SUMMER 2022
GAMES
o H w AB-101 limits fund transfers. PAGE 4
COLLECT THEM ALL
Exploring the options of assessment collections. PAGE 6
MAEDAY, MAEDAY!
PROPER VIGILANCE
A look at security risks and ways to limit liability. PAGE 10
OUT OF STATE MIND
Recovering assessments across state lines. PAGE 14
UNCERTAINTY Your high beam to the foggy SB-908.
PAGE 8
PAGE 16
AVOIDING NIGHTMARES
Tips for levying special assessments PAGE 12
Summer 2022
A PRACTICAL REVIEW OF COMMUNITY MANAGEMENT LAW
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be advised that the opinions of the authors who contribute to the Law Journal are those of the author only, and do not necessarily reflect the opinions of CACM and other industry attorneys. Please note that in a constantly evolving industry there are frequently multiple interpretations of the controlling statutes and case law. The information contained in these articles is of a general nature and not intended as legal advice. If you have any questions, please discuss them with your association’s legal counsel.
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2 The Law Journal Summer 2022 | cacm.org
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The Law Journal strives to keep community managers informed and equipped with the information and tools they need to be successful. A key part of being successful and keeping common interest developments running smoothly is ensuring consistent and adequate cash flow. The primary means of guaranteeing adequate cash flow is assessments; remember, assessments are the lifeblood of communities. Community managers also need to be aware of outside changes, such as lender requirements and crime rates, and their effects on communities. This issue focuses on the ever-changing laws surrounding assessments and sustaining a healthy community by being up to date on current trends and best practices. In this issue you will find articles that address topics such as the new Debt Collection Licensing Act, collecting across state lines, the limits on fund transfers and key tips for levying special assessments. Additional articles address the impact of stricter lending standards and maintaining a secure community considering the spike
“ Community managers
need to be aware of outside changes, such as lender requirements and crime rates, and their effects on communities. ”
in crime. It is my honor to be the guest editor of the Summer 2022 Law Journal. The Law Journal Editorial Committee received many submissions with great topics, making it difficult to select the articles for this addition. Thank you to everyone who wrote an article and for sharing your wealth of knowledge and expertise. I hope you enjoy this issue as much as I enjoyed working with the Editorial Committee to bring this to you. I encourage you to reach out to the authors as I’m sure they would be happy to hear your feedback and answer your questions.
Jeffrey A. Beaumont, Esq., is a senior partner with Beaumont Tashjian and has over 20 years of experience representing common interest developments throughout California.
cacm.org | The Law Journal Summer 2022 3
All in Good
Fun(d)
HOW AB-1101 LIMITS FUND TRANSFERS WITHOUT BOARD APPROVAL BY A.J. JAHANIAN, ESQ.
Y
ou may recall that, not too long ago, California legislators took steps to protect association finances by mandating greater oversight by boards of directors. Specifically, the Civil Code was revised in 2019 to require monthly
financial reviews and also prohibit any fund transfers or expenditures that exceed $10,000 or five percent (5%) of an association’s total combined reserve and operating account deposits (whichever is lower), without the prior written approval of the board. This meant that community association managers were required to obtain the written approval of the board first, before paying invoices, making expenditures, or otherwise transferring association monies in excess of the threshold.
4 The Law Journal Summer 2022 | cacm.org
With the passing of Assembly Bill 1101 (“AB-
For example, the board may authorize
1101”), this approval requirement is new
and sign a resolution which expressly
and improved based upon the size of the
delegates to management the right to
community; specifically, written board
make certain recurring expenditures and
approval will be required for fund transfers
fund transfers, even if those transfers
or expenditures which exceed the following
exceed the Civil Code thresholds. A
thresholds:
resolution can serve as “standing approval” for management to proceed
• If the association has fifty-one (51) or more
with business as usual, so that they
separate interests, the board must give its
do not have to obtain written board
written approval for transfers of $10,000 or
approval for each and every transaction.
five percent (5%) of the estimated income in the association’s operating budget for
Boards should exercise due care
the year (whichever is less); and
whenever it comes to the association’s finances. This means documenting
• If the association has fifty (50) or less
compliance with the Civil Code and the
separate interests, the board must give
association’s governing documents and
its written approval for transfers of just
noting in meeting minutes when fund
$5,000 or five percent (5%) of the estimated
transfers are approved or delegated
income in the operating budget for the
to management for handling. A board
year (whichever is less).
resolution can serve dual purposes: documenting compliance, while also
These changes are somewhat intuitive, since
authorizing trusted agents to meet
it makes sense that smaller associations are
the association’s routine financial
subject to a stricter approval requirement;
obligations on a recurring basis.
after all, $5,000 may go much further and have a great impact on a smaller association and
Either way, boards should consult
therefore, smaller budget.
with their association’s legal counsel, community managers, and CPAs,
On the other hand, regardless of size, boards
in deciding what works best for the
may find these requirements to be overly
community. Some boards may prefer
burdensome and restrictive of their ability to
to retain greater oversight over the
delegate routine expenditures to their trusted
association’s fund transfers and ensure
community managers.
they are involved in each decision subject to AB-1101’s limitations. Others
Managers may find that obtaining board
may prefer to delegate these decisions
approval for each of these transfers, no
to management, via board resolution,
matter how routine and recurring they are,
when it comes to specific invoice and
unnecessarily slows the association’s ability to
expenditures only. Whatever your
get things done. Whichever side you fall on,
preferred approach, always remember to
there are ways to ensure compliance with the
document, document, document!
new laws, without necessarily impeding your routine operations.
A.J. Jahanian, Esq., is an associate attorney with Beaumont Tashjian that specializes in preparation and enforcement of governing documents and contracts, risk management, dispute resolution, fair housing compliance, and all other issues impacting community associations.
cacm.org | The Law Journal Summer 2022 5
Assessment Collections What Are Your Options?
A
By Nicole A. Lilomaiava, Esq.
ssessments paid by members are the main source of income for an association. Members’ failure to pay assessments can therefore be crippling to an association and under the right circumstances, catastrophic. Payment of assessments is necessary for an association’s operation, and collection of delinquent assessments, vital to its longevity. Under the Davis-Stirling Common Interest Development Act, assessments and related charges are the debt of the owner and may be a lien against the separate interest from and after the time a notice of delinquent assessment (lien) is recorded against the property (Civil Code “CC” §5650 and §5675). Most CC&Rs have similar provisions. As such, associations have various options for collection of assessments.
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In seeking recovery of delinquent assessments, an association can file a lawsuit in either Small Claims Court or Superior Court, depending on the amount being sought. Associations can also opt to pursue foreclosure of the property. There are two types of foreclosure options available to associations: judicial foreclosure and non-judicial foreclosure. In judicial foreclosure, associations file a lawsuit against a delinquent homeowner seeking a judgment to sell the property. In non-judicial foreclosure, an association can sell the property without court involvement; a trustee handles the sale. Judicial and non-judicial foreclosures start off in the same manner. They both require a prelien demand to be sent to all record owners (CC §5660). A lien must be recorded after proper
authorization and notice of the recorded lien must be mailed to the homeowner (CC §5673 and §5675). The board must also properly authorize pursuing either foreclosure process (CC §5705). Finally, both foreclosure options require the homeowner to be formally notified of the board’s decision to initiate foreclosure of its lien (CC §5710). Once this notice is served, the processes change between the two foreclosure options. Specifically, with non-judicial foreclosure, the association’s trustee records a notice of default, then a notice of sale, and the sale is subsequently conducted. With judicial foreclosure, a lawsuit is filed, judgment is sought, and once awarded, the association obtains a writ of sale from the court which allows the sheriff of the county in which the property is located to conduct the sale. The sheriff will serve a notice of levy and a notice of sale. There are pros and cons to both foreclosure processes. With judicial foreclosure an association is filing a lawsuit seeking foreclosure, but it can also simultaneously seek a money judgment against the homeowner. This gives an association the choice to enforce the money judgment or to pursue foreclosure of its lien. With non-judicial foreclosure, an association is only seeking recovery of the debt via the property. Judicial foreclosures may take longer than non-judicial foreclosures because it is going through the court system. Costs for either process are similar in most cases, but keep in mind that collection costs and attorneys’ fees can and should be included in the amounts sought from the delinquent homeowner. Regardless of which foreclosure process an association pursues, the most critical instrument in any assessment collection matter is the lien. An assessment lien puts others on notice of the debt by placing an encumbrance on title to the property, so that clear title cannot transfer to another person without resolution of the assessment debt. The lien also secures an association’s interest in the property in the
In seeking recovery of delinquent aIIeII!e"QIV a" aII)c aQ)" ca" e a lawsuit in either Small Claims Court or Superior Court, depending on the amount being sought. Associations can also opt to pursue foreclosure of the property.
event an owner files for bankruptcy or a probate case is filed. There is a debate as to whether a lien is limited to the amounts listed therein or if the lien also secures assessments and related charges which accrue after recordation. In Bear Creek Master Assn. v. Edwards 130 Cal.App.4th 1470 (2015,) the California Court of Appeal held that an assessment lien is continuing in nature, securing all amounts set forth in the original lien, as well as the amounts which accrue thereafter. The Bear Creek Court reasoned that, “A successive recordation requirement would impose a heavy – and needless – burden upon homeowners’ associations, fraught with risk to the association, and undue windfall to the delinquent homeowner, should any installment be overlooked.” Id. at 1489. On the other hand, a handful of bankruptcy cases hold that liens are limited to the amounts stated therein. See In re Guajardo No. 15-31452 DM, 2016 WL943613 (Bankr. N.D.Cal. Mar. 11, 2016), In re Warren, 15-CV03655-YGRm 2016 WL 1560844 (Bankr. N.D.Cal. Apr. 13m 2016); In re Basave de Guillen, BAP No. CC-18-1248-LSTa. Bankruptcy courts, therefore, may hold that liens are not continuing liens unless the association’s governing documents provide that assessment liens secure amounts that accrue after recordation of the lien. The Bear Creek case remains binding
authority in California state court actions (where judicial foreclosure actions are filed). The bankruptcy cases are not binding in state courts, or even bankruptcy courts, but can be persuasive authority in state and federal courts (See In re Walker and Walker 248 A.3d 981 (2021) where a Maryland Court relies on In re Basave de Guillen to support its position that assessment liens in Maryland are not continuing liens.). Even though the bankruptcy cases are not binding authority, they should not be ignored. In navigating assessment collections with these opposing opinions, associations should review their governing documents with legal counsel to determine if there are clear provisions which set forth that an assessment lien includes subsequently accruing assessments. If not, associations should consider amendments, rule adoptions, and/or devise a plan with legal counsel for recording successive liens.
Nicole A. Lilomaiava, Esq., of Fiore, Racobs & Powers specializes in assessment collections and has been in the industry for five years.
cacm.org | The Law Journal Summer 2022 7
Stricter Fannie Mae Lending Standards Could Impact Condo Values The Federal National Mortgage Association (“Fannie Mae” or “FNMA”) amended its lending standards, effective January 1, 2022, in a manner that could have a serious impact on the availability of financing and the value of homes in attached condominium associations. (See Fannie Mae Lender Letter (Letter LL-2021-14), dated October 13, 2021.)
By Frederick .T Whitney, sE q. & Bill Curry, sE q.
WHAT IS “FANNIE MAE”? Fannie Mae is a government sponsored entity created for the purpose of providing access to affordable mortgage loans. Fannie Mae purchases loans from banks and lenders and packages them for sale as mortgage-backed securities. Fannie Mae uses the funds from the sale of securities to purchase more loans. This cycle enables FNMA to provide liquidity to the U.S. mortgage market. To be eligible for purchase by Fannie Mae, a loan must meet certain lending qualifications. Because Fannie Mae purchases so many loans its lending standards have a significant influence on the amount and types of financing available. Fannie Mae’s lending terms are often referred to as “conventional loans”.
SO, WHAT CHANGED? On June 24, 2021, Champlain Towers South, a twelve-story condominium project in Florida, collapsed killing 98 people. In response, Fannie Mae issued “temporary” requirements intended to make ineligible, the purchase of loans by FNMA in attached condo projects with “significant deferred maintenance.”
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Fannie Mae requires that lenders looking to sell it a loan in a condominium association provide a questionnaire completed by an authorized representative of the HOA that provides appropriate assurances relating to deferred maintenance, inspections and intended special assessments. (Fannie Mae Form 1076 Condominium Project Questionnaire, dated March 2016 (addendum added December 2021).) The new requirements start at page six of the questionnaire and make specific inquiries to address: 1. Whether there have been any inspections of a project building that identified safety issues; 2. Whether the HOA is aware of any deficiencies (or deferred maintenance) related to safety, soundness, structural integrity, or habitability of the project’s buildings; 3. Whether the HOA is aware of any code violations or orders to evacuate a project building; and/or 4. Whether the HOA intends to levy any special assessments to address deferred maintenance.
While the Fannie Mae form presents specific language and questions, it is commonplace for a lender to design its own form using different language and presenting the questions in a different order. Associations are accustomed to responding to Fannie Mae lender questionnaires, and have been routinely doing so for decades. Historically, the information sought in the questionnaire involved objectively verifiable information that could be produced for a nominal fee paid by a party of the transaction. The new Fannie Mae questions, however, go well beyond the traditional objectively verifiable information, requiring the board’s involvement to characterize the integrity of the project buildings and to confirm the board’s future intentions relating to possible special assessments.
WHAT DOES AN ASSOCIATION HAVE TO DO? In short, nothing. California law makes clear that an association does not have a duty to make any disclosure to a prospective purchaser. (Kovich vs. Paseo Del Mar Homeowners Association (1996) 41 Cal.App.4th 863.) More specifically, in Kovich, the appellate court, while recognizing that a seller has an obligation to disclose construction defects to a seller, refused to impose such a duty on the association. Thus, an association does not have to do anything. While an association has no duty to a prospective purchaser, however, the refusal to respond to a lender questionnaire will likely mean that the borrower will be denied conventional financing because Fannie Mae will not be willing to purchase their loan. This could mean that a proposed sale falls through or that an attempted refinance will be denied.
WHY SHOULD AN ASSOCIATION CARE ABOUT CONVENTIONAL FINANCING? Conventional financing accounts for most loans in condominium projects in California (as many as 70% of them). Conventional loan limits were recently raised to address increasing property values, and currently range from $647,200 to $970,800, based upon the county the home is located within. Conventional financing offers lower interest rates and opportunities for buyers to obtain financing with lower down payments. Borrowers can obtain financing through other sources (i.e., through “non-conforming” loans), but they will typically be required to provide higher
down payments (e.g., 20% or more), and to pay an interest rate at least a full percentage point higher than conventional rates. Higher down payments will likely eliminate some potential buyers (meaning few competing purchase offers) and would likely result in more purchases of units as rentals as non-conventional financing is more common with investment properties. To illustrate the impact that the availability of conventional financing can have on home value, consider that a 1% increase in the interest rate of a loan results in a 13% higher payment to the purchaser. To get the same payment that conventional financing would offer, the purchaser of a condominium unit would have to pay 10% less than could be offered if conventional financing was available to obtain the same payment.
WHAT CAN AN ASSOCIATION BOARD DO? An association can provide responses to Fannie Mae questionnaires to accommodate conventional financing. If it does so, any responses should be truthful. Moreover, it is recommended that the process followed by the board be documented to demonstrate that the board followed the business judgment rule in crafting its responses. For efficiency’s sake, the response should be crafted in a manner that can be applied to all escrow requests, rather than requiring the board to meet and respond to each request individually.
Frederick T. Whitney, Esq., of Whitney | Petchul, APC entered the community association industry in 1998 and has significant experience in community association elections and negotiation and drafting of contracts, dispute resolution, CC&R enforcement and interpretation.
A model process might involve a board sitting with its reserve study in executive session to identify for each project building component whether there is any deficiency or deferred maintenance that needs to be addressed. The board should also consider whether any special assessment is needed. If the answer is that there is “no” deficiency or deferred maintenance in any project building, then the board should document its efforts and memorialize its authorization for an appropriate response in its minutes. The process should be repeated periodically (perhaps as each annual budget is prepared).
William (Bill) Curry, Esq., of Whitney | Petchul, APC specializes in association legal counsel and has been in the industry for four years.
If a board determines that there is a deficiency or deferred maintenance in a project building, then conventional financing may not be available until the board addresses the deficiency (e.g., by completing repairs with available reserves, levying a special assessment to fund them or by obtaining a loan).
cacm.org | The Law Journal Summer 2022 9
A Look at Security Risks & What Associations Can Do To Limit Liability
Tackling Theft By Allison Andersen, sE q. & Philip aW lquist, sE q.
Under California law, an association has a duty to exercise due care for the safety of its residents in areas under association control. Generally, an association is not liable for crimes of third parties unless the association is under notice of a safety concern or potential for crime.
Many associations struggle with security on a regular basis. Boards and managers wonder – to what extent are we responsible for the security of our association and our members?
Courts have found that where an association was under notice of a potential for crime (e.g., the association knows of increasing crime in the surrounding area and knows a particular area of the association is vulnerable to this crime), it can be held liable for failure to protect against those types of crimes. A key factor is foreseeability (Frances T. v. Vill. Green Owners Assn. (1986) 42 Cal. 3d 490, 499-501.) Boards of directors cannot be expected to foresee every possible security risk to an association; however, if an association is on notice of the probability for crime, it may have a duty to take action. With that in mind, what should an association do if it is facing potential crime? Let’s take a look at some common security risks that are plaguing associations today.
INCREASE IN PETTY THEFT Associations throughout the state are reporting an increase in petty theft crimes. Some theories for this
10 The Law Journal Summer 2022 | cacm.org
include job loss due to the pandemic, or increased housing costs. Generally, this type of crime is a crime of opportunity. For example, a perpetrator may sneak into a parking garage or onto community grounds and choose its targets by looking at windows and checking for unlocked door handles. These perpetrators are generally not picking locks, breaking windows, nor drawing a lot of attention to themselves. Instead, they are merely checking for the easiest target.
HOMELESSNESS/TRANSIENTS Sadly, there has been a drastic increase in homelessness across the state, and in many counties, law enforcement has limited their actions related to homelessness. This can leave associations frustrated. Not only is it often unsightly to have transients squatting near the association, but it also increases fear and can increase the likelihood of a crime occurring in the area. There have been instances of homeless individuals rummaging through dumpsters, using common
area showers or pools for bathing, and engaging in drug or theft activity. Many homeless individuals also suffer from mental health concerns, which may lead to outbursts or irrational behavior.
PACKAGE THEFT Package theft has also become all too commonplace. While there are occasions where community mailboxes are broken into, far more often, these crimes are perpetrated when packages or mail is left out. Again, a crime of opportunity. Unfortunately, the package delivery companies and mail carriers are doing little to aid the public with these issues, so the burden of doing so is left to the association and homeowners.
Security Strategies So given the rise in theft, what are some actions the association can take? SECURING DOORS/GATES/STAIRWELLS Check that door strikes and closers are working correctly and self-closing when conducting walk-throughs. If locks or electronic entries are broken, repair them promptly. Have on-site staff or a committee check the perimeter frequently to ensure that doors and gates are secure. COMMUNICATION People are frequently caught up in the hustle and bustle of daily life. Communicate with your residents consistently about the importance of remaining vigilant and securing belongings, especially if there have been reported crimes in the area. Remind residents if they see something, to say something and to keep valuables out of sight in both their vehicles and their home windows when possible. Keep car doors locked, even if you park in a gated parking area. Do not leave valuables or extra sets of keys in the car. It is likely your registration has your address on it, and leaving keys (either common area or unit keys) in the car opens everyone up to risk. LIGHTING Make sure access points and vulnerable areas are well lit. The darker an area, the more likely someone will do something they wouldn’t want others to see. This is especially important when reviewing liability for crimes.
SECURE MAIL Package lockers can be a simple way to prevent loose packages on doorsteps or in mailrooms. Several companies offer these boxes, which accept mail and packages from all the carriers. Securing mailrooms can also aid in the prevention of mail theft, as can obscuring the view of the package room from the exterior (think, glass doors or windows). Residents can also sign up for “Informed Delivery” through USPS to get photos of their mail, allowing them to know if something went missing after delivery. The strategies above are aimed at preventing crime, but what about the ability to go back and actually see what happened when something occurs? Many associations are now choosing to have security cameras installed. In conjunction with the installation, it is important that an association adopt a surveillance policy that clearly outlines that the presence of cameras does not guarantee anyone’s safety. The policy should also identify who can view the cameras and recordings. If the cameras are not monitored, notice should be posted to that effect. The policy should delineate that the recordings are not association records and will only be produced when legally required under California law. This policy should also address the association’s rights with regard to individual residents’ security devices, such as ring doorbells, nest cameras, etc. This may include rules that recordings from these devices may be demanded by the board for related association business. It is important to note that any cameras, including those belonging to residents, should be aimed at areas where there is no expectation of privacy, i.e., common areas. Cameras should not point into other residents’ private balconies, yards, restrooms, swim change areas, etc.
Allison Andersen, Esq., Partner of Roseman Law, APC, specializes in general counsel services and construction defect services and has been in the industry for 19 years.
The needs and demands of the world are developing at a rapid pace, and association security is no exception. In order to ensure the safety of your community and protect the association from liability, it is important that each board regularly evaluates the security of the community and the foreseeable risks it faces. The board has a duty to exercise due care with regard to its residents. Specifically, when an association is aware of a potential for crime and can take reasonable precautions to prevent it, the association is obligated to do so.
Philip Walquist, Esq., Associate Attorney of Roseman Law, APC, specializes in general counsel and has been in the industry for 2 years.
cacm.org | The Law Journal Summer 2022 11
Tips for Levying Special Assessments
By Karyn A. Larko, Esq.
e Ee aEe Q!e I ke " e jq"g a IBe c a aIIe II!e "Q I necessary or prudent to obtain needed funds. However, if not well planned and properly implemented, a special assessment can turn into a nightmare for the board, and for you. Here are some key tips to help avoid such a nightmare:
Ascertain Whether a Membership Vote is Required California Civil Code (“Code”) §5605 controls when a member vote is needed to levy a special assessment. No matter what an association’s governing documents state, a member vote is not required to levy a special assessment if that special assessment individually, or when combined with any other special assessments levied in the same fiscal year, will not exceed 5% of the association’s budgeted gross expenses for that fiscal year. Conversely, membership vote is always required if the special assessment individually, or when combined with any other special assessments levied the same fiscal year, will exceed 5% of the association’s budgeted gross expenses.
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The Civil Code Sets the Member Approval Requirement If member approval is required, Code §5605 also dictates the votes needed to approve the special assessment, as well as quorum. The affirmative vote of a majority of a quorum is required to pass a special assessment. A quorum is more than 50% of the members.
Comply with the Civil Code When Conducting the Vote A member vote to approve a special assessment must be conducted using the double-envelope secret ballot voting process set forth in Code §5100 et seq. In short, this means providing all members with a ballot, two balloting envelopes and the association’s election rules at least 30 days before the voting deadline (The election rules can be omitted if they are posted on the association’s website and the ballot contains the language mandated by Code §5105.). It also means having one or three qualified inspectors of elections open and count the ballots at a duly noticed meeting whereat the members can observe this process, and providing members with notice of the vote results within 15 days. Notify the Members Regardless of whether a membership vote is needed, members must be given written notice of a special assessment no less than 30 days and no more than 60 days before that special assessment becomes due in accordance with Code §5615. If a member vote is required, this notice can be combined with the notice of the outcome of the vote that must be provided to members so long as: 1) this notice is provided via “individual delivery” and 2) the special assessment will become due between 30 and 60 days after this notice is given. Payment is Important It goes without saying that when planning a special assessment, it is critical to consider when the funds will be needed. However, there are other factors that should also be considered.
If members will be voting on whether to approve the special assessment, giving members more than one payment option (e.g., the option of paying in one lump sum or in installments over time) may increase the likelihood of members voting in favor of the special assessment. On the flip side, if members will be given the option of paying over time, it is possible that more members will decide to pay over time than expected. If some or all of the special assessment monies are needed quickly, this situation could result in a serious cashflow problem for the association. If a special assessment is to be paid over time (e.g., monthly installments), it is important to secure the debt in case any members file bankruptcy or sell. The longer the payment period, the greater the likelihood of collection issues. However, securing the debt means going through the pre-lien and lien process, which can be costly for the members who are subject to this process. Thus, levying a special assessment that will, or can be paid over time, may only be a perceived benefit to members if the assessment amount will be significantly greater than the pre-lien and lien costs. It is a good idea to have members who cannot pay a special assessment when due, enter in a payment plan with the association, whereby they agree to pay the assessment within a longer period of time that is acceptable to the board. Doing so will help the board predict the association’s cashflow and prevent any misunderstandings as to what payment allowances the board is granting. It may also create good will with members who are struggling financially. However, a payment plan should generally be used in addition to, and not in lieu of a lien, because a payment plan will not secure the debt. A lien will. In the event a member fails to pay the special assessment and that debt is not secured, the association’s only recourse
for collecting the debt is to file a lawsuit against the member. The association cannot collect the debt via foreclosure unless the debtor still owns the separate interest and a lien is filed. When in Doubt, Encourage the Board to Consult with Legal Counsel While it may be tempting to save a little money by not consulting with the association’s legal counsel for guidance when levying a special assessment, making a special assessment misstep could cost the association a lot more in time and money. For example, a mistake could result in a missed opportunity for the association, create a serious cashflow problem, necessitate a second member vote and/ or place the association in the position of having to return to members any special assessment payments received. It could also leave the association vulnerable to liability for violating the Code and unable to collect from delinquent members.
Karyn A. Larko, Esq., Senior Attorney of Epsten, APC, specializes in community association counsel and contract counsel and has been in the industry for 15 years.
cacm.org | The Law Journal Summer 2022 13
Don’t Be Afraid To Recover Across State Lines
Collecting
Against Prior Owners During the market crash of 2008 and the aftermath that followed, many associations obtained money judgments against owners who stopped paying their assessments knowing the foreclosure of their home by the first mortgage was imminent. Many times, once the foreclosures were processed, those former owners left California looking to rebuild their lives elsewhere. Sometimes, those former owners already lived out of state and had invested in California properties within your associations.
By Austin B. Baillio, Esq.
14 The Law Journal Summer 2022 | cacm.org
Either way, with the former owners now out of state, associations holding money judgments against them could believe that the judgments are uncollectible. After all, foreclosing the assessment lien isn’t an option because they don’t own the property anymore, and the former owners are out of state beyond the association’s reach. Time to let the judgments die, right?
Not necessarily. Don’t give up hope yet. If you know where your former owners moved to, you may breathe some life back into those money judgments through a process called domestication. Never heard of domestication before? Well, it goes something like this: The Constitution of the United States requires a state to enforce a valid judgment for the payment of money if it was rendered in another state. Once a valid judgment has been rendered, it must be accorded full faith and credit by every other court within the United States. So, under the Full Faith and Credit Clause of the United States Constitution, if you can transfer your California judgment to a different state, that “sister state” must treat your California judgment as if it were entered in that state. This transfer process is commonly referred to as domestication.
Once the court files the foreign judgment, you must promptly mail the notice of filing a foreign judgment on the former owner and wait twenty days after mailing, before any collection activity can begin. In Nevada, the legislature adopted a very similar framework called the Enforcement of Foreign Judgments (Uniform Act), found in N.R.S. §17.330, et seq. Pursuant to N.R.S. §17.350, an exemplified copy of the California judgment is required for filing in the district courts in Nevada. Accompanying the exemplified judgment should be an application of foreign judgment and an affidavit of judgment creditor. Once entered by the Nevada district court, a notice of filing of application and affidavit must be mailed to the former owner and their attorney of record (if known) at their last known address via certified mail, return receipt requested. No collection activity may begin until thirty days after the date of mailing. Once entered in the foreign jurisdiction, your California judgment is enforceable in the same manner as a judgment of that sister state. That means you can utilize the enforcement tools of the new jurisdiction to collect on your judgment.
The California legislature adopted the Sister State Money Judgments Act, found in California Code of Civil Procedure §1710.010, et seq., for this exact purpose—to allow for the recognition and enforcement of money judgments from other states in the state of California. The Judicial Branch of California has also adopted several forms and templates that correspond with the Sister State Money Judgments Act to make the domestication process easier. If you fill out the documents correctly and file them in the proper county, the California court will enter a judgment based on the judgment from a sister state. Like California, most states have adopted a similar statutory system for recognizing and enforcing money judgments from other states. Because each state has adopted its own set of rules to facilitate the domestication process, it is important to employ legal counsel who is properly licensed in the state where you are seeking to domesticate your California judgment. Once domesticated, your legal counsel will also need to be licensed in the sister state to pursue the collection of your judgment. Because many former owners moved from California to the states closest to ours, we will look
If you know where your former owners moved to, you may breathe some life back into those money judgments through a process called
domestication.
If your former owner is employed in the new state, you can potentially pursue a wage garnishment in the sister state. You can also likely record the sister state judgment in the county where your former owner now resides so that it creates a lien on any real property owned by the former owner in that county. Using these tools, you can breathe new life into your old judgments and begin collecting from former owners who have moved out of state. So, before you write off those old judgments for good, consider domesticating them to another state.
briefly at the domestication processes in Arizona and Nevada. In Arizona, the legislature adopted the Revised Uniform Enforcement of Foreign Judgments Act found in A.R.S. §12-1701, et seq. Pursuant to A.R.S. §12-1702, an authenticated copy of a California judgment can be filed in any superior court of the state of Arizona. Once filed, the clerk treats the California judgment in the same manner as a judgment of the superior court of the state of Arizona. A notice of filing a foreign judgment and an affidavit substantiating the foreign judgment will also need to be filed simultaneously with the authenticated copy of the California judgment.
Austin B. Baillio, Esq., of Maxwell & Morgan, LLP specializes in community association law and has been in the industry for six years.
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SB-908’s
Impact
Uncertain on
industry
By Jeffrey A. French, Esq.
On September 25, 2020, Governor Newsom signed Senate Bill 908 into law, enacting the Debt Collection Licensing Act (the “DCLA”). Its adoption places California with the majority of states that already require consumer debt collectors to be licensed. Notably, Senate Bill 908 (“SB-908”) is one of the three bills adopted pursuant to California’s three-part overhaul of the consumer financial services legislation. SB-908 came into effect on January 1, 2021, requiring the Commissioner of the Department of Financial Protection and Innovation (“DFPI”) to take all action necessary to implement the debt collection licensing requirements that became effective January 1, 2022. In order to meet the start date in 2022 for licensing, the Commissioner spent much of 2021 adopting regulations designed to implement the licensing program. Recognizing that there would be a flood of license applications in late 2021, any person or entity that submitted an application before the end of 2021 is permitted to operate in 2022 without the required license, and perhaps beyond, pending the approval or denial of the application by DFPI.
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The bill’s adoption places California with the majority of states that already require consumer debt collectors to be licensed. Does SB-908 Apply to Delinquent Assessments? In the wake of SB-908, there has been much debate throughout the industry about whether the SB-908 licensing requirement applies to the collection of delinquent community association assessments. This is largely due to the ambiguous nature and scope of some of the terms under the DCLA. For example, the DCLA requires licensure for any person or entity engaged in the business of “debt collection,” which means any act or practice collecting “consumer debt.” The term “consumer debt” is defined to include money or property owed as a result of a “consumer credit transaction,” which is defined as “a transaction between a natural person and another person in which property, services, or money is acquired on credit by that natural person from the other person primarily for personal, family, or household purposes.” Are delinquent community association assessments “acquired on credit” and are they “primarily for personal, family, or household purposes”? Unfortunately, the answer to this question remains unclear. One side of the debate posits that community association assessments are not “consumer debt” governed by the Act because, similar to property taxes, common interest development assessments provide funding for municipal and community services critical to all residents, and property taxes have been found to be outside of the realm of consumer debt as defined by the Fair Debt Collection Practices Act (FDCPA). By extension then, the argument is that community association assessments should be outside of the realm of consumer debt as defined by the DCLA. It was hoped that the regulations being promulgated by DFPI might shed some light on this issue, but no clarification has been put forth by DFPI regulations at this point. Rather, the exceptions to the DCLA set forth in the regulations simply repeat and do not expand upon the exceptions originally set forth in the text of SB-908.
Difficulty in Getting Licensed Thus far, the state rollout of DCLA has been anything but stellar. Those within the industry who have decided to get licensed have quickly discovered that it is not an easy process. DFPI opted to use a third-party company to process the license applications on behalf of the state, Nationwide Multistate Licensing System (“NMLS”). NMLS found itself underwater with California applications and unable to process them consistent with the statutory requirements and timelines. The task of even opening an account with NMLS to get the process started proved somewhat confusing and took far longer than advertised. And, then, the processing of the license application itself with NMLS proved to be even more time consuming, highly intrusive into firm operations and structure, and somewhat complicated. In response to complaints, DFPI back-pedaled on its California deadlines. DFPI in a recent bulletin let applicants know that as long as they were making efforts to open an NMLS account and pursue a license, it would not take enforcement action against them (DFPI January 2022 Bulletin Vol. 9, No. 6). Moreover, despite the requirement to display a license number on all debtor communications, the DFPI has permitted those in process to simply indicate that they have applied for a license and that the license is pending.
debt and debt collection. In response to these inquiries, DFPI has granted those that are covered under these letters a sort of safe harbor on enforcement of the DCLA against them. This safe harbor will exist until such time as the DFPI and/or the Attorney General are able to respond via rule making or opinion letter and answer the question as to whether the DCLA is intended to apply to community association assessment collection activities (See DFPI January 2022 Bulletin Vol. 9, No. 6). As of this date, nothing has come out of DFPI or the Attorney General on this issue and no timeline for a response has been provided. Rather, it is simply a case of wait and see at this point for those seeking clarification from DFPI via a letter request.
An Unknown Future It remains uncertain whether the DCLA will apply to community association assessment collection activities and whether it will have a large or no impact on assessment collection in the future. In view of the problematic rollout of the DCLA by DFPI, there is no telling when answers will be provided and whether an exception for assessment collection will be forthcoming. For now, the CID industry remains in a state of flux on the application of the DCLA licensing requirement to assessment collection activities by associations, law firms and management companies.
Still, more recent guidance from NMLS has indicated that it may take into 2023 for NMLS to process all of the California license applications that it presently has pending. Needless to say, the rollout of the licensing program has been bumpy at best and plagued by delays. The DFPI has recognized these issues and addressed them, albeit quite slowly. Some within the industry that opted not to pursue a license decided to submit letters to DFPI asking for clarification and an official opinion on the issues of whether the pursuit of delinquent assessments equates to the pursuit of consumer
Jeffrey A. French, Esq., of Green Bryant & French, LLP specializes in community association law and has been in the industry for 25 years.
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CzC LEGAL DIRECTORY ASSESSMENT COLLECTION SERVICES ALLIED TRUSTEE SERVICES Assessment Collection & Judgment Recovery Services Stefan Murphy Serving All of California For Over 27 Years 990 Reserve Dr., Ste. 208 Roseville, CA 95678 (800) 220-5454 smurphy@alliedtrustee.com www.alliedtrustee.com ALTERRA ASSESSMENT RECOVERY Assessment Collection Services Steven J. Tinnelly, Esq. Your Association’s Assessment Collection Partner 27101 Puerta Real, Ste. 250 Mission Viejo, CA 92691 (888) 818-5949 ramona@tinnellylaw.com www.alterracollections.com FELDSOTT & LEE, A LAW CORPORATION Community Association Law Stanley Feldsott, Esq. Laguna Hills | San Diego 23161 Mill Creek Dr., Ste. 300 Laguna Hills, CA 92653 (949) 729-8002 • Fax (949) 729-8012 feldsott@gmail.com www.cahoalaw.com
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UNITED TRUSTEE SERVICES Trusted Partners In Assessment Collections Lisa E. Chapman HOA Assessment Collection Services 696 San Ramon Valley Blvd., Ste. 353 Danville, CA 94526 (925) 855-8554 • Fax (925) 855-8559 lisa@unitedtrusteeservices.com www.unitedtrusteeservices.com
ATTORNEYS
BEAUMONT TASHJIAN General Counsel and Assessment Collection Services Jeffrey A. Beaumont and Lisa A. Tashjian Woodland Hills, Laguna Hills, San Luis Obispo, Palm Desert, San Diego 21650 Oxnard St., Ste. 1620 Woodland Hills, CA 91367 (866) 788-9998 • Fax (818) 884-1087 info@HOAattorneys.com www.hoaattorneys.com BERDING | WEIL Construction Defect Litigation Steven Weil, Tyler Berding, Chad Thomas, Daniel Rottinghaus, Andrew Baugh, Paul Windust Walnut Creek, San Diego, Orange County, Sacramento 2175 North California Blvd., Ste. 500 Walnut Creek, CA 94596 (800) 838-2090 • Fax (925) 820-5592 jjackson@berdingweil.com www.berdingweil.com
COMMUNITY LEGAL ADVISORS, INC. General Counsel & Assessment Collections Mark Guithues, Esq. & Mark Allen Wilson, Esq. Inland Empire | Orange County | San Diego 509 N. Coast Hwy. Oceanside, CA 92054 (760) 529-5211 • Fax (760) 453-2194 mark@attorneyforhoa.com www.attorneyforhoa.com DELPHI LAW GROUP, LLP Community Association Law, General Counsel, Litigation, Assessment Collections James McCormick, Kyle Lakin, Christina DeJardin, Zachary Smith Full Service Law Firm Serving All of Southern California 1901 Camino Vida Roble, Ste. 100 Carlsbad, CA 92008 (844) 433-5744 • Fax (760) 820-2696 info@delphiLLP.com www.DelphiLLP.com EPSTEN, APC Community Association Law, Construction Defect, Litigation & Assessment Recovery Jon Epsten, Esq. & Susan Hawks McClintic, Esq. San Diego | Inland Empire | Coachella Valley 10200 Willow Creek Rd., Ste. 100 San Diego, CA 92131 (858) 527-0111 • Fax (858) 527-1531 jepsten@epsten.com www.epsten.com FIORE RACOBS & POWERS, A PLC Community Association Law and Assessment Collections Jacqueline D. Foster, Esq., Peter E. Racobs, Esq., & John R. MacDowell, Esq. The Recognized Authority in Community Association Law Orange County | Inland Empire | Coachella Valley l San Diego County (877) 31-FIORE • Fax (949) 727-3311 dweissberg@fiorelaw.com www.fiorelaw.com FLANAGAN LAW, APC General Counsel TIM FLANAGAN, ESQ. San Diego l Orange County l Coachella Valley l Inland Empire 8880 RIO SAN DIEGO DR., STE. 800 SAN DIEGO, CA 92108 (619) 489-1340 TIM@FLANAGANHOALAW.COM WWW.FLANAGANHOALAW.COM
GURALNICK & GILLILAND, LLP Association Law, Assessment Collections, General Counsel Wayne S. Guralnick, Robert J. Gilliland Jr. Serving Community Associations for Over 30 Years 40004 Cook St., Ste. 3 Palm Desert, CA 92211 (760) 340-1515 • Fax (760) 568-3053 wayneg@gghoalaw.com www.gghoalaw.com
THE NAUMANN LAW FIRM, PC Construction Defect Litigation Construction Defect Analysis William Naumann l Elaine Gower San Diego l Orange County l Los Angeles l Riverside l San Bernardino 10200 Willow Creek Road, Suite 150 San Diego, CA 92131 (858) 522-0763 • Fax (858) 564-9300 elaine@naumannlegal.com www.naumannlegal.com
HICKEY & ASSOCIATES, P.C. Community Association Law David E. Hickey, Esq. 27261 Las Ramblas, Suite 120 Mission Viejo, CA 92691 (949) 614-1550 • Fax (949) 748-3990 dhickey@hickeyassociates.net www.HickeyAssociates.net
PRATT & ASSOCIATES, APC Community Association Law Sharon Glenn Pratt Los Gatos, CA 634 North Santa Cruz Avenue Suite 204, Los Gatos, CA 95030 (408) 369-0800 • Fax (408) 369-0752 spratt@prattattorneys.com www.prattattorneys.com
HUGHES GILL COCHRANE TINETTI, P.C. Community Association & Construction Defect Law Michael J. Hughes, Esq., John P. Gill, Esq., Amy K. Tinetti, Esq. Complete representation of community associations 2820 Shadelands Dr., Ste. 160 Walnut Creek, CA 94598 (925) 926-1200 • Fax (925) 926-1202 atinetti@hughes-gill.com www.hughes-gill.com LOEWENTHAL, HILLSHAFER & CARTER, LLP Construction Defect Litigation Robert Hillshafer | David Loewenthal Los Angeles, San Luis Obispo, Santa Barbara, Ventura 5700 Canoga Avenue, Suite 160 Woodland Hills, CA 91367 (866) 474-5529 • Fax (818) 905-6372 info@lhclawyers.net www.lhclawyers.net THE MILLER LAW FIRM Construction Defect Analysis & Litigation Thomas E. Miller, Founding Partner Rachel M. Miller, Senior Partner Serving Homeowners Associations Statewide for Over 40 Years San Francisco l Bay Area l LA l Orange County l San Diego l Inland Empire (800) 403-3332 rachel@constructiondefects.com www.constructiondefects.com
RAGGHIANTI FREITAS LLP Community Association Law, Construction Defects & Mediation David F. Feingold, Esq. Matthew A. Haulk, Esq. Serving Bay Area Communities Since 1986 1101 Fifth Ave., Ste. 100 San Rafael, CA 94901 (415) 453-9433 • Fax (415) 453-8269 dfeingold@rflawllp.com www.rflawllp.com RICHARDSON OBER DENICHILO LLP Community Association Law, General Counsel, Assessment Recovery Kelly G. Richardson, Matt D. Ober, Robert M. DeNichilo Throughout California (877) 446-2529 matt@rodllp.com www.rodllp.com
SWEDELSONGOTTLIEB Community Association Law, Construction Defect, Assessment Collection David C. Swedelson, Esq. Sandra L. Gottlieb, Esq. Los Angeles | Orange County | Palm Desert | San Francisco l Ventura 11900 W. Olympic Blvd., Ste. 700 Los Angeles, CA 90064 (800) 372-2207 • Fax (310) 207-2115 slg@sghoalaw.com www.lawforhoas.com
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C LEGAL DIR EC T ORYV
Continued from page 19
TINNELLY LAW GROUP Community Association Law Richard A. Tinnelly, Esq. Steven J. Tinnelly, Esq. Orange County | Los Angeles | Palm Desert | San Francisco | San Diego 27101 Puerta Real, Ste. 250 Mission Viejo, CA 92691 (949) 588-0866 • Fax (949) 588-5993 ramona@tinnellylaw.com www.tinnellylaw.com WHITE & MACDONALD, LLP COMMUNITY ASSOCIATION LAW, CONSTRUCTION DEFECT LAW Steven M. White, Esq., Rob D. MacDonald, Esq., James P. Hillman, Esq. COST EFFECTIVE SOLUTIONS BASED ON EXPERIENCE 1530 The Alameda, Ste. 215 San Jose, CA 95126 (408) 345-4000 • Fax (408) 345-4020 info@wm-llp.com www.wm-llp.com WHITNEY PETCHUL APC Community Association Attorneys Fred T. Whitney, Esq. l Dirk E. Petchul, Esq. From Inception To Build-Out And Beyond 27 Orchard Rd. Lake Forest, CA 92630 (949) 766-4700 • Fax (949) 766-4712 info@whitneypetchul.com www.whitneypetchul.com WOLF, RIFKIN, SHAPIRO, SCHULMAN & RABKIN, LLP Community Association Law Michael W. Rabkin, Esq. 11400 W. Olympic Blvd., 9th Floor Los Angeles, CA 90064 (310) 478-4100 • Fax (310) 479-1422 mrabkin@wrslawyers.com www.wrslawyers.com
CONSTRUCTION DEFECTS
BERDING | WEIL Construction Defect Litigation Steven Weil, Tyler Berding, Chad Thomas, Daniel Rottinghaus, Andrew Baugh, Paul Windust Walnut Creek, San Diego, Orange County, Sacramento 2175 North California Blvd., Ste. 500 Walnut Creek, CA 94596 (800) 838-2090 • Fax (925) 820-5592 jjackson@berdingweil.com www.berdingweil.com
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CHAPMAN & INTRIERI, LLP General Counsel & Construction Defect Litigation John W. Chapman, Esq. & Mark G. Intrieri, Esq. Alameda l Roseville l Orange County l San Diego 2236 Mariner Square Dr., Ste. 300 Alameda, CA 94501 (510) 864-3600 • Fax (510) 864-3601 jchapman@cnilawfirm.com www.cnilawfirm.com FENTON GRANT MAYFIELD KANEDA & LITT, LLP Construction Defect Litigation & CID Education Charles R. Fenton, Esq. Joseph Kaneda, Esq. California & Nevada 2030 Main Street, Ste. 550 Irvine, CA 92614 (877) 520-3455 • Fax (949) 435-3801 cfenton@fentongrant.com www.fentongrant.com THE MILLER LAW FIRM Construction Defect Analysis & Litigation Thomas E. Miller, Founding Partner Rachel M. Miller, Senior Partner Serving Homeowners Associations Statewide for Over 40 Years San Francisco l Bay Area l LA l Orange County l San Diego l Inland Empire (800) 403-3332 rachel@constructiondefects.com www.constructiondefects.com
ELECTION ADMINISTRATION THE INSPECTORS OF ELECTION Providing Superior Election Support for California HOA’s Since 2006 Kurtis Peterson Completely Independent Full-Service Election Provider 2794 Loker Ave. W., Ste 104 Carlsbad, CA 92010 (888) 211-5332 • Fax (888) 211-5332 kurtis@theinspectosofelection.com www.theinspectorsofelection.com
LIBERTY HOA ELECTION SERVICES, LLC Inspector of Election We Make Association Voting Management Easy 1900 Camden Avenue San Jose, CA 95124 (408) 482-9659 www.hoaelection.com
RESERVE STUDIES
ASSOCIATION RESERVES Reserve Study Firm Carol Serrano Reserve Studies for Community Associations 6700 Fallbrook Avenue, Suite 255 West Hills, CA 91307 (800) 733-1365 cserrano@reservestudy.com www.reservestudy.com THE HELSING GROUP, INC. Reserve Study Firm Ryan Leptien Serving All of California 4000 Executive Pkwy., Ste. 100 San Ramon, CA 94583 (925) 355-2100 • Fax (925) 355-9600 reservestudies@helsing.com www.helsing.com SCT RESERVE CONSULTANTS Reserve Study Firm Mike Graves, RS Finding Solutions, Maintaining Communication, and Providing Triage P.O. Box 890129 Temecula, CA 92589 (951) 296-3520 • Fax (951) 296-5038 info@sctreserve.com www.sctreserve.com
VENDOR COMPLIANCE
ASSOCIATION SERVICES NETWORK Vendor Compliance David Jeranko Vendor Compliance & Risk Management 24000 Alicia Pkwy., Ste. 17-442 Mission Viejo, CA 92691 (949) 300-3702 • Fax (877) 404-2008 davidj@asn4hoa.com www.asn4hoa.com
