An association has the power to record an assessment lien against an owner’s property to secure the delinquent assessment debt and related sums owed by that owner to the association. If the owner fails to pay the association the amounts secured by the assessment lien within thirty (30) days after the lien is recorded, the association has the power to enforce the lien through judicial foreclosure. (Civ. Code § 5700(a); Diamond Heights Village Assn., Inc. v. Financial Freedom (2011) 196 Cal.App.4th 290, 301.)
Limitations on Foreclosure
The power an association has to enforce an assessment lien through judicial foreclosure is subject to the limitations set forth in Civil Code Section 5720. Section 5720 generally prohibits the institution of a judicial foreclosure action unless the amount of delinquent assessments owed by the delinquent owner total at least $1,800 or the delinquent assessments secured by the assessment lien are more than twelve (12) months delinquent. (See “Limitations on Foreclosure of Assessment Lien.”)
Judicial Foreclosure Procedure
Once an association is legally authorized to institute a judicial foreclosure action to enforce an assessment lien, a superior court lawsuit is filed against the delinquent owner seeking a court ordered sale of the owner’s property (often referred to as a “marshall” or “sheriff” sale). The lawsuit often also seeks a money judgment against the owner; if a money judgment is awarded in addition to an order of judicial foreclosure, the association may elect whether to collect on the money judgment or to proceed with the judicial foreclosure sale.
Decision to Initiate Foreclosure – The decision to initiate judicial foreclosure must be made by the board of directors in an executive session meeting, and notice of the board’s decision must be delivered to the owner by personal service (or first-class mail if the owner does not occupy the property). (Civ. Code § 5705; See also “Decision to Initiate Foreclosure.”) Providing an owner with notice of the board’s decision to foreclose is a “condition precedent” to the filing of an action for judicial foreclosure of an assessment lien. (Diamond v. Superior Court (2013) 217 Cal.App.4th 1172, 1196.) Serving the owner with the board’s decision to foreclose at the same/along with a summons and compliant for a judicial foreclosure action is insufficient to satisfy this requirement. (Diamond, at 1196-1197.)
Proceeds from Sale
Once the property is sold as a result of the judicial foreclosure action, any funds received in excess of the judgment amount and the costs to conduct the foreclosure sale must generally be distributed to satisfy any senior liens and then junior liens (in order of their respective priority). Any funds left over after that point are then distributed to the foreclosed owner. (Cockerell v. Title Ins. & Trust Co. (1954) 42 Cal.2s 284; Schumacher v. Gaines (1971) 18 Cal.App.3d 994).
Deficiency Judgment – If the proceeds from the judicial foreclosure sale are insufficient to satisfy the amount of the association’s judgment, the association may be permitted to apply for a “deficiency judgment” against the foreclosed owner/defendant. The deficiency judgment must be applied for within three (3) months of the foreclosure sale; failure to do so waives the association’s right to seek a deficiency judgment at a later time. (Code Civ. Pro. § 726(b); Life Savings Bank v. Wilhelm (2000) 84 Cal.App.4th 174.) Any deficiency judgment that is awarded is based upon the degree to which the judgment amount (including the costs to conduct the judicial foreclosure sale) exceeds the fair market value of the property that was sold. (Code Civ. Pro. §726(b).)
A property that is sold through judicial foreclosure is subject to the foreclosed owner’s “right of redemption.” (Code Civ. Pro. § 729.030.) The applicable redemption period is three (3) months following the sale if the proceeds of the sale are sufficient to satisfy the association’s judgment, including the costs to conduct the sale. If the proceeds of the sale are insufficient to satisfy that amount, the redemption period is one (1) year following the sale. (Code Civ. Pro. § 729.030; See also “Right of Redemption.”)
- Code of Civil Procedure Section 729.030. Right of Redemption – Judicial Foreclosure.
- Code of Civil Procedure Section 726. One Action for Recovery of Debt.
- Civil Code Section 5720. Limitations on Foreclosure of Assessment Lien.
- Civil Code Section 5705. Decision to Foreclose Assessment Lien.
- Civil Code Section 5700. Assessment Lien Enforcement Generally.
Related Case Law
- Diamond Heights Village Association, Inc. v. Financial Freedom Senior Funding Corp.
(2011) 196 Cal.App.4th 290
[Assessment Collection; Judgment Lien Merger] When a HOA assessment lien is enforced by the HOA through judicial action, the debt secured by the assessment lien is merged into the judgment.
- Diamond v. Superior Court
(2013) 217 Cal.App.4th 1172
[Assessment Collection; Notice Requirements] A HOA must strictly adhere to the statutory lien and foreclosure notice requirements in order to perfect an assessment lien and foreclose on a homeowner’s property.
- Huntington Continental Townhouse Association, Inc. v. Miner
(2014) 230 Cal.App.4th 590
[Assessments & Collection; Partial Payments] An association is required to accept partial payments made by a delinquent homeowner and allocate them in accordance with Civil Code Section 5655, even after the association has recorded an assessment lien.