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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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*New Legislationbank-owned.jpg

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.

bankruptcy1.jpg*New Resource

Community associations (“associations”) often deal with owners overburdened by debt and unable to pay their assessments. These owners may file for bankruptcy to seek financial relief. How does this affect an association? What must an association be aware of? How can an association protect its interests? This blog post addresses these questions while providing a basic outline of the three (3) types of bankruptcies that can affect an association: Chapter 7, Chapter 11, and Chapter 13.

This information can also be found in our new resource entitled “Bankrupt Owners in Your Community”, available for download from our library.

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House-and-dollar-sign.jpgA new subsidiary of a national asset management firm has been founded to help resolve some of the problems experienced by Homeowners Associations (“HOAs”) and the mortgage industry in the resale of foreclosed and defaulting residential properties. A press release by the newly formed company, Sperlonga Data and Analytics, states that HOA claims for unpaid dues “frequently create problems and delays” in the sale process. Sperlonga believes that these delays cause “hundreds of millions of dollars in losses for the mortgage industry annually, largely because parties have no means to contact one another.”

Sperlonga seeks to help facilitate contact with HOAs, lenders and other lien holders. Their goal is to resolve outstanding HOA obligations before they can negatively impact the resale process. “After hearing again and again of homeowners’ associations creating issues at closing for parties wanting to buy and sell assets, it became evident that this problem was costing the industry tremendous amounts of time and money…With no single source of reliable association data or standardization in place to manage this process, we saw an immediate opportunity to deliver a solution with real value for all parties.” (Sperlonga’s chairman and CEO).

Sperlonga will provide a “centralized repository” for HOAs to submit their demands for unpaid assessments. These demands will then be directed by Sperlonga to the appropriate party for payment–usually a bank or other financial institution.

It is great to see the attention being given to the difficulties experienced by HOAs attempting to collect on unpaid assessment obligations and how HOAs are suffering from significant foreclosures and vacancies. Any efforts made by service providers and those in the mortgage industry to provide a more efficient resale process for distressed properties will certainly help HOAs and their communities.

final_notice.jpgThe increase in assessment collection efforts by Homeowners Associations (“HOAs”) is being seen nation-wide. States like California, Nevada and Texas are currently debating new legislation aimed at making some drastic, and potentially harmful, reforms to the ways in which HOAs can pursue and collect delinquent assessments.

In California, there is a proposed bill that would significantly affect a HOA’s ability to collect delinquent assessments. SB 561 will, in a nutshell, make it much more difficult for a HOA to recover the collection costs and fees incurred in connection with collecting delinquent assessments. There is signficant industry opposition to the bill.**

Additionally, some property owners are beginning to take a more agressive stance against HOA collection efforts. In Nevada, investors in foreclosed homes recently filed a new class-action complaint against more than 500 Nevada HOAs. They allege that HOAs have unlawfully allowed collection companies to collect costs that were never incurred by the HOAs.

New legislation and legal challenges concerning HOA collection practices could radically impact the financial and operational structure of HOAs and collection companies. Hopefully, the increase in attention will help to (1) spotlight the tremendous toll that delinquencies are taking on HOAs and (2) provide a clear, settled framework for HOAs to use in their collection efforts.

**To read more about industry sentiments toward SB561, visit CAI’s California Legislative Action Committee’s website.

creditcard.jpgAssociations are required to levy regular and special assessments sufficient to perform their obligations under their governing documents and Ca. Civ. Code §1366(a). Associations may encounter difficulties in getting their members to pay assessments on a regular and timely basis. In response to these difficulties, some Associations are providing credit card processing of assessment payments as a courtesy to their members and/or an incentive for delinquent members to fulfill their assessment obligations while deferring the actual payment. The fees involved in processing assessments by credit card are then sometimes absorbed by the Association.

Several Managers and Board members have contacted us regarding the propriety of absorbing these fees.

We have prepared an article on this issue which is available for download from our Library. The article is entitled “Absorbing Credit Card Transaction Fees”.

In sum, absorbing these fees is problematic because (1) it results in an inequity for the Association’s members that pay their assessments by cash or check and (2) likely violates the assessment requirements of the Association’s CC&Rs. Associations that provide credit card processing of assessments should ensure that the members paying by credit card are responsible for any transaction fees and costs involved.

For a more detailed discussion of this issue, click here to read the article.

To submit questions to Tinnelly Law Group, click here.

*Asked & Answeredshortsale.jpg

This economic downturn has dealt a serious blow to the assessment revenue of Associations throughout California. Almost every Association is dealing with several delinquent homeowners. One Board Member recently submitted a question on our site asking what happens to an owner’s delinquent assessments if the owner sells his property in a short sale.

In an effort to avoid foreclosure, an owner may elect to sell his property in a “short sale” by selling the property for less than is owed on the mortgage. Because the lender will take a loss on the property, the lender ‘s approval is required before the sale can take place.

Any outstanding liens on the property must be satisfied for the sale to proceed. Provided that the Association has liened property for the delinquent assessments, then it stands in a strong position to recoup at least some money.

Though the Association is under no obligation to release its lien, it should realize the benefit of having a new, dues-paying owner in the property. The Association should negotiate with the parties involved by seeking contribution from the lender, buyer, and realtors in exchange for the Association waiving some of the late fees and interest that may have accrued on the outstanding assessment amount. This type of reasonable approach will (1) help the Association recover at least some money, (2) provide the Association with a dues-paying owner, and (3) help prevent the new owner from harboring resentment for the Association.