior Court?
A.
The association may sue in either court. If it decides to use the Superior Court, it will need to be represented by an attorney. Depending on the facts, one court action may be better than the other. You should get advice from an HOA collection attorney before you decide. Top
FINES ON FINES
Q.
Can the board of my condominium association levy a fine on a member of our association for failure to pay a prior fine?
A.
No. Fines may be levied only for violating the Operating Rules or CC&Rs of an association assuming they are written so as to authorize fines.
Your association can sue a member of the association in small claims court for failure to pay a fine. The likelihood of having a judgment entered against a non – paying member, which will harm their credit, may be a greater incentive to pay a fine levied by the association through its board. Top
Permission to reprint our HOA Questions and Answers is granted provided Michael T. Chulak & Associates (MTCLaw.com) is credited as the source.
