All posts by Steve Tinnelly

AB 1738. Dispute Resolution.

Allows for either party to IDR to be assisted by an attorney at their own cost; Any resolution reached at IDR must be in writing and signed by both parties.

Current Status: Chaptered

FindHOALaw Quick Summary:

Civil Code Sections 5910 and 5915 require an association to provide a fair, reasonable and expeditious dispute resolution procedure for resolving a dispute between an association and a members. This is commonly referred to as “Internal Dispute Resolution” (or “IDR”). AB 1738 (Chau) would allow for either party to the IDR to be assisted by an attorney or another person in explaining their positions, at their own cost. It would further require that any agreement obtained in IDR be in writing and signed by both parties.

*UPDATE: AB 1738 was signed into law on September 18, 2014. Its changes to the law become effective on January 1, 2015.

View more info on AB 1738
from the California Legislature's website

AB 968. Common Area: Maintenance & Repair.

Clarifies repair and replacement responsibilities under Civil Code Section 4775 with regard to exclusive use common area.

Current Status: Chaptered

FindHOALaw Quick Summary:

Unless otherwise provided for in an association’s CC&Rs, Civil Code Section 4775 establishes the default apportionment of common area maintenance and repair responsibilities of an association versus those of the individual owners. Section 4775 is somewhat ambiguous with regard to exclusive use common area; Section 4775 fails to state whether an owner is responsible for the “repair and replacement” of exclusive use common area, not simply “maintenance.” Industry practice has held that the responsibility to repair or replace exclusive use common area is the association’s. AB 968 (Gordon) seeks to codify industry practice by amending Section 4775 to state that, unless otherwise provided for in the CC&Rs, the owner is required to maintain exclusive use common area, and the association is responsible to repair and replace exclusive use common area.

*UPDATE: AB 968 was signed into law on September 18, 2014. Its changes to the law will become effective on January 1, 2017.

View more info on AB 968
from the California Legislature's website

AB 569. Real Property: Divided Lands.

Adds an exemption to the requirement for directors to be elected pursuant to formal election procedures for associations that make every member a director.

Current Status: Chaptered

FindHOALaw Quick Summary:

Chapter 6, Article 4 of the Davis-Stirling Act (commencing with Civil Code Section 5100) establishes the procedures for the election of an association’s directors. The bylaws of some stock cooperatives provide that one member from each separate interest is automatically a director. AB 569 (Chau) would add subpart (f) to Civil Code Section 5100 in order to exempt these communities from having to utilize the balloting/election procedures for director elections.

*UPDATE: AB 569 was approved on September 27, 2014 and its changes in the law become effective on January 1, 2015.

View more info on AB 569
from the California Legislature's website

Small Claims Collection Actions

An association that has recorded an assessment lien against an owner’s property is permitted to enforce the lien through suing the owner personally and obtaining a money judgment (aka a “personal money judgment” or “PMJ”). (Civ. Code §§ 5700(a), 5720(b); See also “Money Judgments (Assessment Collection).”) Once the association obtains the money judgment, the assessment lien is extinguished and the underlying debt of the owner merges into the judgment obtained by the association. (Diamond Heights Village Assn., Inc. v. Financial Freedom (2011) 196 Cal.App.4th 290, 301.)

The money judgment may be sought in Small Claims Court, subject to the limitations discussed below.

$5,000 Claim Limitation
Although an owner (a “natural person”) may sue an association in small claims for an amount up to $10,000, an association may not sue an owner in small claims for an amount exceeding $5,000. (Code Civ. Pro. §§ 116.220, 116.221.) The limitations on foreclosure of an assessment lien set forth in Civil Code Section 5720(b) (i.e., foreclosure may not be instituted until the amount of assessment debt totals at least $1,800) do not apply to small claims actions:

“An association that seeks to collect delinquent regular or special assessments of an amount less than [$1,800]…may not collect that debt through judicial or nonjudicial foreclosure, but may attempt to collect or secure that debt…[b]y a civil action in small claims court…The amount that may be recovered in small claims court to collect upon a debt for delinquent assessments may not exceed the jurisdictional limits of the small claims court…” (Civ. Code § 5720(b).)

$2,500 Claims Twice Per Year
An association may not file more than two (2) small claims actions per calendar year in which the amount demanded exceeds $2,500. (Code Civ. Pro. § 116.231(a).)

Appeal of Judgment
If a judgment is obtained by the association against the delinquent owner, the delinquent owner may appeal the judgment; however, the association (as the plaintiff) may not appeal an adverse judgment. (Code Civ. Pro. § 116.710.)

Attorney’s Fees on Appeal
The appeal on a small claims judgment is heard in Superior Court, where both parties may be represented by an attorney. However, even if the association prevails on appeal, it cannot recover all of its attorney’s fees, as the available fees which may be recovered are capped at $150. (Code Civ. Pro. § 116.780(c).)

Money Judgment
Once the association prevails and obtains a money judgment, it may enforce the money judgment through recording an abstract of judgment (a “judgment lien”) and through levying the delinquent owner’s wages or bank account. (See “Money Judgments (Assessment Collection).”)

Code of Civil Procedure Section 116.780. Attorney’s Fees: Small Claims Appeal.

(a) The judgment of the superior court after a hearing on appeal is final and not appealable.

(b) Article 6 (commencing with Section 116.610) on judgments of the small claims court applies to judgments of the superior court after a hearing on appeal, except as provided in subdivisions (c) and (d).

(c) For good cause and where necessary to achieve substantial justice between the parties, the superior court may award a party to an appeal reimbursement of (1) attorney’s fees actually and reasonably incurred in connection with the appeal, not exceeding one hundred fifty dollars ($150), and (2) actual loss of earnings and expenses of transportation and lodging actually and reasonably incurred in connection with the appeal, not exceeding one hundred fifty dollars ($150).

Code of Civil Procedure Section 116.710. Small Claims Appeal.

(a) The plaintiff in a small claims action shall have no right to appeal the judgment on the plaintiff’s claim, but a plaintiff who did not appear at the hearing may file a motion to vacate the judgment in accordance with Section 116.720.

(b) The defendant with respect to the plaintiff’s claim, and a plaintiff with respect to a claim of the defendant, may appeal the judgment to the superior court in the county in which the action was heard.

(c) With respect to the plaintiff’s claim, the insurer of the defendant may appeal the judgment to the superior court in the county in which the matter was heard if the judgment exceeds two thousand five hundred dollars ($2,500) and the insurer stipulates that its policy with the defendant covers the matter to which the judgment applies.

(d) A defendant who did not appear at the hearing has no right to appeal the judgment, but may file a motion to vacate the judgment in accordance with Section 116.730 or 116.740 and also may appeal the denial of that motion.

Code of Civil Procedure Section 116.231. Small Claims Court Limitations.

(a) Except as provided in subdivision (d), no person may file more than two small claims actions in which the amount demanded exceeds two thousand five hundred dollars ($2,500), anywhere in the state in any calendar year.

(b) Except as provided in subdivision (d), if the amount demanded in any small claims action exceeds two thousand five hundred dollars ($2,500), the party making the demand shall file a declaration under penalty of perjury attesting to the fact that not more than two small claims actions in which the amount of the demand exceeded two thousand five hundred dollars ($2,500) have been filed by that party in this state within the calendar year.

(c) The Legislature finds and declares that the pilot project conducted under the authority of Chapter 1196 of the Statutes of 1991 demonstrated the efficacy of the removal of the limitation on the number of actions public entities may file in the small claims courts on claims exceeding two thousand five hundred dollars ($2,500).

(d) The limitation on the number of filings exceeding two thousand five hundred dollars ($2,500) does not apply to filings where the claim does not exceed five thousand dollars ($5,000) that are filed by a city, county, city and county, school district, county office of education, community college district, local district, or any other local public entity. If any small claims action is filed by a city, county, city and county, school district, county office of education, community college district, local district, or any other local public entity pursuant to this section, and the defendant informs the court either in advance of the hearing by written notice or at the time of the hearing, that he or she is represented in the action by legal counsel, the action shall be transferred out of the small claims division. A city, county, city and county, school district, county office of education, community college district, local district, or any other local public entity may not file a claim within the small claims division if the amount of the demand exceeds five thousand dollars ($5,000).

Money Judgments (Assessment Collection)

An association that has recorded an assessment lien against an owner’s property is permitted to enforce the lien through suing the owner personally and obtaining a money judgment (aka a “personal money judgment” or “PMJ”). (Civ. Code §§ 5700(a), 5720(b); See also “Assessment Lien Enforcement (Generally).”) Once the association obtains the money judgment, the assessment lien is extinguished and the underlying debt of the owner merges into the judgment obtained by the association:

“When an assessment lien is enforced through judicial action, the debt secured by the lien is merged into the judgment.” (Diamond Heights Village Assn., Inc. v. Financial Freedom (2011) 196 Cal.App.4th 290, 301.)

The judgment is enforceable for ten (10) years, and longer if validly renewed. (Code Civ. Pro. §§ 683.020, 683.120.)

Reimbursement & Compliance Assessments
Subject to certain limitations, an association may have the power to levy a “reimbursement” assessment against an owner for damage the owner, his guest or tenant caused to association common area. (See “Reimbursement & Compliance Assessments.”) Where an association’s CC&Rs do not allow for a reimbursement assessment to become a lien on the owner’s property enforceable through foreclosure, the association’s only option to collect the unpaid reimbursement assessment may be to obtain a money judgment against the owner.

Abstract of Judgment (Judgment Lien)
Once a judgment is obtained, the association may create a judgment lien by recording an “abstract of judgment” with the county recorder. (Code Civ. Pro. §§ 674, 697.710.) The abstract of judgment becomes a lien against any and all of the defendant’s real property in the counties where the abstract is recorded, including any real property that the defendant may acquire in those counties after the abstract was first recorded. (Code Civ. Pro. §§ 674, 697.710.) The effect of the judgment lien is similar to an assessment lien, in that it encumbers title to the defendant’s property and prevents the defendant from selling the property (and potentially from refinancing the property) without paying the judgment amount and having the judgment lien released. If the defendant does not pay the judgment, the association can force a sheriff’s sale of the property, subject to certain limitations. (See “Judicial Foreclosure of Assessment Lien.”)

Garnish Wages, Levy Bank Accounts, Etc.
The association may also seek to collect on the judgment through such tools as a wage garnishment or bank account levy (Code Civ. Pro. § 706.010 et. seq; Code Civ. Pro. § 488.300 et. seq.)

Code of Civil Procedure Section 674. Abstract of Judgment.

(a) Except as otherwise provided in Section 4506 of the Family Code, an abstract of a judgment or decree requiring the payment of money shall be certified by the clerk of the court where the judgment or decree was entered and shall contain all of the following:

(1) The title of the court where the judgment or decree is entered and cause and number of the action.

(2) The date of entry of the judgment or decree and of any renewals of the judgment or decree and where entered in the records of the court.

(3) The name and last known address of the judgment debtor and the address at which the summons was either personally served or mailed to the judgment debtor or the judgment debtor’s attorney of record.

(4) The name and address of the judgment creditor.

(5) The amount of the judgment or decree as entered or as last renewed.

(6) The last four digits of the social security number and driver’s license number of the judgment debtor if they are known to the judgment creditor. If either or both of those sets of numbers are not known to the judgment creditor, that fact shall be indicated on the abstract of judgment.

(7) Whether a stay of enforcement has been ordered by the court and, if so, the date the stay ends.

(8) The date of issuance of the abstract.

(b) An abstract of judgment, recorded after January 1, 1979, that does not list the social security number and driver’s license number of the judgment debtor, or either of them, as required by subdivision (a) or by Section 4506 of the Family Code, may be amended by the recording of a document entitled “Amendment to Abstract of Judgment.” The Amendment to Abstract of Judgment shall contain all of the information required by this section or by Section 4506 of the Family Code, and shall set forth the date of recording and the book and page location in the records of the county recorder of the original abstract of judgment.

A recorded Amendment to Abstract of Judgment shall have priority as of the date of recordation of the original abstract of judgment, except as to any purchaser, encumbrancer, or lessee who obtained their interest after the recordation of the original abstract of judgment but prior to the recordation of the Amendment to Abstract of Judgment without actual notice of the original abstract of judgment. The purchaser, encumbrancer, or lessee without actual notice may assert as a defense against enforcement of the abstract of judgment the failure to comply with this section or Section 4506 of the Family Code regarding the contents of the original abstract of judgment notwithstanding the subsequent recordation of an Amendment to Abstract of Judgment. With respect to an abstract of judgment recorded between January 1, 1979, and July 10, 1985, the defense against enforcement for failure to comply with this section or Section 4506 of the Family Code may not be asserted by the holder of another abstract of judgment or involuntary lien, recorded without actual notice of the prior abstract, unless refusal to allow the defense would result in prejudice and substantial injury as used in Section 475. The recordation of an Amendment to Abstract of Judgment does not extend or otherwise alter the computation of time as provided in Section 697.310.

(c)

(1) The abstract of judgment shall be certified in the name of the judgment debtor as listed on the judgment and may also include the additional name or names by which the judgment debtor is known as set forth in the affidavit of identity, as defined in Section 680.135, filed by the judgment creditor with the application for issuance of the abstract of judgment. Prior to the clerk of the court certifying an abstract of judgment containing any additional name or names by which the judgment debtor is known that are not listed on the judgment, the court shall approve the affidavit of identity. If the court determines, without a hearing or a notice, that the affidavit of identity states sufficient facts upon which the judgment creditor has identified the additional names of the judgment debtor, the court shall authorize the certification of the abstract of judgment with the additional name or names.

(2) The remedies provided in Section 697.410 apply to a recorded abstract of a money judgment based upon an affidavit of identity that appears to create a judgment lien on real property of a person who is not the judgment debtor.

Judicial Foreclosure of Assessment Lien

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).)

Redemption Rights
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.”)

FindHOALaw

All posts by Steve Tinnelly

AB 1738. Dispute Resolution.

Current Status: Chaptered

FindHOALaw Quick Summary:

Related Links

AB 968. Common Area: Maintenance & Repair.

Current Status: Chaptered

FindHOALaw Quick Summary:

Related Links

AB 569. Real Property: Divided Lands.

Current Status: Chaptered

FindHOALaw Quick Summary:

Small Claims Collection Actions

Code of Civil Procedure Section 116.780. Attorney’s Fees: Small Claims Appeal.

Code of Civil Procedure Section 116.710. Small Claims Appeal.

Code of Civil Procedure Section 116.231. Small Claims Court Limitations.

Money Judgments (Assessment Collection)

Code of Civil Procedure Section 674. Abstract of Judgment.

Judicial Foreclosure of Assessment Lien