HOA Law Blog

Residents Are Not Happy With Their Neighbor's New Green And Purple Paint Color Scheme; Not Much They Can Do About It! If Only They Lived In A Community Association.

2010-07-19T20:06:02Z

I read with interest an article that appeared in the Los Angeles Times addressing a La Cresenta neighborhood's uproar over one owner's neon green paint job. Follow this link to read/download the LA Times article.

One neighbor was quoted as saying that the green paint color was “completely inconsistent with the neighborhood. We have a real concern it's going to lower property values.”

Unfortunately, there are no standards in this area, and it's unlikely that anyone can do anything about the neon green. This would likely not be the case if this home were located in a planned development where paint colors are controlled.

I often hear people complain, especially those who are involved in the community association industry, that they would never live in a condominium or planned development because of all of the restrictions and problems. What they fail to realize is that one of the great benefits of living in a community association is the fact that there are restrictions, such as the choice of paint colors or where you cannot park your trailer or motorhome. Most people can live with those restrictions, and if you can't, you can live in the neighborhood with neon green homes and 40 foot trailers parked on the street in front of your home.

Legislation Alert - AB 1726 (Swanson) In Jeopardy

2010-06-25T18:02:08Z

Earlier this year, California Assemblymember Swanson introduced AB 1726, a bill that would benefit California common interest developments. As amended, the bill has been watered down in some respects but improved in other respects, and it remains a valuable piece of legislation. We have recently been alerted by the California Legislative Action Committee, which supports the bill, that the bill is encountering unexpected opposition in the state senate. Please fax a message to the state senate committee members by Monday, June 28 in support of AB 1726.

]]> The reason for the unexpected opposition is unclear, as AB 1726 is clearly beneficial to all common interest developments in California, especially those that have difficulty electing directors due to failure to reach quorum. We have several clients in this predicament, and we see no detriment to any owners if the bill were to become law.

Originally, AB 1726 provided that notwithstanding governing document provisions to the contrary and except for associations whose governing documents provide for a reduced quorum for second or subsequent elections, the quorum required for purposes of a second or subsequent members’ meeting would be 33% of the association’s voting power.

Is your head spinning yet?

To clarify, let's say you live in an association with governing documents that define quorum as 50% of all members. Also, let's say your governing documents do not contain a provision for reduced quorum at adjourned meetings of members (as is the case with most but not all associations). If you had to adjourn a meeting of members due to failure to reach that 50% quorum, AB 1726, in its original form, would have allowed a reduced quorum of 33% for the adjourned meeting. The point is that the business of the association would be less likely to be stalled because of non-participation by indifferent or absentee members.

Now, the bill has been amended, and the 33% reduced quorum for adjourned meetings only applies to director elections, not all meetings of members as originally drafted. Although this development lessens the positive impact of the bill, its applicability to director elections is the most important, so we are glad to see that at least this aspect has survived so far.

On the other hand, new language has been added to the bill that really brings the Davis-Stirling Open Meeting Act into the 21st century. Directors would be able to "participate in a [board] meeting through use of a conference telephone or electronic video screen communication." It goes on to explain that such participation in a board meeting constitutes presence in person at that meeting if all board members participating in the meeting are able to hear one another and members of the association speaking on matters before the board. This is another good idea that will allow the business of California associations to move forward with greater ease. Keep in mind that the requirement of being "able to hear one another" may cause a bit of a gray area, but it is nevertheless a great improvement to the Open Meeting Act. A director's inability to be physically present at a board meeting (due to vacation, business travel, etc.) would not stall association business.

We understand the difficulties many associations and their managers experience when trying to get out the vote and achieve quorum - often, they are met with the same enthusiasm as a door-to-door salesperson. Please follow the link above, contact the senate committee members today, and let's help those California community associations who have had great difficulties, sometimes for years, achieving a quorum.

Are We Really That Opposed to Artificial Turf? Really!

2010-06-11T01:07:18Z

An Editorial by David C. Swedelson, Esq., Senior Partner, Swedelson & Gottlieb

Many of you received an urgent request by the California Legislative Action Committee (CLAC) for grassroots letters to be sent to the legislature opposing Assembly Bill 1793 (Saldana). I am not sure that I agree with what CLAC stated, and I really wonder if this is legislation that the CID industry should oppose.

I do not now personally have any artificial turf at my home, but I have considered it. I do have neighbors that have installed it, and my daughter’s school installed it on the athletic field. I do not have an interest in any company that manufactures, sells or installs artificial turf.

Today’s artificial turf looks a lot different than the “Astroturf” we may be familiar with. Esthetically, the newer products I have seen look like real grass. Even if I get on my hands and knees to check, it is hard to tell if it is artificial grass.

]]> AB 1793 provides for the following additions to Civil Code Section 1353.8:

1353.8(a)(2) [A provision of the governing documents shall be void and unenforceable if the provision] prohibits, or includes conditions that have the effect of prohibiting, the use of artificial turf or any other synthetic surface that resembles grass.

(b)(2) This section shall not prohibit an association from applying landscape rules and regulations established in governing documents that establish design standards and quality standards for the installation of artificial turf, or any other synthetic surface that resembles grass, to the extent the rules and regulations conform with the requirements of paragraph (2) of subdivision (a).

CLAC set out a number of reasons we should oppose AB 1793, and I have to say that I do not agree with CLAC’s reasoning. CLAC’s letter stated the following reasons for opposing this legislation, and I have included my comments on each point.

1. It singles out a class of property owners in common interest developments and may violate the equal protection clause of the Constitution.

I do not see how the proposed legislation that is designed to help owners that want to save water (which we should all agree is a good thing) will be singled out, and is this really any different then past legislation that requires community associations to permit the installation of low water-using plants and solar power systems?

2. Artificial grass may ruin a community's curb appeal and reduce owner and neighbor's property value.

I do not see how this is possible if the owners are required to use appropriate product. As I said above, I have seen artificial turf installed at some homes and elsewhere that looks so realistic that I have had to get on my hands and knees to inspect it up close, and even then, it was hard to see that it was not real. So what is the problem, so long as associations get to set standards? And think about the water savings, not to mention the environmental benefit from the absence of toxic chemicals (fertilizers, etc.) that will not be used and as a consequence, and which will not run off into our waterways.

3. Existing law already mandates local public agencies to adopt and enforce water usage by which CIDs must abide.

But what does this have to do with owners who want to remove their water-intensive, chemical dependent lawn and replace it with nice looking, always green artificial turf?

4. Civil Code 1353.8 already addresses water usage and landscaping in CIDs per AB 1061 (Lieu), which just became effective in January.

That legislation prohibits community associations from “prohibiting the use of low water-using plants as a group, as well as prohibiting or restricting compliance with a local water-efficient landscape ordinance or water conservation measure.” That legislation had nothing to do with artificial turf! Also, local ordinances may not necessarily address artificial turf.

5. It micromanages communities and overrides local control.

We seem to make this argument each time the legislature tries to pass a new law that impacts community associations (and the legislature has made about 47 changes to the Davis-Stirling Act since the mid 1980s when it was first adopted). In this case, the legislature wants to ensure that individuals have the power to choose whether to install artificial turf. CLAC’s use of the word “micromanaging” suggests that there will be no impact outside a particular community – to the contrary, water conservation benefits all of California.

6. It lacks definition of "grass"... what variety, color shade, seasonal vs. perennial, length?

The bill allows associations to set standards, so this is not really a reason to oppose the bill. An association might even choose to require a specific kind or type of artificial grass in its Rules and Regulations or Architectural Guidelines to ensure uniformity.

7. It statutorily promotes certain company products.

This is just wrong. I read the bill and do not see that it promotes any particular product. Why is CLAC raising this non-issue?

8. It does not address possible water runoff, flammability, and toxicity issues identified in various governmental studies.

I did a little checking, and apparently, there is a debate as to this issue. But my limited research showed me that on balance, artificial turf is less toxic than maintaining real grass. Growing grass requires chemicals, such as fertilizer, herbicide, and pesticides. These are potent chemicals that include numerous carcinogens.

So what about artificial turf? I read one report out of Connecticut from Environment And Human Health, Inc. (EHHI), which claims that EHHI did some testing that showed the release, when heated, of four potentially hazardous chemicals from the tire infill in synthetic playing fields. But EHHI's report gives no details on that testing or their testing protocol.

It was suggested that the laboratory testing done by EHHI bore little relationship to the real world conditions where the turf is in the open air, and where any chemicals released most likely would be quickly dispersed. Moreover, those same chemicals are emitted from tires on highways, so they are already in the air.

9. CLAC suggests that this bill, if passed, will increase an HOA's liability and generate lawsuits due to harm that can be caused by the toxic chemicals used in the manufacturing of the artificial lawns.

I do not see how this is possible. Liability for what? If the legislation is passed, community associations will be mandated to allow artificial turf. So, no one can expect to win a case against their association because it allowed another owner to install artificial turf when mandated to do so by the legislature.

Typically, community associations are not liable for any defects in construction that the association approves. Saying that a community association will be held liable for allowing an owner to install artificial turf is like saying that an association will be held liable for allowing an owner to plant poisonous oleander. Following CLAC’s logic, should there not be a huge backlog of lawsuits against associations for allowing owners to utilize toxic chemicals such as fertilizers on their real grass lawns? We are not aware of any.

We should seriously consider every opportunity to conserve precious water resources in California, and this legislation is an excellent example. The proposed legislation allows associations to set quality and esthetic standards for artificial turf, as long as it does not have the effect of prohibiting it outright, so there is no reason to believe that property values will be negatively impacted. The bill was passed on the State Assembly floor with overwhelming support, 69 Ayes and only 1 No vote. AB 1793 is currently under review in the State Senate, and we will be supporting this bill.

Who is Responsible for Heating/Air Conditioning Ducts and Other Common Area Elements? It is Not That Complicated!

2010-06-10T22:31:59Z

One of the more difficult and confusing issues that boards and association management often have to deal with is determining who is responsible for the maintenance and repair of common area plumbing, ventilation and other utility components, especially those that serve only one unit. Even attorneys sometimes get it wrong and believe that merely because the pipe, duct or wiring serves only one unit, the affected owner is responsible for same. Just because a common area component serves or benefits only one unit does not by itself make that component that owner’s repair and/or replacement responsibility.

]]> Recently, I was contacted by one of my oldest friends who told me that his parents’ condominium association was refusing to repair the heating and air conditioning ducts that served his parents’ unit. It turns out that his mother had been suffering from some allergy issues, and contacted a company to clean the ducts. The duct cleaning company inspected the ducts and advised that they were in disrepair and could not be cleaned until they were repaired. In fact, there were some gaps in the ducts that were allowing the stale (and, as it turned out, rat-infested) attic air to leak into the duct and then to the interior of the unit. The condominium building was built in the 1970s, and being over 35 years old, the ducts were in need of some repair.

At first, the board of directors advised my friend’s parents that the ducts were part of the unit and therefore not the association’s responsibility. They were trying to defer responsibility.

I then wrote a letter to the board of directors, as a favor to my old friend (as our firm does not typically represent homeowners), pointing out that the CC&Rs and Condominium Plan for this association defined the unit as all of the air space bordered by the perimeter walls, ceilings and floor, as condominium units are typically defined. Their documents specifically stated that everything else (including the ducts which were specifically referenced in the Condominium Plan as not being part of the unit) was common area, which is also typical.

The association turned my letter over to an attorney who, I happened to know, does not have much experience representing community associations. The lawyer’s response showed this lack of experience, as she stated that since the CC&Rs did not specifically say that the ducts were part of the common area, then they must be part of the unit. Really?

I responded by pointing out the references in the governing documents to what was defined as being the common area. I pointed out that what was not part of the unit was clearly common area and therefore the association’s maintenance and repair responsibility.

In response, the association’s attorney stated that since the ducts served only my friend’s parents’ unit, the ducts were considered exclusive use common area and thus the unit owner was responsible for the maintenance and repair of those items that are exclusive use common area. Really?

You may be asking yourself, why was the association’s attorney wrong if the ducts only served that unit? The answer is simple if you refer to the California Civil Code. Civil Code Section 1351 defines exclusive use common areas as meaning that portion of the common area “designated by the declaration for the exclusive use of one or more, but fewer than all, of the owners of the separate interests…” That Code section goes on to specifically define certain components, such as shutters, awnings, doorsteps, and others, as being exclusive use common area. But the important point is that this code section makes it clear that unless the declaration states that a specific component is exclusive use common area, that component (in this case a duct) does not become exclusive use common area merely because it serves only one unit.

To put it differently, a common area component does not become exclusive use common area of the owner of the appurtenant unit merely because it serves only that unit. If that were the case, then all of the plumbing lines, which would include the sewer waste lines, the electrical wiring, and other components of the common area systems and facilities that we typically define as being the common area would become exclusive use common area. Since all the plumbing and electrical lines, as well as other utility facilities and similar components serving one unit, are part of a system that serves all of the units, it is just not appropriate to have homeowners ripping open common area walls and making repairs to common area components, unless the association’s CC&Rs otherwise provide.

Even if the ducts were considered exclusive use common area, that would still not make the ducts the repair or replacement responsibility of the unit owner. Civil Code Section 1364 states that owners are only required to maintain their units and their exclusive use common area, not repair same. If the ducts were considered exclusive use common area, I would agree that my friend’s parents are responsible for cleaning the ducts (and they were handling that responsibility and that is how they discovered that the ducts were broken). However, even if this were the case, neither the association’s governing documents nor the California Civil Code provide that the owners are responsible for repairing the ducts. Therefore, even if the ducts were considered exclusive use common area, all that my friend’s parents would be required to do is keep them maintained.

Many associations grapple with these types of issues. One way to eliminate the debate over who is responsible for maintaining, repairing or replacing various building components would be to develop a maintenance and repair checklist. Swedelson & Gottlieb is available to prepare such a list, which not only lists all of the major components in the development, but also identifies who is responsible for maintenance, repair and replacement and cites the section of the governing documents or California law that supports that position. If your association would like to have a professionally prepared maintenance and repair checklist, contact either David Swedelson or Sandra Gottlieb by calling 1-800-372-2207 or emailing me at dcs@sghoalaw.com. Also, feel free to email me if you have any comments.

Electronic Delivery

2010-06-10T20:42:24Z

Don’t you wish that you could utilize e-mail or other new technology to disseminate important association documents? Maybe you can! Effective January 2010, Civil Code Section 1350.7 was amended to allow community associations to send certain documents to the owners via e-mail or other methods of electronic delivery. Our Senior Partner, Sandra Gottlieb, has prepared an article regarding electronic delivery and the amendment to Civil Code Section 1350.7. This article was published in the March/April 2010 edition of the O.C. View, the bi-monthly publication of the Orange County Chapter of the Community Associations Institute. Follow this link to read this important article.

Who is Watching Your Pool?

2010-06-10T20:37:39Z

The kids are getting out of school for the summer, and the weather is heating up. This will mean that there will be more residents and their guests utilizing community association swimming pools. Who is watching your pool? Do you have lifeguards or pool monitors? Have you considered the difference? Do you know the difference? Alex Noland, an Associate Attorney at Swedelson & Gottlieb, has written an article on this subject which was recently published in the O.C. View, the bi-monthly publication of the Orange County Chapter of the Community Associations Institute. Follow this link for a copy of the article.

California Appellate Court Rules that a Developer Cannot Force HOA to Arbitrate Defect Claims Based on a Provision in the CC&Rs

2010-05-29T00:37:44Z

By Alyssa Klausner, Swedelson & Gottlieb Senior Associate

In the case of Villa Vicenza Homeowners Association V. Nobel Court Development (follow this link to see the entire decision), the developer of a condominium project recorded a Declaration of Covenants, Conditions and Restrictions (CC&Rs) which required a homeowners association to arbitrate any construction defect claim the association might have against the developer. The Court ruled that the CC&Rs are not an effective means of obtaining an agreement to arbitrate a homeowners association's construction defect claims against a developer.

The basis of the Court’s decision was that the recorded CC&Rs, standing alone, are not a contract between the developer and the homeowners association, which only came into existence after the CC&Rs were recorded, and therefore there has been no showing the association entered into a binding arbitration agreement.

We have represented several associations that have had to deal with this issue, and we are pleased to have an appellate court decision confirming that such provisions in CC&Rs are not enforceable. If you have any questions regarding how this case impacts your association or about defect cases in general, please contact Alyssa Klausner, Esq. at (310) 207-2207, Ext. 205.

Hooray, AB 2502 Is Dead; But What About The Waiver and Partial Payment Issues, and Why Did CLAC Support This Bill?

2010-05-26T19:27:59Z

As we reported in April, Assemblymember Julia Brownley had proposed AB 2502, which would have made assessment collection in California even more difficult than it already is. We have great news. Because of all of the opposition she received (your letters and emails were acknowledged) and because some of those that backed the bill withdrew their support when Brownley amended parts of the bill, Brownley likely realized that compromise was impossible, the bill never made it out of committee and it did not advance to the floor for a vote. This legislation would have imposed new and unwarranted restrictions on the assessment collection process for California community associations.

Brownley had agreed and did amend the bill to eliminate the requirement that associations wait until the delinquent owner owed $3,600 or was 18 months delinquent before foreclosing. But she had left in the proposed prohibition on a waiver of the provisions of Civil Code Section 1367.1 relating to the allocation of payments, as well as the proposed prohibition on not accepting partial payments, and we learned that these issues were not only misunderstood by the legislator, but by others in the community association industry as well.

And why did the Community Association Institute's California Legislative Action Committee (CLAC), which had originally opposed the bill, then decide to support this flawed legislation?

To learn more about why the waiver and partial payment prohibition are important to California community associations, download our full article.

Community Associations May Be Able To Recover Payments From Unlicensed Contractor Even If Contractor Was Licensed For Part of the Job

2010-05-25T17:47:56Z

Where a homeowner paid an unlicensed contractor for landscaping work at his home, his knowledge that the contractor was not licensed when work commenced did not bar an action for full reimbursement under Business and Professions Code Sec. 7031(b), and the homeowner was entitled to recover the total amount paid even though the contractor was licensed during a portion of the work. The homeowner was also entitled to recover payments for materials retained by him, in addition to payments for labor.

This applies to California Community Associations who hire contractors and then find out they are not licensed. This may sound unfair, but the penalty is designed to discourage unlicensed contractors from performing contracting work.

Click here for the full text of the Alatriste v. Cesar's Exterior Designs, Inc. case recently decided by the California Court of Appeal.

The Association Has Foreclosed on its Lien - Now What?

2010-05-21T18:47:51Z

By the Community Association Attorneys at Swedelson & Gottlieb

So the board has done its due diligence, investigated its options and decided that chasing down the owner who has not paid their assessments for many months is likely to be a waste of time, money and association resources. The board has considered the options and opted to complete the non-judicial foreclosure process with the actual foreclosure sale on its lien. (See our prior article entitled, “To Foreclose or Not to Foreclose, That Seems to be the Question”) Because the senior lien or lien/trust deed securing the original purchase loan for the property is in an amount that exceeds the current (2010) depressed value of the property, no third party bid at the foreclosure sale and the association ended up with the property (unit/lot) after the 90-day redemption period.

Assuming that the ninety (90) day redemption period has ended (see our previous post on the homeowner’s right of redemption) and the trustee’s deed upon sale has been issued and recorded, the association is now the owner of the unit, lot/home (subject to the senior encumbrances). The board has lots of questions. We’ve got answers.

]]> First, the association is not directly responsible for the senior liens and encumbrances (bank loans, etc.,) that are secured on the property. As the association did not enter into those loan agreements, the default on those loans does not negatively impact the association’s creditworthiness.

However, if the association does not pay the payments or amounts owed on the loan(s), it is only a matter of time before the senior liens, most often a bank or lender that owns the loan, will itself foreclose on its lien and take title to the property, something the Board wants to occur, so there is an assessment-paying owner taking title to the property.

As the new owner of the property, the association can evaluate its ownership options. The association can contact the senior lien holder and attempt to negotiate a new loan agreement if it wants to keep the unit for a manager or rental, or it could attempt to sell the property and negotiate a short sale. The association can collect rent from the existing tenant that is renting the unit or home, or it can place a tenant in the property on a month-to-month rental contract.

The association can do any one of a number of things that an owner would and could do if they themselves were facing foreclosure. Or, the association could do nothing and allow the property to be foreclosed on by the senior lien/lender. The association will benefit from a new owner taking title to the property who will begin to pay the assessments from the date of the sale forward.

If the property is still occupied by the original owner, that original owner now becomes the association’s tenant. The association can negotiate with the former owner/tenant to pay the reasonable rent for the property and the association can continue to collect rent until the property has been foreclosed on by the senior lender.

If the property is occupied by a tenant who is not the former owner, the association would be able to step in as the new landlord and negotiate a deal with the tenant. If the association’s “tenant” does not pay rent, the association could then pursue an unlawful detainer/eviction.

And no, the association cannot now sue the former owner for the unpaid assessments and the costs and fees that the association incurred. Under what is called the “Single Action Rule” (see our previous post that discusses this rule), the association had one option and that was to either complete the foreclosure or sue and obtain a monetary judgment. As you have already decided that pursing this former owner is not likely going to be a productive use of association resources, you now know that the single action rule precludes any judicial action for a personal judgment.

What else should the association be doing as the new owner of the property? The association should be treating the property as it would expect any owner to treat their property at the association. The association should check with its insurance broker to determine whether the association’s common area insurance coverage also covers the unit and/or if additional insurance coverage is required or recommended. The association does not want the additional exposure of a tenant being injured inside a unit, claiming that injuries were caused by tripping on torn carpet or some other problem within the unit itself.

If the unit is occupied by a tenant, the association, as a landlord, should request the right to inspect the interior of the unit to make sure that there are no obvious problems, such as plumbing leaks which could negatively effect the Association or other units, etc.

While the association does not have to pay the assessments that are owed on that unit or property, the board needs to recognize that the annual budget it created was based on assessments being collected from all units or lots. Therefore, it has to also recognize that it is going to have a reduction in its income that will need to be funded from another source. If the association is collecting rent, then it should be funding assessments so that the association is able to pay all of its expenses.

As you can see, the association does have some options, and it is possible that it will recover monies from this unit to pay off the deficit that was created in the budget because of the former owner’s non-payment of their assessments.

If you have any questions, want practical assistance in determining your best options, contact David Swedelson or Sandra Gottlieb at (310) 207-2207. Their respective email addresses are: dcs@sghoalaw.com or slg@sghoalaw.com.

What the Heck is the Single Action Rule?

2010-05-21T18:41:22Z

When it comes to enforcing obligations secured by California real estate, California is a “single action” or “one-action” state. Civil Procedure Code Section 726(a) provides in part that “[t]here can be but one form of action for the recovery of any debt or the enforcement of any right secured by a mortgage upon real property.” This “one-action” rule applies when a California community association secures, as it should, the delinquent owner’s assessment obligation by recording a lien and then exercises its remedies to recover that debt. The purpose of the one-action rule is to protect the delinquent owner from being harassed by a lot of different actions filed against it by the association.   

]]> California’s “one-action” statute prohibits the secured association from first pursuing non-judicial foreclosure, and after there are no third party bids on the property, then suing the delinquent owner directly. An association can only bring one “action” against the owner.

An association can sue the delinquent owner and proceed non-judicially. But the association must at some point choose what it wants to do; get a judgment or foreclose. It cannot do both; only a single action.

Even though California’s “one-action” rule applies to foreclosures, associations can start both a judicial process and a nonjudicial process (also known as a “trustee’s sale”). Simply beginning a nonjudicial foreclosure is not deemed to constitute an “action” in California. Neither the commencement of a judicial foreclosure action, nor the filing of a notice of default which commences the nonjudicial foreclosure process, is considered an irrevocable election of remedies under the one-action rule. An association is deemed to have elected its remedy, and had its one action, only when a judgment has been entered if a judicial foreclosure action is completed. An association that completes a non-judicial foreclosure sale is also deemed to have elected its remedies and may not seek a deficiency judgment against the borrower. So, an association will not be deemed to have made an election between these two foreclosure methods until one of them has been completed.

The Delinquent Homeowner is Pursuing a Short Sale - Help!

2010-05-21T18:20:46Z

As we make our way through the “Great Recession”, we find that many owners are still upside down in their units/homes, owing more to their lender than the current potential sales price. In many cases, the owners cannot afford to pay the bank and are looking to get out from ownership of their home or unit. Many owners are trying to do short sales, where they take an offer to buy their property for less than the loan amount and try to obtain their lender’s agreement to take less than the amount that is owed on their loan/trust deed. We are getting calls from community association managers and board members who are asking what to do when faced with the prospect of a short sale, where the owner is also asking their association to discount the amount that is owed for delinquent assessments, late fees, interest, collection fees and costs.

]]> Before the Great Recession, we would have told you to stand fast and try to collect all of the money that is owed because owners were not that upside down on their loans. Today (2010), that would not always be prudent advice. In some cases, an association is going to have to discount the amount that it is owed or face the possibility of having its lien wiped out by the foreclosure of a senior lien and the potential of not collecting any money at all.

There are several factors that the board and management should take into consideration when evaluating a short sale situation:

1. Is the unit/home occupied by the owner or a tenant? If occupied by a tenant, does the association have an assignment of rents provision in its documents? If so, the association should consider exercising that right;

2. Does the owner have other assets or the ability to pay the assessments despite the lack of equity in the unit or property? If so, then perhaps the owner should be urged to pay from other assets and/or the association can evaluate a potential lawsuit for money damages against the owner to collect from other assets. Depending on the amount owed, the association may want to invest in an asset report to see if an owner has other assets;

3. What is the status of the property? Has the owner defaulted on their loan, and has the lender started the foreclosure process? How far along is the association in its collection process? Associations should move as quickly as possible to start the collection process and make sure that a lien gets recorded. California law requires that before the lien can be recorded, a pre-lien letter must be sent to all owners of the property in compliance with the Civil Code. Once the letter is sent, the association must wait thirty (30) days before the lien can be recorded. Without a lien recorded against the unit, the owner could proceed with the short sale and not pay the association any of the monies it is owed.

If the board or management has evaluated both the owner’s ability to pay independent of the property and the status of the property in terms of senior foreclosure, the board will be in a better position to determine whether it should discount the amount that is owed in order to get paid.

It is difficult for us to advise how much an association should discount from the amount that is owed, as that will depend on all of the facts and circumstances. Understand that the owner will, of course, want the association to discount as much as possible off of the amount that is owed in order to complete the short sale process.

If your board or management would like assistance in evaluating its options, Swedeslon & Gottlieb can assist in making a determination as to whether and on what terms to accept a short pay. If you would like our assistance in evaluating the association’s options when confronting a possible short sale, please contact the community association attorneys of Swedelson & Gottlieb at (310) 207-2207 or email David C. Swedelson at dcs@sghoalaw.com.

What is the Right of Redemption?

2010-05-21T17:44:25Z

When property is sold through non-judicial foreclosure on an assessment lien, buyers (third parties or the association) take ownership subject to a 90-day right of redemption, which allows the foreclosed owner to recover the property if the owner pays the delinquency and any fees and costs (Civil Code §1367.4(c)(4); Code of Civil Proc. §729.035).

This right of redemption is unusual in that it does not apply to non-judicial foreclosure on trust deeds; it was added to the law for community associations several years ago to help owners so they do not lose their homes because they did not pay their associations assessments or fees. Owners rarely take advantage of this right.

]]> Typically, the foreclosure trustee will hold the money received at the foreclosure sale for 90 days. If the former owner exercises the right of redemption and pays the amount owed (all amounts owed including all fees and costs etc.), the buyer has his/her money refunded, the association receives what it is owed and the owner keeps their property.

For that 90-day period, the buyer of the property (and this includes the association that may have “bought” the property because no one bid on the property at the sale) can do nothing with the property. It is a 90-day waiting period.

Code of Civil Procedure §729.035. Right of Redemption

“Notwithstanding any provision of law to the contrary, the sale of a separate interest in a common interest development is subject to the right of redemption within 90 days after the sale if the sale arises from a foreclosure by the association of a common interest development pursuant to Section 1367.1(g) of the Civil Code, subject to the conditions of Section 1367.4 of the Civil Code.”

View Our Recent Presentation on Assessment Collection

2010-04-22T21:39:33Z

Lawsuit Of The Day: Man Cuts Himself Out Of A Tree

2010-04-21T18:05:30Z

When I read this article, it sounded like something that would and could happen at a homeowners association. A man was asked to prune a Sycamore tree on the grounds of a hotel. Instead of leaning his ladder against the trunk of the tree itself, he placed his ladder against the branch that he was pruning. So you already know what happened... when he cut the branch, it fell and he fell with it, 14 feet to the ground, breaking his heel and damaging his ligaments, with a 10 day stay in the hospital to recover from his injuries.

He then sued his employer, the hotel, claiming that they should have given him more training in workplace ladders. Give me a break. Hard to make this stuff up. Click here to read the article.