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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.




 


 
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