Assemblymember Julia Brownley has proposed legislation that would impose new and unwarranted restrictions on the assessment collection process for California community associations. Without any showing that there is a need for this new law, her proposed new legislation would protect delinquent owners at the expense of their associations and all of the owners that timely pay their fees and/or assessments.
Text of the current amended bill
Brownly’s Assembly Bill (AB) 2502 would raise the thresholds for foreclosure from $1,800 or 12 months delinquent to $3,600 or 18 months delinquent. In addition, it would not allow associations to require that owners waive the provisions of Civil Code Section 1367.1 with respect to how their payments are allocated, even if they are not harmed by that waiver.
We assume that Assemblymember Brownley has introduced this bill with good intentions, in the interests of protecting financially distressed owners from losing their property to their associations through foreclosure. But we have to believe that she was given incorrect advice and/or information. She has failed to consider the reality that while this legislation may help a very few delinquent owners, many more of her constituents will be harmed by this bill, as they will end up incurring the unpaid assessments, the additional cost of running their associations, and the additional and unpaid collection fees and costs.
More importantly, there is nothing to show that this “help” is needed or that it will help owners actually keep their property.
Assemblymember Brownley’s new proposed legislation requires that payment plans for financially distressed owners be (i) negotiated only with the entire board and (ii) approved in open session. Requiring a meeting with the full board instead of a representative will delay approval of plans since boards meet monthly (or sometimes quarterly), and not everyone is always available. Moreover, the already embarrassed owner must explain to a panel of five or more neighbors (depending on the size of the board) why they cannot pay their bills. And this may open the association and board members to defamation claims.
Again, this bill would require that the payment plan then be approved by the board in open session, in front of even more neighbors/residents/homeowners. The embarrassment of the process may deter owners from seeking payment plans, thereby increasing foreclosures. In addition, the bill prohibits associations from retaining counsel to assist in the negotiations of a payment plan unless the owner determines that it is in his or her best interest. This could leave the association without the benefit of legal guidance, even if the owner has retained an attorney or the owner is an attorney.
The proposed legislation allows any homeowner to unilaterally change a negotiated payment plan amount and term, leaving the association powerless to demand that an owner timely pay their assessments. As written, this proposed legislation would essentially allow an owner to pay only what he or she wants, when they want, even if only one dollar, and the association and its agents, including its collection company, are forced to allow that for up to 18 months. Depending upon the number of owners that decided to just pay what they want, or not at all for 18 months without consequences, could lead to the financial ruin of associations big and small and thereby lower property values for everyone.
Make no mistake about it, the payment plan provisions in this proposed new legislation will have a significant impact on California community associations if this new law is adopted.
Currently, California law requires that associations apply monies received from owners first to principal, then to late fees, collection and attorneys fees, costs of collection, etc. Owners are often requested to waive the provisions of Civil Code 1367.1 so that their money is not applied first to the principal amount of assessments. Why is this important? Because some owners will game the system and pay down their principal, leaving only the costs and fees which the association cannot collect non-judicially. This will force the association to file a separate lawsuit, typically in small claims court, to collect the fees and costs. Then, the judgment has to be collected, which many associations have already found to be difficult, if not impossible. During that period when cash flow is interrupted, an association may have to levy emergency assessments on the paying owners to cover the association’s costs and fees.
The Civil Code makes reference to an agreed upon payment plan which, by its definition, involves an “agreement” and a “plan”. Collection services cannot accept partial payments without a signed agreed upon payment plan, as such acceptance could interfere with the collection process, requiring that the process be started over. In addition, owners could pay down their delinquency leaving the association forced to collect the fees and costs of collection by expensive and time-consuming litigation, all at the expense of the timely paying members.
We have prepared a draft letter for you to send out to the committee members. Please utilize the links above.