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Articles Posted in Assessments

Knocking-on-Door

Last time we checked, the mortality rate was 100%. This means that owners of real property within homeowners associations (“HOA’s” or “Associations”) will inevitably pass away at some point. This leaves many questions for Boards and management about how to navigate issues surrounding the separate interest still titled in the name of the deceased.

Enforcement of Governing Documents Against Deceased Owners

For obvious reasons, dead owners usually do not maintain their properties in good condition and are often ineffective landlords if their separate interest is occupied by a tenant. Management and Boards may not even know that an owner has passed away such that they continue to send violation letters and fine these deceased owners to no avail.

If an owner is ignoring fines and other enforcement action combined with not paying monthly assessments or maintaining a property, it is wise to investigate whether the owner is still living. This is especially important because there is a one-year statute of limitation from the date of an owner’s death to pursue enforcement or collection-related action per Cal. Code Civ. Proc. § 366.2. This strict deadline applies even if the HOA had no knowledge the owner was deceased. Law firms can assist Associations with public records searches to detect an open probate or a death certificate.

Court Order or Consent Required to Enter Onto Property

Although many CC&Rs have provisions allowing an HOA and its agents to enter onto a property upon prior notice to cure certain compliance issues, it is recommended for the protection of the HOA and its vendors that a court order first be obtained before entering property without advance express consent. This is the case even if the HOA believes the property is unoccupied because California case law holds that a contractual right to self-help is not a defense to a claim for forcible entry. (Glass v. Najafi (2000) 78 Cal.App.4th 45, 48–49, 92; See also Daluiso v. Boone (1969) 71 Cal.2d 484, 493, “Regardless of who has the right to possession, orderly procedure and preservation of the peace require that the actual possession shall not be disturbed except by legal process.”)

Collection Methods Against a Deceased Owner

Since unpaid regular and special assessments may attach to the property, the lien-related collection process is similar for living and deceased owners, except that with a deceased owner, you are dealing with the administrator or personal representative of the decedent’s estate instead of with the living owner.

If an Association wants to sue a deceased owner or make a claim against their estate for monies owed as a creditor, it must pursue these remedies against the deceased owner’s estate.  Suing an estate of a decedent or making a claim for monies owed against them requires an open probate action in superior court. The problem is that sometimes, an owner passes away with no will or next of kin in which case a probate of the owner’s estate may not be opened.

In such cases, management may contact the public administrator of the county in which the decedent’s property is located and request that they open a probate. If the public administrator fails to do so or drags their feet, the HOA can open a probate action as a creditor to make sure the probate case is opened and the claim for monies owed is timely submitted.

Once a probate is open, a creditor has only four months from the date the executor or administrator is appointed to file a claim in probate. (Cal. Code Civ. Proc. § 377.40; Prob. Code §§9100 et seq.). An HOA should be mindful that the one-year limit to file a claim against a deceased owner is not extended by this four-month deadline.

Thankfully, an HOA’s ability to foreclose on a secured lien via the nonjudicial foreclosure process set forth in Cal. Civ. Code §§ 2924–2924h is not affected by the aforementioned one-year statute of limitations to seek money judgments, injunctive relief, and/or judicial foreclosure against a deceased person. This is because such debt is secured by the property and is not attached to the deceased person.

Evicting Tenants

Deceased owners can leave occupants behind who may not be compliant with the HOA’s governing documents or who may create nuisance conditions as is frequently the case with squatters. The law provides an owner with the standing to evict tenants via an unlawful detainer action. When the owner is deceased, the HOA can and should call the estate (through its administrator) to a hearing and fine it for violations of the occupants. The administrator of the estate has the authority to gain tenant compliance via eviction or otherwise. Fining the estate can be an effective way to gain the estate’s compliance. Some governing documents even have provisions assigning the standing to evict tenants who violate the governing documents to the HOA via an unlawful detainer action. These provisions usually allow the HOA to charge the owner (or their estate) for the fees and costs incurred to evict non-compliant tenants if the owner or their estate fails to act.

Biohazard Cleanup

It is a macabre reality that occupants can and do pass away in the property. If the occupant lived alone and had no close friends or family, it can be weeks until the death is discovered. An HOA may first learn about such an occurrence via a report of unpleasant odors or vectors emanating from the property. If a dead occupant is suspected, law enforcement should be called. Once the body has been transported by the coroner, the biological materials left behind can pose a risk to the health and safety of the community’s residents such that the Association may consider calling in a biohazard clean up vendor to handle the situation. Depending on the language in the governing documents, the cost of the cleanup may become a charge against the deceased owner’s estate provided the proper processes are followed pursuant to the HOA’s enforcement policy and the laws applicable to probate claims.

California HOA lawyers Collection and enforcement proceedings against deceased owners in California is a complex area of law such that HOA’s should contact their legal counsel to ensure proper compliance and to avoid missing important statutory deadlines.

 

*Asked & Answered

Untitled-1Asked – Our insurance was cancelled and with the new policy the premium sky rocketed. There is not enough money in the operating account or budget to pay for the new premium. Can we pay from reserves?   

Answered – California has suffered significant wildfire damage in recent years.  Coupled with several years of severe drought and increased wildfire risk, fewer and fewer insurance companies are willing to write policies for communities that may experience wildfire damage.  In addition, admitted carriers are highly regulated by the Department of Insurance, which limits the amounts they may charge for insurance premiums.  This has caused many associations to be cancelled or non-renewed by admitted carriers or those in the “primary” market.

As a result, HOAs are left to purchase insurance from the non-admitted or “surplus” market. Carriers in the surplus market are less regulated and, when demand is high and supply is low, prices skyrocket.  The HOA’s CC&Rs generally include language specifying that the association “shall” purchase insurance, and may require coverage to provide for “full replacement cost.” If the association does not purchase the insurance as required by the governing documents, the association and its board of directors could be exposed to liability for failure to obtain adequate coverage.

So, what is an HOA to do if it doesn’t have the money to pay for the skyrocketed insurance premiums? Yes, an HOA may temporarily borrow funds from reserves in this situation without membership approval because this act would be needed to “meet short-term cash flow requirements or other expenses.” (Civ. Code § 5515(a).) This action should only be taken with the guidance from the association’s legal counsel due to the significant procedural requirements that must be satisfied under Civil Code section 5515. Those requirements include, among others, providing the membership with notice of the board’s intent to borrow the funds.  The notice must additionally include the reasons the transfer is needed, the options for repayment, a description of how the funds will be restored to the reserve account within one (1) year of the date of the transfer, and a whether a special assessment will be utilized for that purpose.

A special assessment will likely be the mechanism utilized to restore the borrowed reserve funds. However, special assessments greater than five percent (5%) of an HOA’s annual budget cannot be imposed without membership approval.   Civil Code section 5610 fortunately exempts boards from having to comply with this membership approval requirement in situations where the special assessment (regardless of its amount) is needed to address an emergency expense which “could not have reasonably been foreseen by the board when preparing and distributing the annual budget report.”  While this emergency special assessment could allow for the board to restore the borrowed reserve funds the first time, the question then becomes whether levying a similar assessment in future years would remain a legally valid option as the assessment would no longer be tied to an unforeseen expense.  HOAs should therefore consult with legal counsel on this issue before imposing an emergency special assessment to understand its implications on future budget planning.

HOAs should also consult with legal counsel and their association’s insurance professionals for guidance as to how the increased premium expense may be mitigated carrying forward. For example, boards may be able to reduce their association’s insurance premiums by increasing deductible amounts. To illustrate, if the HOA has a $5,000 deductible, an increase to $25,000 or higher may be sufficient to generate a significant premium decrease under the master policy. That is because more risk (the higher deductible amount) is being transferred from the association’s master carrier onto the individual homeowners and the carriers of their respective HO-6 insurance policies.  The HO-6 (aka “unit owner’s insurance”) policies are designed to cover anything that the association’s master policy does not—namely, anything below the deductible on the association’s master policy.  Most sets of CC&Rs fortunately allow the board to make these adjustments to deductible amounts without triggering the need for any membership approval or vote on the matter.

Other options may include reducing the scope of insurance coverage the association is required to purchase under the CC&Rs. For example, if the CC&Rs require full replacement cost, or an ‘All-In’ policy, consider an amendment to a ‘Bare Walls’ policy, which only covers the common areas.  This type of amendment would likely require membership approval and should therefore only be considered if the board is ready to devote the time and resources needed to properly educate the membership and secure enough participation in the voting process. We typically recommend in these situations that the board conduct one (or more) townhall meetings to show the cost comparisons of (a) the special assessment(s) and/or assessment increase(s) that would be needed to maintain All-In coverage over the coming years versus (b) shifting to Bare Wall coverage for the association and each homeowner only incurring a minor increase in premium under the average HO-6 policy.

California HOA lawyers This is often successful in giving the membership a clear and powerful explanation as to why voting for the amendment is in their best interest; in our experience, this substantially increases the likelihood that the ballot measure will be successful.

-Blog post authored by TLG Attorney, Steven J. Tinnelly, Esq. and Ramona Acosta, PCAM.

funeral-etiquette-1000x500-getty-1200x675-1When a delinquent homeowner dies, there is a strict one-year statute of limitations to sue them or to continue a lawsuit against their estate. (Cal. Code Civ. Proc. § 366.2). This is true even if the statute of limitations would have been longer had the person survived. This harsh rule applies even if you did not know that the person died so Boards and management should take notice if a homeowner does not respond to communications or suddenly falls in arrears and then investigate further by contacting family members or emergency contacts during circumstances of non-responsiveness and/or extended non-payment.

The second important rule when a debtor dies is that when a probate estate has opened, any creditor has only four months from the date the executor or administrator is appointed to file a claim in probate. (Cal. Code Civ. Proc. § 377.40; Prob. Code §§ 9100 et seq.). Sometimes the decedent has no family or heirs or the heirs fail to open a probate. In this case, the HOA may reach out to the public administrator in the county where the real property is located to request that they open a probate. If this is not done, then it is incumbent on the HOA to open the probate as a creditor to ensure that the above-referenced statute of limitations does not run. (See Prob. Code §§800; 48).

Since a dead person cannot be sued, the HOA must sue the estate of the decedent. If a lawsuit was filed while the homeowner was alive, but they are now deceased, a motion should be timely filed to substitute the deceased person with their estate. (Cal Code Civ. Proc. § 377.31). Counsel should be mindful that the motion must be filed within three (3) months of the rejection of the HOA’s creditor’s claim, which is deemed rejected if not responded to within thirty (30) days of submission. (Prob. Code §§ 9256, 9352, 9353, 9371). It is important to note that once the creditor’s claim is filed, the one-year time bar pursuant to Code of Civil Procedure §366.2 is tolled. Nevertheless, the creditor’s claim must be filed within one year of the decedent’s death or the claim is barred entirely.

Thankfully, the above harsh requirements do not apply when the debt is one that can be secured via a lien on real property that may be foreclosed, such as with assessment liens. This is because such debt attaches to the property and not to the deceased person.

California HOA lawyers The death of a delinquent homeowner can pose complex and time-sensitive challenges. This is why HOA’s should promptly contact their counsel or collections professional for assistance in the event of a delinquent homeowner’s death.

-Blog post authored by TLG Attorney, Carrie N. Heieck, Esq.

calculating-budget2020 has strained the purse strings of California homeowners associations. When the pandemic hit in March, it forced HOA’s into uncharted territory, which resulted in unanticipated legal fees to address a myriad of issues such as how to conduct meetings, enforce the governing documents, and maintain common areas during state-ordered shelter-in-place directives.

As restrictions were lifted, re-imposed, and continuously adjusted, HOA’s needed the advice of counsel to determine how to best navigate the fluid landscape of COVID-19 regulations. When the heat of summer arrived and quarantine-fatigued residents were demanding pool re-openings, Boards had to consider whether to adopt emergency rules to safely and legally reopen community facilities, again with the assistance of legal counsel. COVID-19 regulations also required increased cleaning and sanitation measures, which were further unanticipated costs.

The pandemic has also resulted in unemployment and reduced incomes for millions of Californians, many of whom live in HOA’s and pay assessments. Government programs have been supplementing unemployment benefits, providing stimulus checks, and issuing emergency loans, but this temporary relief is not unlimited and many fear we are heading toward a crash similar to 2008 where Associations were faced with a wave of delinquent assessments.

As 2020 nears its end, many California communities are finding themselves over budget. Pursuant to Civil Code § 5600, Directors have a duty to levy regular and special assessments sufficient to perform their obligations under the governing documents, which includes maintaining the common areas. To this end, Boards will need to evaluate how to best accomplish this task within budgetary constraints, focusing on safety as a first priority and possibly putting off larger, non-urgent projects until the pandemic has subsided and the economy has begun to recover.  If the community facilities are too costly to safely remain open, Boards may consider closing them or increasing assessments to offset the increased sanitation, cleaning, and monitoring costs if they decide to keep the facilities open.

California HOA lawyers Boards should review their financials closely with management and their accountant to determine where they may be able to cut costs and/or increase assessments to operate within budget. Although directors may be sympathetic to owners experiencing financial hardship, Boards have a duty to collect assessments and the failure to collect places a burden on the paying members who may be subject to increased assessments and reduced services to cover budgetary shortfalls. To protect against this, boards must record liens on delinquent owners and initiate collection actions. Associations should retain the services of a competent collection firm for these purposes.

-Blog post authored by TLG Attorney, Carrie N. Heieck, Esq.

*New Legislation

1200-forclosure-650x405-1

Existing state law provides for the Rosenthal Fair Debt Collection Practices Act (the “Rosenthal Act”), California’s state equivalent of the Fair Debt Collection Practices Act (“FDCPA”). Like the FDCPA, the Rosenthal Act prohibits debt collectors from engaging in specified abusive, unfair, or deceptive practices to collect debts. Violations of the Rosenthal Act are enforceable through a private right of action.

Additionally, existing California State law provides for the Fair Debt Buying Practices Act (“FDBPA”; Civil Code Section 1788.50 et seq.), which requires persons that purchase delinquent or charged-off consumer debt to maintain, and provide upon request, specified documentation proving that the alleged debtor is the individual associated with the original contract or agreement, and that the amount of indebtedness is accurate, among other requirements.

On September 25, 2020, Governor Newsom signed Senate Bill 908, the Debt Collection Licensing Act (“SB 908”), which creates a new licensing law applicable to debt collectors and debt buyers, administered by the Department of Business Oversight (“DBO”), effective January 1, 2022. Moreover, SB 908 provides for licensure regulation, oversight of debt collectors, definitions of terms, application requirements (including criminal background checks), maintaining surety bonds, and other related changes.

SB 908, sponsored by Senator Wieckowski, was presented to ensure greater consumer protection through enhanced oversight over debt collectors and debt buying entities within California. The bill utilizes the foundations contained within the Rosenthal Act and FDBPA.

The goal of SB 908 is to add new a layer of regulatory oversight over debt collectors and debt buyers already subject to state law, but not currently subject to licensure. With the adoption of the bill, debt collectors and debt buying entities must apply for and be approved for a license by the Commissioner of Business Oversight. By requiring debt collectors and debt buyers to comply with licensing requirements, the belief is that the State will be better situated to ensure compliance with existing law.

As for remedial measures, the Rosenthal Act and the FDBPA already authorize private rights of action for violations of these acts. As such, SB 908 contains a limited set of administrative remedies, including desist and refrain authority, the ability to order ancillary relief, and the ability to suspend and revoke licenses. According to the Senate, the lack of civil and administrative penalty authority and citation and fine authority in SB 908 is intended to prevent situations where a licensee could be subject to both a lawsuit by a debtor and to an administrative or civil action brought by DBO for the same violation.

The adoption of SB 908 has several important implications for Homeowners Associations (“HOA”). Notably, the new licensing requirement applies to natural persons, partnerships, corporations, limited liability companies, trusts, estates, cooperatives, associations, and other similar entities. This includes law firms and management companies involved in the collection of debt, including the collection of delinquent assessments. Thus, this bill directly impacts which entities may manage the HOA’s assessment collections.

California HOA lawyers Considering the foregoing, and to avoid the various penalties provided for in SB 908  (i.e. refunds, restitution, disgorgement, and payment of damages, as appropriate, on behalf of a person injured by the improper conduct) all HOAs should ensure that their designated collection vendors are properly licensed by the DBO by January 1, 2022. 

-Blog post authored by TLG Attorney, Corey L. Todd, Esq.

debt-collection-scams*Asked and Answered

AskedWe have several members in our community that are failing to pay their monthly HOA dues and have run through several debt collection firms in an attempt to collect on these accounts. The firms we have used continuously promised us to collect the delinquency and that “the fees will be paid by the delinquent homeowner.” Well, in most of our cases, we ended up paying triple or quintuple the delinquent amount in legal fees and collection costs all to end up with nothing or a small portion of it. We have come to the point where we don’t see that “light at the end of the tunnel” and would like to know what really is the most efficient and effective way to collect delinquent assessments.

Answered – It is not uncommon to come across HOA boards that have a sour taste in their mouth left by their prior debt collection firm. This is mostly caused by firms that (1) guarantee and promise results (specifically, promises that they will get the job done and all costs will be reimbursed by the homeowner-debtor); (2) drive up their legal fees and costs; and (3) end up not being able to collect or recoup the delinquency from the debtor. This leaves the HOA to not only write off the bad debt, but to also incur costs that are exponentially higher than the original debt.

There are two (2) primary methods in which HOAs are able to collect on delinquent assessments: (a) judicially and (b) non-judicially. The former requires the involvement of the court system, consisting of a lawsuit that prays for a money judgment and/or judicial foreclosure (court ordered sale of the home). The latter is through non-judicial foreclosure (“NJF”) that does not require the court’s involvement.

Judicial Enforcement

Generally, getting the court involved increases the amount of time and money that an HOA must expend due to the added court fees, court procedures, attorney appearances, and so on and so forth. This is especially true if the homeowner decides to contest the lawsuit and file an answer, further dragging out the time and cost for resolution. Barring homeowner contest, judicial enforcement can be effective and beneficial in two (2) situations: (a) when the home is underwater (i.e., no equity), or (b) when there is senior foreclosure activity.

When the home is underwater, an HOA should not seek foreclosure because the chances of a buyer purchasing the property is slim to none, leaving the HOA to take title to the property. In this situation, a lawsuit is beneficial in that the HOA has the option to proceed with collecting on the money judgment through a variety of collection methods (e.g., bank levy, wage garnishment). This same benefit applies to the second scenario wherein the senior lender is in the process of conducting its own foreclosure sale. This is because if there is senior foreclosure activity and the HOA attempts to conduct its own sale prior to the senior’s, it is unlikely that anyone would be willing to buy the home subject to the mortgage, or even worse, to be foreclosed on by the senior.

The ability to opt to pursue a money judgment is indeed beneficial. However, boards must keep in mind that the added benefit does not come without its flaws:

  • Increased legal expenses, costs and time;
  • Subject to same NJF risks:
    1. Lack of equity;
    2. Senior foreclosure.
  • Uncollectable money judgments

Above all, should judicial enforcement fail, the HOA will not only have to write off the debt and absorb the legal fees and collection costs, but will have to do it all over again should the homeowner-debtor continue to reside at the property and fail to pay assessments. This is something that HOAs do not have to worry about when proceeding with NJF.

Non-Judicial Enforcement (i.e., NJF)

NJF is similar to judicial enforcement with the exception of two (2) crucial differences:

  • As to both judicial foreclosure and money judgment: It does not require court involvement and attorney appearances, saving the HOA a substantial amount of money and time; and
  • As to money judgment: It secures not only the delinquent amount accrued up to the date of lien recordation, but all future delinquent assessments, costs, late fees and interests accrued thereafter.

In addition to the NJF advantages listed above, NJF generally resolves the delinquent matter before it ever reaches the foreclosure sale. This is because the homeowner realizes what is at stake: his/her home and increasing collection costs, fees and interest. The California Civil Code requires HOAs to perform the following steps, among other things, prior to the foreclosure sale:

  • Pre-lien Letter: This informs the homeowner of the delinquency and risk of losing his/her home;
  • Recordation of Delinquent Assessment Lien (“Lien”);
  • Recordation & Service of Notice of Default (“NOD”); and
  • Recordation & Service of Notice of Trustee’s Sale (“NOS”).

Nine out of ten times, the delinquent homeowner will reach out and pay off the delinquency before it reaches the NOD stage, providing a resolution timetable of approximately 60 – 75 days. This is because the Lien puts a “cloud” on title of the home, preventing the homeowner from obtaining loans, refinancing his/her mortgage, and/or transferring title to the home. In the rare instances that this does not occur, the HOA can simply proceed with the sale. With a shorter turnaround time and lower legal fees and costs, NJF can be advantageous for most HOAs to utilize for assessment collection.

California HOA lawyers In most delinquent assessment matters, it is unlikely that the subject home will lack sufficient equity to recoup the HOA assessment debt, which makes NJF that much more appealing. However, as discussed, there are instances where NJF may not be a viable option. This is why it is of utmost importance that the HOA’s collection agent does its due diligence in thoroughly evaluating each account before providing a recommendation as to proceeding with judicial or non-judicial enforcement.

-Blog post authored by TLG Attorney, Andrew M. Jun, Esq.

92803020-debt-collector-red-text-round-stamp-with-zig-zag-border-and-vintage-texture-It is no secret that homeowners’ associations (“HOA”) are run and managed through the funds of monthly HOA assessments (“Fees”), and more often than not, HOA’s hire and retain debt collection firms to collect on past due Fees from delinquent members of the community. Sometimes, this leads HOA’s to lose large amounts of money in collection costs and write-offs (of “bad debt”) due to homeowner challenges under the Federal Debt Collection Practices Act (“FDCPA” or “Act”). The FDCPA provides protection to consumers (e.g., homeowners) from abusive debt collection practices by placing a myriad of procedures and limitations of which all debt collection firms must abide by, unless said firm solely recoups debt via non-judicial foreclosure, in which case the firm will only be subject to FDCPA § 1692f(6), discussed in detail further below. This was the U.S. Supreme Court’s holding in Dennis Obduskey v. McCarthy & Holthus LLP, No. 17-CV-1307, 2019 WL 1264579 (March 20, 2019).

In Obduskey, the homeowner defaulted on his mortgage payment, causing the lender to retain McCarthy & Holthus LLP (“Firm”)—a debt collection firm that solely recoups debt via non-judicial foreclosure—to foreclose on the home. The homeowner, Dennis Obduskey, brought an action against the Firm to challenge the foreclosure on the basis of alleged violations under the Act, among other things; in particular, Section 1692g(b). In short, Section 1692g(b) mandates a debt collector to cease all collection efforts and verify the debt it is attempting to collect if a debtor challenges/disputes the debt.

The Court, in agreement with the lower courts, ruled in favor of the Firm and dismissed the case against same on the basis that the Act (i.e., § 1692g(b)) did not apply to the Firm as it was not a “debt collector” under the Act’s primary definition (un-emphasized portion):

The term “debt collector” means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another…For the purpose of section 1692f(6) of this title, such term [“debt collector”] also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests.

(FDCPA § 1692a(6).) (Emphasis added.)  The Court found that Section 1692f(6) of the Act was the only section applicable to the Firm as it fell under the “limited purpose definition” of “debt collector” (“LPD”)—section emphasized above—as its sole method of recouping debt was by enforcing security interests held in personal/real property through non-judicial means (e.g., non-judicial foreclosure), exempting the Firm from the rest of the Act.

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*New Case Lawhoa-assessment-debt

Recovering delinquent assessment debt is one of the more complicated issues that homeowners associations (“HOAs”) face. Fortunately, the Civil Code grants HOAs with significant remedies to recover delinquent assessment debt, including the ability to record assessment liens and to ultimately enforce those liens through foreclosure. However, HOA Boards, managing agents and collection professionals understand that the laws governing such remedies are complex, and a string of California court decisions in recent years have affirmed the necessity for HOAs to strictly comply with these legal requirements. The recent case of Mashiri v. Epsten Grinnell & Howell (2017) 845 F.3d 984 is an example.

Civil Code Section 5660 requires associations to provide delinquent homeowners with notice of the HOA’s intent to record an assessment lien (i.e., to send a “pre-lien letter”) at least thirty (30) days prior to recording the assessment lien.  As such, most pre-lien letters demand that payment be made within this thirty (30) day period (e.g., “Demand is hereby made that you remit payment within thirty days of the date of this notice or else a lien will be recorded”).  However, according to the Court’s decision in Mashiri, such a demand for payment within this timeframe may violate the Fair Debt Collection Practices Act (“FDCPA”).

In Mashiri an owner became delinquent in the payment of assessments to the HOA. As a result, the HOA, through its legal counsel sent the homeowner a pre-lien letter.  The letter stated in part:

This letter is to advise you that $598.00 is currently owing on your Association assessment account.  Failure to pay your assessment account in full within thirty-five (35) days from the date of this letter will result in a lien being recorded against your property….

Unless you notify this office within 30 days of receiving this notice that you dispute the validity of the debt or any portion thereof, this office will assume the debt is valid.  If you notify this office in writing within thirty (30) days of receiving this notice that the debt, or any portion thereof, is disputed, we will obtain verification of the debt….

The Court concluded that this language violated the FDCPA in two (2) respects. First, the FDCPA requires the written notice (here, the pre-lien letter) to provide the debtor with thirty (30) days to dispute the debt. While the pre-lien letter demanded payment within thirty-five days of the date of the letter, such language is inconsistent with the requirement that it be upon receipt of the letter. The Court pointed out that, “[b]y the time a debtor receives such a letter, there may be fewer than thirty days before payment is due.”  (Id. at p. 991.) As such, the “least sophisticated debtor, when confronted with such a notice, would reasonably forego her right to thirty days in which to dispute the debt and seek verification.” (Id. at p. 991-92.)

Second, the FDCPA requires a debt collector to cease all collection efforts “until the debt collector obtains verification of the debt . . . and a copy of such verification . . . is mailed to the consumer by the debt collector.”  (Id. at p. 992; quoting 15 U.S.C. § 1692g(b).) The pre-lien letter at issue in Mashiri simply stated that a lien would be recorded if the debtor failed to pay.  Thus, the “least sophisticated debtor would likely (and incorrectly) believe that even if she disputed the debt,” and the debt collector had not mailed the verification of debt to the debtor, the debt collector would nevertheless record a lien against the property. (Id.)  “In this manner, the letter effectively overshadows the disclosed right to dispute by conveying an inaccurate message that exercise of the right does not have an effect that the statute itself says it has.” (Id.; quoting Pollard v. Law Office of Mandy L. Spaulding (1st Cir. 2014) 766 F.3d 98, 105.)

California HOA lawyers HOAs should be cognizant of the requirements under both the Civil Code and the FDCPA, and should ensure that the pre-lien letters being prepared by the HOA’s managing agent and/or legal counsel is compliant with the Court’s holding in Mashiri. The language should include a statement concerning the owner’s right to dispute the debt, as well as provide a sufficient amount of time from receipt of the letter to dispute the debt in order to prevent a lien from being recorded. The holding in Mashiri emphasizes the necessity for HOAs to retain the services of qualified collection firms that are aware of these statutory requirements and understand how the collection process must be managed so as to avoid potential problems. HOAs in need of collection services may contact our firm’s affiliate, Alterra Assessment Recovery.

-Blog post authored by TLG Attorney, Matthew Plaxton, Esq.

Taxes-PictureA bi-partisan group of the House of Representatives would like to think so.  According to the Community Associations Institute (CAI), more than 66 million Americans live in homeowners associations across the country, with an estimated 13 million of them living in California.  These homeowners pay assessments to cover the costs of road maintenance, street lighting, street cleaning, snow removal and other municipal services.  However, they also pay for these services through their local, county, or state property taxes.  U.S. Representatives Anna G. Eschoo (D-CA) and Mike Thompson (D-CA) have introduced H. R. 4696, the “Helping Our Middle-Income Earners (HOME) Act” to correct this double-taxation.  The bill is co-sponsored by US Representative Barbara Comstock (R-VA).

Under the Home Act, association members with annual incomes of $115,000 or less (or $150,000 in the case of joint returns) would be eligible for a tax deduction of up to $5,000 for qualifying assessments.  To qualify, assessments must be mandatory and regularly occurring, apply to the taxpayer’s principle residence, and benefit the taxpayer’s principle residence.  The obligation to pay assessments must also arise out of the taxpayer’s automatic membership in the association.  Under these provisions, special assessments and rental properties would not qualify for the deduction.

Homeowners associations would be required to provide a statement to each member showing the name, address, and tax ID number of the homeowner, the amount of qualified assessments received from the homeowner during the calendar year, and the name, address, and phone number of the contact person for the association.  The statement must be provided annually by January 31st.

“The Home Act recognizes that millions of middle class homeowners are struggling to keep up with rising household expenses like child care, college tuition, health care, mortgage and community assessments,” says Rep. Eschoo.  “The Home Act can go along way by providing relief from this tax burden on millions of middle class families.”

“Congress needs to do all that it can to reduce barriers to homeownership for hard-working middle class families,” said Thompson.  “By helping to alleviate the cost of community association fees this legislation is an important step.”

hoa laws The Home Act has been referred to the House Committee on Ways and Means, but may have trouble moving forward during an election year.  CAI has taken a “support” position on the bill, and has issued a Call to Action to seek additional sponsors.  Even if the bill does not pass in 2016, it sends a message to the legislative committees working on tax code changes, that it’s an initiative whose time has come.

Blog post authored by Tinnelly Law Group’s Director of Business Development, Ramona Acosta.

hoa-transfer-fees.jpg*New Legislation

Civil Code Section 4530 sets forth the responsibility of homeowners associations (“HOAs”) to provide copies of governing documents, financial disclosures and other documents to a homeowner (or a homeowner’s authorized agent) within ten (10) days of a receipt of a request for those documents. This applies in the context of a sale of a property (a unit or lot) within a HOA. The documents to be produced are identified in Civil Code Section 4525, and are commonly known as “Transfer Disclosure Documents.”

Section 4530 does provide a HOA with the right to “collect a reasonable fee” based upon its efforts in producing, preparing and delivering Transfer Disclosure Documents. However, in satisfying this request and in seeking reimbursement, disputes would sometime arise as to whom should pay the fee (i.e., should it be the seller of the property or the prospective purchaser).

Fortunately, AB 2430 (Maienschein), effective January 1, 2015, has amended Section 4530 to specify the seller’s obligation to compensate the HOA for the aforementioned fee. Other notable changes in the law that will result from AB 2430 include:

  • The HOA must provide an estimate of the fees that will be assessed in producing the Transfer Disclosure Documents, prior to producing them.
  • The fees must be “separately stated” and “separately billed” from all other fees, fines or assessments that are billed as part of the transaction.
  • The Transfer Disclosure Documents may not be bundled with any other documents.
  • If the seller is in possession of any Transfer Disclosure Documents, the seller is required to provide copies to the prospective purchaser at no cost.
  • The form used for estimating the fees, as described in Civil Code Section 4528, is amended to include the following within the rightmost column of the form: “Not Available (N/A), Not Applicable (N/App), or Directly Provided by Seller and confirmed in writing by Seller as current document (DP).”
hoa laws AB 2430’s primary benefit is in clarifying the party responsible for a HOA’s costs in producing the Transfer Disclosure Documents (the seller). This should prevent needless billing disputes that hinder property transfers within HOAs. However, HOA Boards and especially management professionals should recognize the need to provide the estimate of fees via the Section 4528 form before producing the Transfer Disclosure Documents, and that failing to do so may inhibit the HOA’s ability to ultimately recovery them.
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