There is no substitute for expertise. HOA law is what we do.

Articles Posted in Collections

Knock, Knock,We’re Coming In… Collection and Enforcement Against Deceased Homeowners

Published on: January 24, 2024 | by Steven J. Tinnelly, Esq. and Carrie Heieck, Esq.

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.

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.

The Impact of a Homeowner Filing Bankruptcy and Receiving a Discharge on Assessment Collection

Published on: April 20, 2022 | by Corey Todd, Esq.

*Asked & Answered

Asked – Our HOA Board of Directors has been advised that a homeowner who is delinquent in their payment of assessments has filed bankruptcy. If the homeowner obtains a bankruptcy discharge does the HOA have to write off the delinquent account as a bad debt?

Answered – Not necessarily. While a homeowner declaring bankruptcy affords them various protections from creditors attempting to collect debts, such as the imposition of an automatic stay, the Association is not necessarily without recourse if the Homeowner achieves a discharge.

The most common two (2) types of bankruptcy actions that may impact an HOA’s collection of delinquent assessments are Chapter 7 (liquidation) and Chapter 13 (repayment plans). Each type of bankruptcy filing has varying attributes that may uniquely apply to an HOA.

Regardless of which type of bankruptcy a homeowner files, the Association should immediately split their account into two (2) pre-petition debts (i.e. those that occurred before the bankruptcy filing) and post-petition debts (those accrue after the filing). This is an important action because a discharge can only relieve a homeowner of the personal obligation to pay the pre-petition debts. However, the homeowner would still be obligated to pay the HOA all post-petition debts. (See 11 U.S.C. § 523(a)(16).)

For a homeowner who achieves a discharge of the homeowner’s personal obligation to repay pre-petition debts, a discharge would not affect the HOA’s assessment lien or judgment lien with the right of judicial foreclosure that was recorded prior to the bankruptcy filing. Because the liens are recorded against the homeowner’s property, they are non-dischargeable in the bankruptcy case. As a result, once the homeowner achieves the discharge, the HOA can still proceed with foreclosure of the property and satisfy the delinquency through that mechanism. This may also incentivize the homeowner to enter into a reaffirmation agreement to voluntarily repay the pre-petition debts to avoid foreclosure of the HOA’s lien.

Considering the foregoing, it is incumbent on all Boards to ensure that they secure a homeowner’s debt through an assessment lien to ensure, among other reasons, that the HOA still has recourse against a homeowner who declares bankruptcy and obtains a discharge.

Contact your HOA attorney to conduct an in-depth analysis of the specific bankruptcy case to determine how the HOAs interests will be best served, including the filing of proof(s) of claim to receive disbursements under the active bankruptcy plan.

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

AB 1885 – Debtor Exemptions: Homestead Exemption

Published on: January 6, 2021 | by Steven J. Tinnelly, Esq.

8-things-you-should-know-about-living-featured The homestead exemption protects the value of a homeowner’s primary residence in the event of a bankruptcy. Specifically, it provides that a specified portion of equity in a homestead is exempt from execution to satisfy a judgment debt. Existing state law prescribes that the amount of this homestead exemption is $75,000 for single homeowners, $100,000 for married homeowners, or $175,000 for homeowners who are seniors and/or disabled. (Code Civ. Proc., § 704.730(a).)

Since the inception of the homestead exemption, California Courts have liberally construed declarations of homestead. (see Johnson v. Brauner (1955) 131 CA2d 713, 722, 281 P2d 50.) California Courts have taken this lenient approach because ‘the law and facts to promote the beneficial purposes of the homestead legislation to benefit the debtor’” [Phillips v. Gilman (In re Gilman) (9th Cir. 2018) 887 F3d 956, 964 quoting Tarlesson v. Broadway Foreclosure Invs., LLC, 184 CA4th 931, 936, 109 CR3d 319 (2010)]. Emphasis added.) However, existing law does not provide for any modifications or adjustments to account for inflation. The legislature has identified this oversight and provided an avenue for correction to this approach.

On September 18, 2020, Governor Newsom signed Assembly Bill No. 1885 (“AB 1885”), which drastically modifies a debtor’s protection in their homestead in the event of a bankruptcy. AB 1885, which took effect January 1, 2021, makes two (2) important changes:

Makes the homestead exemption the greater of $300,000 or the countywide median sale price of a single-family home in the year prior to the year in which the judgment debtor claims the exemption, not to exceed $600,000.
Adjusts annually for inflation, beginning on January 1, 2022, based on the change in the annual California Consumer Price Index for All Urban Consumers for the prior fiscal year, published by the Department of Industrial Relations.

While the sharp increase in the value of the homestead exemption may be staggering at first blush, AB 1885 is adjusting state law to account for the drastic increase in property values that California has experienced over the past several years.

The Effect of a Homestead Exemption

A declared homestead limits the extent to which a subsequently recorded judgment lien, other than a judgment lien based on a judgment for child or spousal support, will attach to the declared homestead. As a result, a judgment lien attaches only to the surplus value of the property over the amount of the homestead exemption, plus the amount of all liens and encumbrances on the declared homestead at the time the abstract of judgment is recorded to create the judgment lien. (Code Civ. Proc., § 704.950; see also Code Civ. Proc., § 487.025(b).) Thus, if there is no “surplus equity” when the judgment lien is recorded, the judgment lien may not be enforced to any extent.

Additionally, the homestead exemption applies to any interest of the judgment debtor in a homestead [Code Civ. Proc., § 704.720(a)] and to all procedures for enforcement of a money judgment [Code Civ. Proc., § 703.010(a)].

In light of the foregoing, bankruptcy courts may experience an increase in bankruptcy filings for homeowners struggling with mounting debt but have built equity in their home.

The Impact on Assessment Collections

As a result of AB 1885, our office has been receiving various inquires regarding how this will impact assessment collection. In short, AB 1885 will only have an impact on an HOAs ability to satisfy a delinquent account if the delinquent Owner files bankruptcy. While AB 1885 may reduce some potential revenue sources to satisfy the debtor’s creditors, there are still various collection options available.

To ensure your HOA is taking all appropriate measures to secure debts and collect from delinquent Owners, contact your attorney for individual case analysis.

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

SB-908 Signed! Debt Collection Licensing Act

Published on: October 1, 2020 | by Steven J. Tinnelly, Esq.

*New Legislation

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.

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.

HOA Assessment Collection During the Pandemic

Published on: March 31, 2020 | by Steven J. Tinnelly, Esq.

*Asked & Answered

Asked – Our common area recreational facilities have been shut-down as a result of the pandemic. With this, and with the economic impact of COVID-19, should our HOA be excusing homeowners from having to pay assessments? What about reducing our assessments or changing our policy to not charge any late fees or interest on delinquent homeowners?

Answered – It is important to recognize that an HOA is a nonprofit corporation with a fixed budget. The amount of assessments it levies is based upon the budgeted gross expenses the HOA will incur to satisfy its contractual obligations. Those obligations include, among others, payment of insurance premiums, maintenance expenses, management expenses, etc. The HOA must continue to fulfill these obligations despite the pandemic.

When a homeowner takes title to a home within the HOA’s development, the homeowner automatically assumes the mandatory responsibility to pay assessments levied by the HOA. This remains the responsibility of the homeowner regardless of the degree to which the homeowner utilizes HOA’s common area facilities. Whether as a result of a pandemic, remodeling project or other circumstance, there may be situations where the common area facilities are not available for use by a homeowner. These situations do not relieve the homeowner of his or her responsibility to pay assessments. This is why the often-used term of “dues” is not accurate in the context of homeowners associations. “Dues” refer to ongoing payments made in connection with a voluntary membership—such as membership dues to a health club or social club. “Assessments,” by contrast, are mandatory payments that must be made for so long as the homeowner retains ownership of a property within the HOA.

We understand the impulse to assist those who have been financially injured as a result of the pandemic. However, an HOA is not the type of entity to render such financial assistance. It is not a for-profit lender, financial institution or government agency, nor does it receive government subsidies or guarantees to serve as a source of credit. If an HOA were to forbear from collecting assessments during this time, or to relax the penalties associated with assessment delinquencies, it will create disincentives for homeowners to pay assessments in a timely fashion. This will inevitably frustrate the HOA’s ability to satisfy its obligations to the financial detriment of the entire membership.

HOAs should continue to collect assessments and to utilize their assessment collection policies to address assessment delinquencies. Homeowners who fail to pay assessments in a timely fashion should remain subject to late charges and interest, in addition to the other collection remedies the HOA has under its governing documents and California law (e.g., the recording of assessment liens). Situations where accommodations may be made for a delinquent homeowner should only be evaluated by the Board on a case-by-case basis after consideration of the facts and circumstances underlying the delinquent homeowner’s assessment debt. However, such accommodations, if granted, should be structured through a formal payment plan that ensures the HOA—and by extension, its entire membership—will not subsidize any amount of the assessment debt or the collection fees and costs incurred by the HOA in connection therewith.

Incur a Cost of $10,000 to Collect…a $2,000 Debt?

Published on: December 3, 2019 | by Steven J. Tinnelly, Esq.

*Asked and Answered

Asked – We 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.

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.

U.S. Supreme Court Holds Debt Collection Firms that Solely Practice Non-Judicial Foreclosure Exempt from FDCPA*

Published on: June 18, 2019 | by Steven J. Tinnelly, 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.

SB 2 Signed: California Legislature Passes the Building Homes and Jobs Act to Address the Affordable Housing Crisis

Published on: September 29, 2017 | by Steven J. Tinnelly, Esq.

housing-crisis California is currently facing a serious shortage of affordable housing. The housing crunch is impacting individuals and businesses in all parts of the state. Businesses are having trouble attracting and retaining employees and individuals face longer commute times and overcrowding, among a host of other issues.

To combat the affordable housing crisis, the California Legislature recently passed the Building Homes and Jobs Act (“Act”). Effective immediately, the Act adds a new section to the Government Code (Section 27388.1) and a new chapter to the Health and Safety Code (Division 31, Part 2, Chapter 2.5).

Effective January 1, 2018, the Act imposes a $75.00 fee for the recording of certain real estate documents like HOA governing documents and collection documents (i.e. CC&Rs, liens, notices of default, etc.) and cannot exceed $225.00 per transaction. The fees generated from the Act will be made available to local governments and the Governor’s Office of Planning and Research through the creation of the Building Homes and Jobs Trust Fund (“Fund”). The Fund will be managed by the California State Treasury.

How the Building Homes and Jobs Act Will Adversely Impact HOAs in California

Central to all HOAs is the collection of assessments on a monthly, quarterly, or annual basis. When a homeowner is delinquent in the payment of assessments, an HOA typically records various lien documents to secure its interest thereby ensuring that it is paid what is owed.

Imposing a $75.00 fee each time these documents are recorded will increase the cost to a delinquent homeowner to resolve an assessment debt with his or her HOA. For homeowners who are already in financial straits and having difficulty making their assessment payments, the added fees to be imposed when lien documents are recorded will make it increasingly difficult for these individuals to bring their assessment accounts current and ultimately remain in their homes.

How the Recording Fees are Distributed through the Building Homes and Jobs Trust Fund

County Recorder Offices will be responsible for remitting the fees they collect on a quarterly basis directly to the Fund. To gain access to the fees collected, local governments must submit proposals to the Governor’s Office of Planning and Research detailing how they plan to use the fees to update planning and zoning ordinances that will streamline housing production.

In addition, the Governor’s Office of Planning and Research will be permitted to use a portion of the fees collected in the Fund to combat homelessness and to create, rehabilitate, and preserve transitional rental housing.

Despite the adverse impact the Act will likely have on HOAs across the state of California, its ultimate goal is to leverage billions of dollars in private investment, lessen the demands on law enforcement and dwindling health resources as fewer people are forced to live on the streets or in substandard housing, and increase businesses’ ability to attract and retain skilled workers.

-Blog post authored by TLG Attorney, Kyle B. Roybal, Esq.

‘No Cost’ Collections Can Prove Very Costly

Published on: February 7, 2017 | by Steven J. Tinnelly, Esq.

hoa-assessment-collection-house The 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.

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.

HOAs Required to Accept Partial Payments from Delinquent Homeowners

Published on: January 8, 2015 | by Steven J. Tinnelly, Esq.

*New Case Law

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…