Articles Posted in Assessment Collection

By David C. Swedelson, Esq., Senior Partner at SwedelsonGottlieb, Community Association Attorneys

There are certain claims where small claims court may be the appropriate venue, as opposed to superior court. Typically, this includes claims against owners for unpaid assessments, fees and/or fines that do not exceed $5000, which is the limit that a California community association can recover in small claims court. When it comes to assessment collection, we generally only recommend small claims court where the association has already exhausted its other remedies, such as non-judicial foreclosure, and is trying to collect from a former owner who has lost their unit or lot to a senior lienholder/the bank. Starting a small claims court case is relatively easy. Many courts have small claims forms online which can be completed online or downloaded from the internet. However, knowing what to allege in the complaint form and how to present the case is not always that easy.

A small claims complaint (form SC-100 for Los Angeles Small Claims Court) requires the association to provide the name(s) and address of the delinquent owner(s) and to briefly describe the nature of the dispute (which includes (1) why the owner owes the association money, (2) when the obligation to pay became due, and (3) how the amount was calculated).
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A firm client has three open delinquent assessment collection matters with our affiliate Association Lien Services. A new board of directors was elected, and despite the significant success that Association Lien Services has had collecting this condo association’s delinquent assessments in the past, the new board of directors was reluctant to proceed with foreclosure on these three files. They thought the association, by foreclosure, could become the owner of these properties if no one bids on them and then would not only become the landlord, but would also have an obligation to pay the bank on its loan, among other expenses of the property. They asked to meet with me.

I met with them, and we discussed their options. I have had many similar phone conferences and meetings over the last three years. This board agreed that with respect to each of the three homeowners, they did not think there was ever going to be a way to collect money from them as, among other things, they knew these owners were not working people.
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The following was reported by Community Associations Institute (CAI) by Andrew S. Fortin, Esq., CAI’s vice president of government and public affairs.

The Consumer Financial Protection Bureau (CFPB), which officially opened for business in July, was created by Congress to enforce most federal financial consumer protection laws and to protect consumers from harmful financial products.

The CFPB has the authority to set standards that govern almost every aspect of the mortgage lending and closing process. Because CAI members have a keen interest in the development of CFPB’s rules and regulations that could affect community associations, CAI recently added a special section about the CFPB to our Mortgage Matters program. CAI is particularly interested in the CFPB’s actions on transfer fees, association assessments, foreclosure prevention, mortgage servicing standards and the definitions of qualified mortgage and real estate settlement fees.
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By David C. Swedelson, Esq., Senior Partner, SwedelsonGottlieb

Here is the issue: A board adopts the annual budget and notifies the owners that assessments will increase from last year by 10%. After the beginning of the association’s fiscal year, and months later, the board realizes that expenses are greater than anticipated and wants to again increase the assessments, this time by another 10% (for a total of a 20% annual increase). Some attorneys, managers and board members believe that the board has this power; others (including this writer) disagree based on the language of the Civil Code, the intent of the legislature, and common sense. Owners are entitled to know at the beginning of the fiscal year what their association’s assessments will be. The board has a fiduciary obligation to determine what the assessments will be for that fiscal year and has a right to use the remedy provided in the Civil Code if expenses are greater than anticipated. Otherwise, the legislature would not have imposed a sanction for a board’s failure to timely distribute the new fiscal year’s budget, and a board could simply send out whatever they have and finalize the budget later.
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By Sandra L. Gottlieb Condo Lawyer and Community Association Attorney at SwedelsonGottlieb

It is a sign of the times that an association’s board of directors has to consider and consult with association legal counsel on the association’s responsibilities with respect to an owner’s separate interest unit or lot to which the association obtains title through the nonjudicial foreclosure process (for purposes of the following discussion, we will refer to an owner’s separate interest unit or lot as a “unit”). As more and more California community associations are deciding to foreclose against an owner’s unit for non-payment of assessments (rather then waiting for the senior lien holder to foreclose), and with many associations taking title by reversion to units following those foreclosure sales (when third parties don’t bid on the unit at the foreclosure sale), many association boards and managers want to know what the association’s responsibilities are once it takes title to a unit through foreclosure.
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By David Swedelson and Alyssa Klausner, Attorneys at SwedelsonGottlieb, Condo Lawyers and HOA Attorneys

When a delinquent owner files for bankruptcy relief by filing a petition under either Chapter 7 or Chapter 13 of the United States Bankruptcy Code, the Code provides that an automatic stay, subject to certain exceptions, is immediately put into place. An automatic stay is like a restraining order, and it happens as soon as the bankruptcy is filed. This “stay” applies to creditors, including the association to whom the owner owes money, and it means an association can no longer collect or even attempt to collect any money (or foreclose on the property) from the owner, at least without getting permission from the bankruptcy court. The stay is intended to protect the delinquent owners who file bankruptcy. All actions to collect the delinquent assessments must stop, including lawsuits, foreclosures, as well as the suspension of membership and/or common area privileges.
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By SwedelsonGottlieb, Community Association Attorneys

So, your Association has a homeowner who is delinquent on his assessments. Before you are able to make any progress on collection and before a lien is recorded, you receive notice that he has filed for bankruptcy. What happens next?

The moment a debtor files for bankruptcy, an “automatic stay” is imposed. The automatic stay prevents creditors from taking any action to collect from a debtor. This is intended to give the debtor some breathing room and allow him to clearly evaluate his financial position without having to fend off creditors. Therefore, all collection efforts must cease until the automatic stay is either lifted or terminated.
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By SwedelsonGottlieb, Community Association Attorneys

We have all heard the terms “Senior Lien”, “Junior Lien”, “First Mortgage”, “Second Trust Deed” and whatever other variations of those terms are out there. Here we are going to explain exactly what those terms mean and how they relate to a foreclosure action.

A lien is simply a way to secure a debt to a piece of property so that the association has some priority especially over the delinquent owner’s unsecured debts. When someone owes money to another, that debt can be secured by recording a lien. That debt is then attached to the property, and the lien must be paid before the property can be sold. The property becomes collateral for the debt. If the borrower fails to pay the debt when due, the lien holder can force the sale of the property in a foreclosure action in order to get paid.
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By David Swedelson, Condo lawyer / HOA and Community Association Attorney; Partner, SwedelsonGottlieb

It has been assumed by many that if a California community association holds its foreclosure sale (as part of the assessment collection process) and after the sale the delinquent owner files bankruptcy, that the bankruptcy did not impact the sale. Not so, according to the United States Bankruptcy Court for the Central District of California, which recently held that the filing of a bankruptcy petition by a borrower (in our case a delinquent owner) can void a trustee sale even where the petition is filed after the trustee sale, so long as the borrower/delinquent owner files the bankruptcy petition before the execution and recordation of the trustee’s deed upon sale. [In re: Gonzalez (Bkrtcy. C.D.Cal. August 1, 2011) 456 B.R. 429].

As we know, a delinquent owner has the ability to file a bankruptcy to stay or stop a trustee sale prior to the actual sale. And many delinquent owners do. Many people believe that once the trustee sale occurs, the bankruptcy filing by the owner does not impact the sale. Wrong!
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By David C. Swedelson and Sandra L. Gottlieb, Condo and HOA Legal Experts, Community Association Attorneys
As we maneuver our way through the end of this recession, the words “short sale” are being bandied about more than at any other time that we can remember. Lenders are apparently more receptive to considering a discount on a mortgage rather then taking the property back in foreclosure. We wrote about short sales back in May 2011 (follow this link). Wikipedia defines a short sale as “a sale of real estate in which the sale proceeds fall short of the balance owed on the property’s loan. It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers. This agreement, however, does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency.”
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