Category Archives: Topic Index

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.)

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.”)

Assessment Lien Enforcement (Generally)

Payment of an owner’s delinquent assessment debt (including any applicable late fees, interest, collection costs, etc. lawfully imposed on the owner in connection therewith) becomes the personal obligation of the owner at the time the assessments and other sums are levied by the association. (Civ. Code § 5650(a); See also “Duty to Pay Assessments.”) Civil Code Section 5675 allows an association to secure this debt by recording an assessment lien against the owner’s lot or unit. After the expiration of thirty (30) days following the recording of an assessment lien, the assessment lien may be enforced “in any manner permitted by law,” including the following: (Civ. Code § 5700(a).)

*Limitations on Foreclosure
Prior to enforcing an assessment lien through nonjudicial or judicial foreclosure, the underlying assessment debt must meet or exceed the limitations contained in Civil Code Section 5720. (See “Limitations on Foreclosure of Assessment Lien.”)

“One Action Rule” & Assessment Liens
California’s “One Action Rule” generally requires the holder of a claim secured by real property (i.e., a mortgage lender) to take only one action against the debtor, and to pursue the real property first before suing the debtor personally. (See “One Action Rule.”) Although an association that records an assessment lien against an owner’s property also becomes the holder of a claim secured by real property, Civil Code Section 5700 allows the association to pursue the owner personally (i.e., to file a lawsuit against the owner) even after an assessment lien is recorded. (See “One Action Rule.”)

Judicial Enforcement & Merger Doctrine
When an assessment lien is enforced by an association through judicial action (i.e., a lawsuit for a money judgment or a judicial foreclosure action), the assessment lien is merged into any judgment obtained by the association. (Diamond Heights Village Assn., Inc. v. Financial Freedom (2011) 196 Cal.App.4th 290; See also “Money Judgments (Assessment Collection).”)

One Action Rule

California’s “One Action Rule” (aka “Single Action Rule”) is codified at Code of Civil Procedure Section 726. It generally requires the holder of a claim secured by real property (i.e., a mortgage lender) to take only one action against the debtor, whether it is to conduct a nonjudicial foreclosure action, judicial foreclosure action, or to sue the debtor personally for the balance of the debt. Section 726 has been interpreted by California Courts to require a mortgage lender to pursue the real property first before being able to sue the debtor personally. (Walker v. Community Bank (1974) 10 Cal.3d 729.) The One Action Rule is therefore also known as the “Security First Rule.”

Exemption for HOAs & Assessment Liens
An association that records an assessment lien against an owner’s property also becomes the holder of a claim secured by real property, similar to a mortgage lender. However, there is an express waiver of the One Action Rule in the Davis Stirling Act, found at Civil Code Section 5700(b). Section 5700(b) allows for an association to pursue the debtor (the delinquent owner) personally even if the association has recorded an assessment lien against the owner’s property as security for the owner’s assessment debt. This allows for an association to, for example, initiate a nonjudicial foreclosure action while also filing a lawsuit against the delinquent owner. However, the association will at some point have to select one remedy. For example, if the association obtains a money judgment, the assessment lien merges into the judgment and can no longer be enforced through nonjudicial foreclosure. (See Diamond Heights Village Assn. v. Financial Freedom (2011) 196 Cal.App.4th 290: See also “Money Judgments (Assessment Collection).” )

Notice of Default (NOD)

The nonjudicial foreclosure of an assessment lien must be conducted in accordance with the procedural requirements contained in Civil Code Sections 2924, 2924b, and 2924c applicable to the exercise of powers of sale in mortgages and deeds of trust. (Civ. Code § 5710(a).) One of those procedural requirements involves the recording of a Notice of Default in the office of the county recorder where the property encumbered by the assessment lien is situated (the “Subject Property”). (Civ. Code § 2924(a)(1).)

Contents of Notice of Default
The required contents of the Notice of Default generally include information identifying the address of the Subject Property, a statement that the owner of the Subject Property has breached his/her obligation to pay assessments to the association, and a statement of the association’s information and its election to sell the property via the nonjudicial foreclosure action. (Civ. Code § 2924(a)(1).) The Notice of Default must also begin with the statement required under Civil Code Section 2924c(b) which, in sum, informs the owner of the following facts:

  • The potential for the Subject Property to be sold without court action;
  • The owner’s right to halt the nonjudicial foreclosure action by paying the amounts owed; and
  • The potential for the owner to lose legal rights if he/she does not take prompt action. (See Civ. Code § 2924c(b).)

Service of Notice of Default
The association must serve the Notice of Default on the owner in accordance with the manner of service of summons in Article 3 (commencing with Section 415.10) of Chapter 4 of Title 5 of Part 2 of the Code of Civil Procedure. (Civ. Code § 5710(b).) This essentially mirrors the service requirements applicable to the filing of lawsuits. Additionally, within certain timeframes, a copy of the Notice of Default must be mailed to specified persons having a legal interest in the Subject Property or otherwise having a right to be provided with a copy of the Notice of Default. (Civ. Code §2924b(b)-(c).)

Board Decision to Initiate Foreclosure
Prior to recording the Notice of Default, the owner must be provided with notice of the board’s decision to initiate nonjudicial foreclosure. (Civ. Code § 5705(d); See also “Decision to Initiate Foreclosure.”)

Right of Redemption

Where an association enforces an assessment lien through foreclosure and sale of an owner’s property (whether through nonjudicial or judicial foreclosure), the purchaser of the property at the foreclosure sale (whether the purchaser is the association or a third-party) takes ownership of the property subject to the foreclosed owner’s “right of redemption.” The right of redemption allows for the foreclosed owner to “redeem” (reinstate his/her ownership of) the foreclosed property by paying a certain amount to the foreclosure trustee within the applicable redemption period.

Redemption Period
The redemption period varies depending upon whether the property is sold through nonjudicial foreclosure or through judicial foreclosure:

  • Nonjudicial Foreclosure: 90 Days – When an association enforces an assessment lien through nonjudicial foreclosure (aka “trustee sale”), the applicable redemption period is ninety (90) days. (Civ. Code § 5715(b); Code Civ. Pro § 729.035.)
  • Judicial Foreclosure: 3 Months or 1 Year – When an association enforces an assessment lien through judicial foreclosure, the applicable redemption period is three (3) months if the proceeds of the sale are sufficient to satisfy the association’s judgment amount, including the costs incurred in conducting the foreclosure sale.  (Code Civ. Pro § 729.030(a).) If the proceeds of the sale are insufficient to cover that amount, the redemption period is one (1) year. (Code Civ. Pro. § 729.030(b).)

Redemption Price
The price which must be paid by a foreclosed owner in order to exercise his/her right of redemption (the “redemption price”) is governed by Code of Civil Procedure Section 729.060. It generally includes the purchase price at the sale (where there are no third-party purchasers, and the property thus transfers to the association, the purchase price is typically the amount of the assessment lien plus the additional fees and costs incurred by the association in conducting the foreclosure sale).

Maintenance & Repairs During Redemption Period – In the event that the purchaser incurs expenses for maintenance and repair work on the property which were reasonably necessary for the preservation of the property, those maintenance and repair expenses may be incorporated into the redemption price. (Code Civ. Pro § 729.060(b); Barry v. OC Residential Properties (2011) 194 Cal.App.4th 861.)

Rents & Profits – During the redemption period and prior to the time when the property is redeemed, the purchaser at the foreclosure sale is entitled to receive from the person in possession of the property during the redemption period “the rents and profits from the property or the value of the use and occupation of the property.” (Code Civ. Pro. § 729.090.) Any such sums received by the purchaser must be offset against the other sums used in calculating the total redemption price. (Code Civ. Pro. § 729.060(c).)

Notice of Redemption Rights
When an assessment lien is enforced through nonjudicial foreclosure, the Notice of Sale that is recorded prior to conducting the foreclosure sale must include a statement that the owner’s property is being sold subject to the right of redemption. (Civ. Code § 5715.) Additionally, “promptly after the sale the levying officer or trustee who conducted the sale” must serve or mail a notice to the foreclosed owner of his/her right of redemption, including the applicable redemption period. (Code Civ. Pro. § 729.050.) This post-sale notice serves two (2) primary purposes:

“First, it ensures that the debtor is aware that the property may still be redeemed. Second, it informs the debtor the date on which his or her redemption rights expire. Presumably, a debtor who has not received such notice has been harmed or prejudiced by the fact that they were not informed of those rights.” (Multani v. Witkin & Neal (2013) 215 Cal.App.4th 1428, 1451.)

Where the post-sale notice is not provided, it may provide grounds for the foreclosed owner to set aside the foreclosure sale. (Multani.)

Possession During Redemption Period
The purchaser at the foreclosure sale does not technically own the property until the expiration of the redemption period.  The purchaser therefore does not have a legal right to possess the property during the redemption period (i.e., to evict the owner or a tenant from the property). However, the purchaser “is entitled to enter the property during reasonable hours to repair and maintain the premises and is entitled to an order restraining waste on the property. Such order may be granted with our without notice in the discretion of the court.” (Code Civ. Pro. § 729.090(c); Barry, at 868.)

Nonjudicial 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 nonjudicial foreclosure (aka “trustee sale”). (Civ. Code § 5700(a).)

Limitations on Foreclosure
The power an association has to enforce an assessment lien through nonjudicial foreclosure is subject to the limitations set forth in Civil Code Section 5720. Section 5720 generally prohibits the institution of a nonjudicial 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.”)

Nonjudicial Foreclosure Procedure
The nonjudicial foreclosure must be conducted in accordance with the procedural requirements contained in Civil Code Sections 2924, 2924b, and 2924c applicable to the exercise of powers of sale in mortgages and deeds of trust. (Civ. Code § 5710(a).) In addition to those procedural requirements, Civil Code Sections 5705, 5710, and 5715 contain further requirements with regard to the board’s decision to initiate foreclosure, the service of the Notice of Default on the owner, and the contents of the Notice of Sale:

90 Day Right of Redemption
Notwithstanding any law or provisions of an association’s governing documents to the contrary, the nonjudicial foreclosure of an assessment lien is subject to a ninety (90) day “right of redemption.” (Civ. Code § 5715(b).) The right of redemption generally allows for the foreclosed owner to “redeem” (reinstate his/her ownership of) the foreclosed property within ninety (90) days following the nonjudicial foreclosure sale by paying a certain amount of money to the person who conducted the foreclosure sale. (Civ. Code § 5715(b); Code Civ. Pro. § 729.035; See also “Right of Redemption.”)

Removal of Developer Provisions

The developer of an association (the builder of the CID) typically includes numerous provisions in the association’s governing documents that afford the developer special rights and privileges which help facilitate the developer in completing the construction or marketing of the CID. Once the developer has completed construction and is no longer involved in the association’s operations, such provisions no longer serve any purpose. Civil Code Section 4230 therefore allows the board to, “after the developer has completed construction of the development, has terminated construction activities, and has terminated marketing activities for the sale, lease or other disposition of the separate interests within the development, adopt an amendment deleting” such provisions from the governing documents. (Civ. Code § 4230(a).)

Provisions which May be Deleted
The provisions which may be deleted pursuant to Civil Code Section 4230 are limited to “those which provide for access by the developer over or across the common area for the purposes of (1) completion of construction of the development, and (2) the erection, construction, or maintenance of structures or other facilities designed to facilitate the completion of construction or marketing of separate interests.” (Civ. Code § 4230(b).)

Provisions Pertaining to Particular Phase of Development
Provisions of the governing documents relative to a particular construction or marketing phase of the development may not be deleted until that construction or marketing phase has been completed. (Civ. Code § 4230(a).)

Procedural Requirements
In order to validly delete the developer provisions pursuant to Civil Code Section 4230, the board must comply with the following requirements:

  • At Least 30 Days Notice – At least thirty (30) days prior to taking action pursuant to Civil Code Section 4230, the board must deliver to all members by individual delivery: (1) A copy of all proposed amendments to the governing documents purporting to delete the developer provisions, and (2) notice of the time, date and place the board will consider adoption of the amendments. (Civ. Code § 4230(c).)
  • Considerations Made at Open Board Meeting – The board may consider adoption of the proposed amendments only at an open meeting of the board, where members have the right to attend and make comments on the proposed amendments. (Civ. Code § 4230(c).)
  • Approval by Majority of a Quorum – If the board decides to adopt the proposed amendments, the board must obtain the approval of at least a majority of a quorum of the members at a duly held election. (Civ. Code §§ 4230(d), 4070.) The applicable quorum is set at more than fifty percent (50%) of the members who own no more than two (2) separate interests within the development. (Civ. Code § 4230(d).)

Correction of Outdated Code References

The Davis-Stirling Act was reorganized and renumbered in 2014. As a result, the governing documents (i.e., CC&Rs, bylaws, operating rules, etc.) of an association may contain outdated references to prior Davis-Stirling Act code numbers that are no longer valid. In order to correct those outdated references, Civil Code Section 4235 allows the “board to amend the governing documents, solely to correct the cross-reference, by adopting a board resolution that shows the correction.” (Civ. Code § 4235(a).)

No Requirement for Membership Approval
Civil Code Section 4235 further allows for the resolution discussed above to be adopted by the board without membership approval. (Civ. Code § 4235(a).)

Restatement of CC&Rs
When an association’s CC&Rs are corrected in accordance with Civil Code Section 4235, the CC&Rs may be restated in corrected form and recorded, provided that a copy of the board resolution authorizing the corrections is recorded along with the restated CC&Rs. (Civ. Code § 4235(b).)

Decision to Initiate Foreclosure

After an assessment lien has been recorded against an owner’s property, the decision to initiate foreclosure of the assessment lien (whether through nonjudicial or judicial foreclosure) must be made by the board of directors and may not be delegated to an agent of the association. (Civ. Code § 5705(c).) The board’s vote to approve foreclosure of an assessment lien must take place at least thirty (30) days prior to any public sale. (Civ. Code § 5705(c).)

Decision Made in Executive Session & Recorded in Minutes of Next Open Meeting
The decision to initiate foreclosure must be made by a majority vote of the directors in an executive session meeting, and the board’s vote must then be recorded in the minutes of the next open board meeting. (Civ. Code § 5705(c).)

Must Maintain Confidentiality of Delinquent Owner(s)
The board is required to maintain the confidentiality of the owner or owners of the property by “identifying the matter in the minutes by the parcel number of the property, rather than the name of the owner or owners.” (Civ. Code § 5705(c).)

Notice to Owner of Board’s Decision
The board must provide notice of its decision to initiate foreclosure to the owner. (Civ. Code § 5705(d).) The method of required notice varies depending upon whether the owner occupies the property that is the subject of the foreclosure action:

  • Owner Occupies the Property: Personal Service – Where the owner occupies the property, the notice must be personally served upon the owner (or the owner’s legal representative) in accordance with the manner of service of summons in Article 3 (commencing with Section 415.10) of Chapter 4 of Title 5 of Part 2 of the Code of Civil Procedure. (Civ. Code § 5705(d).) This essentially mirrors the methods of personal service required in connection with a lawsuit.
  • Owner Does Not Occupy the Property: First-Class Mail – Where the owner does not occupy the property, the notice must be provided by first-class mail, postage prepaid, at the most current address of the owner shown on the books of the association. (Civ. Code § 5705(d).) If the owner has not provided the association with written notification of an alternative mailing address, the address of the property may be treated as the owner’s mailing address. (Civ. Code § 5705(d).)

Condition Precedent for Judicial Foreclosure Action
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 time/along with a summons and compliant for a judicial foreclosure action is insufficient to satisfy this requirement. (Diamond, at 1196-1197.)

Procedural Noncompliance
Where an association fails to strictly adhere to the requirements set forth above (i.e., those pertaining to how the board’s decision is made, recorded, and notified), it may provide grounds for an owner to legally challenge the validity of the assessment lien and stop the association’s foreclosure efforts. (Diamond, at 1197.)