Back to "Normal?" Emerging From Post- Pandemic Assessment Collections

Back to "Normal?"

Emerging From Post-Pandemic Assessment Collections

By: Mr. A.J. Jahanian, Esq., Beaumont Tashjian

Even in the best of times, attempting to collect delinquent assessments can be a frustrating and expensive endeavor for associations. Difficult financial times, such as a pandemic, can wreak havoc on communities as receivables become more delinquent. But as delinquencies grow, it’s essential for boards to become more vigilant, in order to keep the association afloat.

During the height of the COVID-19 pandemic, when boards were faced with difficult decisions to shut down common area facilities and other community services to observe “social distancing” requirements and other state and local health orders, owners understandably may have started asking, “Are we responsible for the full payment of assessments, if we aren’t getting full services in return?” The answer of course, was yes, because assessments are the lifeblood of the community, which fund countless other services and obligations for the association; also, just because the common area facilities were not in use per se, does not mean their routine, scheduled maintenance also stopped (i.e., swimming pools needed to be treated, clubhouses needed to be cleaned, shrubs needed to be trimmed, etc.).

The other concern was the application of foreclosure moratoriums. The State of California had adopted emergency legislation that precluded associations (and other creditors) from foreclosing on owners’ homes. However, this did not necessarily mean that boards should have stopped the collections process altogether. The board’s fiduciary obligations still required that it enforce assessments and payment plans, send prelien notices, record liens, etc., stopping just short of foreclosing on the lien (until the moratorium was lifted).

So where are we now?

All in all, when it comes to assessment collections, we are back to normal. But the pandemic showed us that during down-times especially, it is critical for boards to know thew full extent of viable collections options, in order to increase the chances of collecting delinquent assessments.

Boards can pursue the following avenues that are viable options: (1) suspension of common area use privileges; (2) small claims lawsuit; (3) non-judicial foreclosure; or (4) judicial foreclosure.

Boards should consider suspending common area use privileges of delinquent owners. Of course, this can only be accomplished if permitted by the associations governing documents and, only after the owner is provided the required notice and hearing. Similarly, this is only effective when used against owners that have an interest in using the common area facilities, if any (which might especially be the case if they have a tenant living in their home who enjoys the facilities as well).

A small claims lawsuit must be under $5,000 (for corporations). If a delinquency exceeds $5,000, a board can either waive collection of the excess or it must pursue the entire delinquency in Superior Court. While the board, or management, is required to present the case, an attorney can only assist in the preparation of the documents. An association’s only legal right, if awarded a small claims judgment, is money damages. If the delinquent owner does not have any assets, the association may not collect on the judgment. That said, the cost and time involved in filing and obtaining a small claims lawsuit is minimal and an abstract of judgment may increase the possibility of eventual collection.

With foreclosure, boards must wait until the principal debt is above $1,800 or 12-months delinquent. Non-judicial foreclosure is the foreclosure of a home without court involvement. The process is handled through the recorder’s office, requiring various notices to be served, posted and recorded, including a Notice of Default, Notice of Sale, etc.

Non-judicial foreclosure limits the board to collecting via foreclosure only. Furthermore, a lender with priority has senior rights to the property. As such, if a delinquent owner’s residence is foreclosed by the lender during a non-judicial foreclosure, the board has no further rights with the remedy of non-judicial foreclosure. Instead, the board would be compelled to file a small claims or Superior Court action against the former owner. However, non-judicial foreclosure costs less and takes less time than a judicial foreclosure. Also, boards cannot pursue collection of CC&Rs fines (penalties) through non-judicial foreclosure.

Judicial foreclosure is a civil court action that provides two potential remedies: 1) foreclosure; and 2) a money judgment. Should the senior lender foreclose, boards maintain their right to seek money damages against the prior owner. Associations can also file a lis pendens, which helps prevent the property from transferring during the lawsuit. Furthermore, the association can obtain a court judgment by default application as owners typically don’t respond to the lawsuits.

A question that often arises is what steps can be taken to collect on a judgment, whether obtained via small claims or judicial foreclosure lawsuit? The first step is to have an Abstract of Judgment issued and recorded. Abstracts are valid for 10 years, unless renewed, and will prevent a Debtor from buying or selling real property in the county in which the Abstract is recorded. The board should also have a Writ of Execution issued, which is the necessary tool to levy on the Judgment.

A judgment can be satisfied by any or all of the following actions: wage garnishments; bank levies; vehicle levies; assignment of rents; calling the debtor to an order to appear hearing to identify all assets (ORAP); etc. Should a debtor fail to appear at an ORAP, a bench warrant is issued. The threat of arrest serves as a powerful motivator to debtors and, thus, ORAPs are a highly effective tool to collect an association’s judgment.

In an increasingly uncertain world following the pandemic, boards should consider every possible option that increases their chances of collecting, given the circumstances of each case.

A.J. Jahanian, Esq. is an associate attorney with Beaumont Tashjian who devotes his career to serving common interest developments. He can be reached at ajahanian@HOAattorneys.com