Dues, Assessments, Liens and Foreclosures
Last week, a person came into my office saying he received a letter from his Homeowners Association (“HOA”) offering to rent his house to him. Needless to say, he was not happy. He knew he was behind on HOA dues, but his lender hadn't even started foreclosing on his house.
Welcome to the new frontier of the mortgage crisis in California. The homeowner's HOA had foreclosed on his property before the lender. While this has been common in Hawaii for years, this is relatively new in California. If you are behind on your HOA dues or assessment, here is the California law you need to know.
HOAs are regulated by the California Davis-Stirling Common Interest Development Act in Civil Code Section 1367 et seq. Pursuant to Davis-Stirling, an HOA can levy dues and assessments necessary for the development. A regular or special assessment is a debt of the owner. If an owner is behind on dues or assessments, the HOA can record a lien against the property. At least 30 days prior to recording the lien, the HOA is required to notify the owner by certified mail.
The recording of a lien does not automatically allow a foreclosure by the HOA. Rather, an HOA may not foreclose until the amount of the delinquent dues and assessments secured by the lien, exclusive of any accelerated assessments, late charges, fees and costs of collection, attorney's fees, or interest, equals or exceeds one thousand eight hundred dollars ($1,800) or the assessments secured by the lien are more than 12 months delinquent. In addition, the HOA still maintains its rights to proceed in state court against the owner for delinquent dues and assessments.
If the HOA decides to proceed with a foreclosure of its lien, in most instances it will proceed with a non-judicial foreclosure pursuant to CC 2924 which will require the a Notice of Default and Notice of Sale. If the HOA does foreclose on its lien, the owner still has a 90 day right of redemption and the HOA would still be taking the property subject to any senior liens.
Therefore, if you are behind on your HOA dues and assessments, you need to be aware that the HOA can foreclose before your lender and become your landlord. If you are trying to buy the maximum amount of time in your home prior a foreclosure, it may be better to keep your HOA dues current.
If you are filing bankruptcy or have filed bankruptcy, there are special rules you need to know. First, all dues and assessments which come due prior to the date of filing are included in the bankruptcy discharge. HOWEVER, under 11 USC 523(a) (16), Congress carved out a special exception as to post-petition dues and assessments. Specifically, the owner continues to be responsible for all dues and assessments which came due after the filing of the bankruptcy as “long as the debtor or the trustee has a legal, equitable or possessory ownership interest” in the property i.e. until someone forecloses or buys your property, you are responsible for the HOA dues and assessments. Therefore, if you do not pay your HOA dues or assessments after a bankruptcy filing, do not be surprised to find yourself being sued in state court by your HOA or having your property foreclosed.
In conclusion, beware of the HOA. They know where you live. This is a complicated area of the law and I recommend you to seek legal counsel prior to allowing your HOA dues or assessments to become delinquent. Like everything else in life, there are consequences to actions as well as inaction. In this case, there may be personal liability and tax consequences. I provide a free 30 minute consultation at all of my three offices located in Walnut Creek, Antioch and Brentwood.