Assessment Collections

What Are Your Options?

By Nicole A. Lilomaiava, Esq.

Assessments 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.

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 event an owner files for bankruptcy or a probate case is filed.

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 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-CV-03655-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.

Nicole A. Lilomaiava, Esq., of Fiore, Racobs & Powers specializes in assessment collections and has been in the industry for five years.