Articles Posted in Collections

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hoa-assessment-collection-houseThe collection practices of HOA collection vendors have come under increased scrutiny over recent years. For example, we have written about how California courts have struck down a vendor’s ability to reject partial payments. Those actions resonated throughout the HOA industry and resulted in significant changes to the approaches taken by collection vendors when pursuing the debt owed to their HOA clients. The most significant changes however have come in response to attacks made against collection vendors that operate under a “no cost” collection model. We have also written about this issue and how the “no cost” collection model results in liability exposure for violations of the California Civil Code as well as applicable state and federal fair debt collection laws. To our surprise, despite the actions that collection vendors have wisely taken to shift away from the “no cost” model, we are still seeing instances where a HOA has opted to utilize the services of a “no cost” collection vendor without understanding the substantial risks of doing so.

As nonprofit corporations with fixed budgets, the idea of a “no cost” collection model is certainly attractive to HOAs. Under a “no cost” model, the collection vendor does not charge the HOA any upfront fees or costs for the collection services it performs, but rather collects those amounts directly from the delinquent homeowner. However, in doing so, the United States Bankruptcy Court in California first noted how this approach violates applicable provisions of the Civil Code, and further “opens the door to all sorts of mischief, as an HOA has no incentive whatsoever to question costs for which it is not liable and no incentive to search for services charging more reasonable costs.” (In re Cisneros, (Bankr. N.D. Cal. 2012), (“Cisneros”).) That rationale was underscored in the most recent attack on “no cost” collection models put forth in the case of Hanson v. JQD, LLC d/b/a Pro Solutions, (N.D. Cal., 2014) (“Hanson v. Pro Solutions”).

In Hanson v. Pro Solutions, a HOA hired a collection vendor (“Pro Solutions”) operating under a “no cost” model.  California Civil Code § 5650 allows for a HOA to recover reasonable costs and attorney’s fees “incurred” by the HOA in collecting delinquent assessments. However, Pro Solutions’ “no cost” model did not result in the HOA incurring any fees or costs for Pro Solutions’ services. Rather, the fees and costs charged for Pro Solutions’ services were never billed to the HOA but were instead billed directly to the delinquent homeowner. The plaintiff homeowner alleged that this practice violated the Civil Code and federal and state fair debt collection laws, relying in part on the rationale underlying the Court’s decision in Cisneros.

The Court in Hanson v. Pro Solutions agreed with the homeowner and waived an even bigger red flag to collection vendors operating under a “no cost” model:

“Although no California appellate court has directly addressed whether, as here, a third-party vendor acting on behalf of a HOA can lawfully charge a delinquent homeowner fees not incurred by the HOA, the aforementioned authorities prompt a conclusion that Pro Solutions’ right to impose debt collection fees against Hanson extends no further than the [HOA’s] right to do the same…Pro Solutions’ fees apparently are neither incurred nor paid by the HOAs that contract for the company’s “no cost” services. If California law nonetheless entitled Pro Solutions to impose the fees of its choosing against homeowners like Hanson, the company would wield unchecked power to extract a cascade of fees and costs from a HOA’s delinquent members.”

Hanson v. Pro Solutions was settled and therefore did not result in any precedential court decision on the issue of “no cost” collection models. However, the Court’s language was strikingly clear, as was the warning it sent to HOAs and collection vendors. Even though the HOA was not named as a defendant in Hanson v. Pro Solutions, there is nothing to prevent a HOA utilizing a “no cost” collection vendor from being named as a defendant in a similar suit and thus exposed to significant liability.

California HOA lawyers HOA Boards and management professionals must recognize that, regardless of what type of entity a HOA uses to collect delinquent assessments (an attorney, third party collection agency, etc.), there will be fees and costs associated with their collection services, and that the HOA must pay for those services in order for them to be incorporated into the debt that is recovered from the homeowner. This incentivizes collection vendors to provide services that are not only effective, but cost-efficient, and in doing so helps protect the financial interests of HOAs as well as homeowners who may fall behind on their assessment payments.

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Collecting delinquent assessments remains one of the more challenging and frustrating aspects of a homeowners association’s (“HOA’s”) operations. Once a delinquent file is forwarded to a HOA’s collection company or law firm, industry practice has been to reject any partial payments made by the delinquent homeowner (i.e., to reject any payments that do not cover all of the delinquent assessment amount, including late fees, interest, collection costs, etc.) that have accrued on the homeowner’s account. That approach has been based upon the language set forth in Civil Code Sections 5655 and 5720. Civil Code Section 5720 allows for a HOA to foreclose on a delinquent assessment lien only where the delinquent assessment amount is $1,800 or greater, or are more than 12 months delinquent. Civil Code Section 5655, however, sets forth the way in payments made by a delinquent homeowner must be allocated (i.e., first to the delinquent assessment amount, then to collection fees, late charges, etc.).

Accordingly, if a homeowner is allowed to make a series of partial payments that must first be applied to the delinquent assessment amount, the homeowner could structure a way in which to avoid foreclosure of his property (i.e., through keeping the delinquent assessment amount under $1,800 or under 12 months delinquent), while not paying all or any of the amounts necessary to cover the HOA’s collection fees and costs it has incurred in connection with the homeowner’s delinquency. This would ultimately place the HOA in a difficult position of having to incur more collection fees and costs solely to collect the unpaid collection fees and costs which the HOA has already incurred. Thus, collection companies and firms have traditionally rejected partial payments in order to avoid this problem–especially in light of the absence of any language in the Civil Code explicitly requiring HOAs to accept partial payments. If the homeowner desires to provide partial payments, the only opportunity to do so would be pursuant to a payment plan executed between the homeowner and the HOA.

However, a recent decision from the Fourth District, Division Three, of the California Court of Appeal has indicated that HOAs do indeed have an affirmative obligation to accept partial payments notwithstanding the concerns referenced above…

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hoa-assessment-collection-house.jpgIn October of 2012, we blogged about a United States Bankruptcy Court case that addressed the proper interpretation and effect of Civil Code Section 5650 allowing for a HOA to recover delinquent assessments, along with “reasonable costs incurred in collecting the delinquent assessment, including reasonable attorney’s fees.” In sum, the Court ruled that the delinquent homeowner was not liable for the fees and costs imposed by the HOA’s collection company that was operating on a contingency basis. Because the HOA was not responsible to pay the collection company’s fees directly, those fees were not costs “incurred” by the HOA which the HOA was legally entitled to recover from the delinquent homeowner. We then predicted that the case may affect the terms under which collection companies contract with HOAs, especially those companies that operate on a contingency (“no-cost”) basis.

Another case currently being litigated in Northern California is addressing this same issue. Though the case is still pending, a recent order issued by the United States District Court, N.D., California illustrates the how the courts may be trending with regard to the fees and costs imposed by collection companies that contract with HOAs on a contingency basis:

“Although no California appellate court has directly addressed whether, as here, a third-party vendor acting on behalf of a HOA can lawfully charge a delinquent homeowner fees not incurred by the HOA, the aforementioned authorities prompt a conclusion that [the collection company’s] right to impose debt collection fees against [the homeowner] extends no further than the [HOA’s] right to do the same….[the collection company’s] fees apparently are neither incurred nor paid by the HOAs that contract for the company’s ‘no-cost’ services. If California law nonetheless entitled [the collection company] to impose the fees of its choosing against homeowners…the company would wield unchecked power to extract a cascade of fees and costs from a HOA’s delinquent members.” (Emphasis added).

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There has been a string of recent court cases illustrating how now, more than ever, HOAs and collection companies are being scrutinized for their collection procedures. HOA Boards and managers should be cognizant of the legal requirements with regard to assessment collection, and how deviations from those requirements may expose the HOA to liability.
Tinnelly Law Group is proud to provide its clients with access to comprehensive, attorney-supervised assessment collection services through the use of its affiliate, Alterra Assessment Recovery.

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hoa-foreclosure-article.jpgBe sure to check out Steve Tinnelly’s latest article he authored for the “OC View,” an educational bi-monthly magazine published by the Orange County Regional Chapter of the Community Associations Institute (CAI).

The article, entitled “Foreclosure Face-Off,” compares and contrasts the two foreclosure processes available to California HOAs in their assessment collection efforts (non-judicial and judicial foreclosure). It discusses the primary advantages and disadvantages associated with each process, and how they may be impacted by economic factors and issues unique to each delinquency. Our firm is privileged to have the opportunity to work with CAI and to contribute to its educational efforts. For more information on CAI, we encourage you to visit its website at caionline.org.

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Tinnelly Law Group is proud to provide its clients with access to comprehensive, attorney-supervised assessment collection services through the use of its affiliate, Alterra Assessment Recovery (“Alterra”). Alterra’s service offering includes both foreclosure processes, and an array of ancillary services developed to resolve delinquent matters as quickly and efficiently as possible. For more information on Alterra, visit its website at alterracollections.com.

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hoa update 2014Our “Annual Legislative & Case Law Update” newsletter for the year 2014 is now available in our library!

The Legislative & Case Law Update provides an overview of the new legislation and case law impacting California Homeowners Associations (“HOAs”) as we head into 2014. The new legislation includes, among other items, the re-organization of the Davis-Stirling Act (now in effect), and a bill that clarifies contractor licensing requirements for HOA managers. The new case law includes rulings that may impact HOA election rules, membership rights to attend Board meetings, use of HOA media outlets during election campaigns, insurance defense coverage, attorney’s fees recovery in HOA disputes, and assessment collection procedures.

Click here to read our Annual Legislative & Case Law Update (2014)

Have questions on any of the new legislation or case law? Click here to send us a question online.

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Earlier this year, we blogged about an appellate court case that underscored the necessity for a homeowners association (“HOA”) to strictly comply with the statutory procedures and requirements applicable to assessment collection. That case focused on various requirements pertaining to the transmittal of notices (i.e., assessment lien notices, notices of right to request alternative dispute resolution (“ADR”), notice of the Board’s decision to initiate foreclosure of an assessment lien, etc.) The HOA’s failure to strictly comply with those requirements ultimately resulted in the invalidation of the HOA’s assessment lien and also an award of attorney’s fees and costs to the delinquent homeowner.

The case of Multani v. Witkin & Neal et al., (2013) 216 Cal.App.4th 590, (“Multani“) similarly involved allegations of procedural defects by a HOA’s collection agent. However, the Court’s ruling in Multani is significant in that it addresses the statutory, ninety (90) day “right of redemption” afforded to a homeowner that may have lost ownership of her unit through nonjudicial foreclosure of a delinquent assessment lien…

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hoa lawsOur annual “Legislative & Case Law Update” newsletter for the year 2013 is now available in our library!

The Legislative & Case Law Update provides an overview of the new legislation and case law impacting California Homeowners Associations (“HOAs”) as we head into 2013. The new legislation includes, among other items, bills that impact Bank foreclosures, the re-organization of the Davis-Stirling Act, EV Charging Stations and fees charged by HOAs in producing certain records. The new case law includes rulings that may impact the architectural restrictions placed on the installation of solar panels, arbitration provisions for construction defect disputes, “no-cost” HOA collections contracts, election disputes and defamation claims. The Legislative & Case Law Update also addresses some new Fannie Mae and FHA regulations impacting condominium insurance and certification requirements.

Click here to read our Legislative & Case Law Update (2013)

Have questions on any of the new legislation or case law? Click here to send us a question online.

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*Asked & Answeredhoa law firm

Asked As a HOA member, do I have the right to see a copy of a lease agreement pertaining to a home that was acquired by my HOA through foreclosure of an assessment lien?

Answered – Yes, you may request to see a copy of the lease agreement. Under Civil Code §1365.2(a)(1)(D),a HOA member is entitled to inspect certain “Association records” for any “proper purpose reasonably related” to her interests as a member of the Association. “Association records” include “[e]xecuted contracts not otherwise privileged under law.” 1365.2(a)(1)(D).

The term “privileged” in Civil Code §1365.2(a)(1)(D) essentially pertains to confidential or sensitive information, as well as records/communications which are protected by attorney-client privilege. A standard lease agreement between a HOA and a renter is generally not a “privileged” contract and is therefore subject to inspection as an “Association record.”

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The lease agreement may, however, include confidential information such as social security numbers. The HOA Board of Directors and/or management should ensure that such confidential information is adequately redacted from the lease agreement prior to providing it to a member for inspection. A HOA that has questions or concerns regarding the disclosure of HOA lease agreements and the information contained therein should consult with the HOA’s legal counsel.

To submit questions to the HOA attorneys at Tinnelly Law Group, click here.

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*New Case Lawhoa law firm

The United States Bankruptcy Court in California recently ruled in a case that may impact the terms under which Homeowners Associations (“HOAs”) contract with collections companies to pursue delinquent assessments.

In In re Antonio Cisneros, the debtor, Cisneros, owned two properties within the HOA and had fallen behind on his assessment payments. Cisneros ultimately filed Chapter 13 bankruptcy in order to save his properties and cure his assessment arrears. The HOA had contracted with a collections company to recover the delinquencies from Cisneros. That contract specifically stated that if the collections company was “unable to collect fees or costs from the delinquent Owner or other responsible party, [then the] Association shall not be responsible for such fees or costs.” (Emphasis added.) Accordingly, under the terms of the contract, the HOA was under no true obligation to pay the fees or costs incurred by the collections company. That contractual provision was what the Bankruptcy Court relied upon in disallowing the collections company’s claims to recover its roughly $14,000 in collections fees and costs from Cisneros…

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Homeowners Association (“HOA”) Boards and industry professionals are keenly aware of the financial impact that the economic downturn has had on HOAs throughout California, especially with foreclosures. The difficulty in identifying/contacting the bank who foreclosed on a property, as well as delays in the recording of certain property transfer documents, has hampered the ability of HOAs to quickly reestablish the assessment revenue stream from the new owner of the foreclosed property (often, the bank).

Fortunately, AB 2273 was recently signed into law to add new Section 2924.1 to the Civil Code and amend current Section 2924(b) of the Civil Code. AB 2273 serves two important functions:

  1. It requires the foreclosing party to record a sale within 30 days of the sale to help the HOA identify new owners; and
  2. It shortens the time for HOAs to be notified by the foreclosing party of the change in ownership: 15 days from the date of sale. However, this only applies if the HOA has recorded a “Request for Notice” prior to the property receiving a Notice of Default.
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AB 2273 is another step toward helping HOAs reduce the financial impact the economic downturn is having on their budgets. It also underscores how important it is for a HOA to record a blanket “Request for Notice” pursuant to Section 2924(b). HOA Boards and Managers that are dealing with defaulting properties should contact their HOA attorney to ensure that all appropriate steps are taken to help the HOA quickly reestablish the assessment stream from a foreclosed property.

To read the text of AB2273, click here.