Category Archives: Topic Index

Partial Payments

An association is required to accept a partial payment made by a delinquent owner, notwithstanding whether the payment is sufficient to cover the total amount of delinquent assessments, late fees, interest, and collection costs owed by the owner to the association at the time the payment is made. (Huntington Continental Townhouse Assn. v. Miner (2014) 230 Cal.App.4th 590, 601-602.) Upon receipt of a partial payment, the association is further required to allocate the payment toward the owner’s debt in accordance with the priority set forth in Civil Code Section 5655 (i.e., first to the amount of assessments owed, then to other costs imposed on the owner in connection with the owner’s delinquency). (See “Priority of Payments.”) Notably, the Court in Huntington did not address whether such allocation is required in situations where the owner has agreed to a different allocation method pursuant to the terms of a payment plan executed between the owner and the association.

An association’s obligation to accept a partial payment exists even after the association has recorded an assessment lien against the owner’s property, or has commenced other measures to collect the owner’s assessment debt. (Huntington, at 602 (“…an owner can make a partial payment after an association has commenced measures, such as recording a lien, to collect the delinquency.”).)

Impact on Foreclosure of Assessment Lien
When an owner has made a partial payment, it may impact the association’s ability to commence foreclosure of the assessment lien due to the limitations set forth in Civil Code Section 5720 (i.e., if the partial payment reduces the amount of delinquent assessments below $1,800). (See “Limitations on Foreclosure of Assessment Lien.”)

Limitations on Foreclosure of Assessment Lien

The power an association has to foreclose on an assessment lien (whether through nonjudicial or judicial foreclosure) is subject to the limitations set forth in Civil Code Section 5720.  Section 5720 generally prohibits an association from collecting an assessment debt through foreclosure of an assessment lien unless any of the following are true:

Partial Payments
Because an association is legally required to accept partial payments from a delinquent owner, and because Civil Code Section 5655 requires partial payments to be first applied to the amount of outstanding assessments before applying them to other costs (i.e., late charges, interest, collection costs, etc.), a delinquent owner may be able to elude foreclosure of an assessment lien by submitting partial payments sufficient to keep the assessment debt below the $1,800 threshold and less than 12 months delinquent. (Huntington Continental Townhouse Assn. v. Miner (2014) 230 Cal.App.4th 590, 605; See also “Partial Payments.”)

Small Claims Actions
If an association is unable to foreclose on an assessment lien due to the limitations set forth above, the association may attempt to collect the assessment debt through a civil action filed against the delinquent owner in small claims court. (Civ. Code § 5720(b)(1); See also “Small Claims Collection Actions.”)

Priority of Payments

Regular or special assessments, as well as any late charges, interest, reasonable fees and costs of collection, including attorney’s fees, become the debt of the owner of the property at the time the assessment or other sums are levied by the association. (Civ. Code § 5650(a); See also “Duty to Pay Assessments.”) When any payment is made by the owner toward this debt, Civil Code Section 5655 sets forth the following structure governing how the payment must be applied and allocated toward the debt:

By establishing the above allocation requirements, Section 5655 “recognizes that a payment [made by a delinquent owner] might not cover the full amount of the delinquency and other charges.” (Huntington Continental Townhouse Assn. v. Miner (2015) 230 Cal.App.4th 590, 602.) Section 5655 “permits” partial payments, and further requires an association to accept any such partial payments. (Huntington, at 601-602; See also “Partial Payments.”)

Assessment Lien Release

Where a member becomes delinquent in the payment of assessments to the association, the association is permitted to record a Notice of Delinquent Assessment (an “assessment lien”) against the member’s property to act as security for the payment of the member’s assessment debt, in addition to the late fees, interest, collection costs and attorney’s fees imposed upon the member in connection with the member’s delinquency. (Civ. Code § 5675(a); See also “Notice of Delinquent Assessment (Assessment Lien).”) Once the member pays the association the amount it is owed, the association must take the following actions within twenty-one (21) calendar days:

  • Record Lien Release – The association must “record or cause to be recorded in the office of the county recorder in which the [assessment lien] is recorded a lien release or notice of rescission.” (Civ. Code § 5685(a).) and
  • Provide Copy of Release or Notice to Owner – The association must also provide the member (the owner of the separate interest against which the assessment lien was first recorded) “a copy of the lien release or notice that the delinquent assessment has been satisfied.” (Civ. Code § 5685(a).)

Assessment Lien Recorded in Error
If it is determined that the assessment lien was recorded in error, the party who recorded the lien must take the following actions within twenty-one (21) calendar days:

  • Record Lien Release – The party who recorded the lien must “record or cause to be recorded in the office of the county recorder in which the [assessment lien] is recorded a lien release or notice of rescission.” (Civ. Code § 5685(b).) and
  • Provide Declaration of Error & Copy of Release to Owner – The party who recorded the lien must also provide the member (the owner of the separate interest against which the assessment lien was first recorded) with “a declaration that the lien filing or recording was in error and a copy of the lien release or notice of rescission.” (Civ. Code § 5685(b).)

Promptly Reverse All Late Charges, Fees & Costs
In addition to the above, if it is determined that the assessment lien was recorded in error, the association must “promptly reverse all late charges, fees, interest, attorney’s fees, costs of collection, costs imposed for the [pre-lien letter], and costs of recordation and release of the lien authorized under subdivision (b) of Section 5720, and pay all costs related to any related dispute resolution or alternative dispute resolution.” (Civ. Code § 5685(c).)

Notice of Delinquent Assessment (Assessment Lien)

Assessment payments become the legal debt of the member at the time the assessments are levied by the association. (Civ. Code § 5650; See also “Duty to Pay Assessments.”) Where the member fails to remit payment within a timely fashion, an association may record a Notice of Delinquent Assessment (an “assessment lien”) against the member’s property to act as security for the payment of the member’s assessment debt. (Civ. Code § 5675(a).) The assessment lien effectively prevents the member from transferring title to the member’s property and potentially from re-financing the property without first satisfying the member’s assessment debt and having the assessment lien released.

Pre-Lien Letter Required
At least thirty (30) days prior to recording an assessment lien on a member’s property (the member’s “separate interest“) for delinquent assessments, late charges, interest, collection fees and costs owed by that member to the association, the association is required to provide the member with a pre-lien letter via certified mail. (Civ. Code § 5660; See also “Pre-Lien Letter.”)

Decision to Record Assessment Lien
The decision to record an assessment lien must be made by a majority vote of the board at an open board meeting and recorded in the meeting’s minutes. (Civ. Code § 5673; See also “Decision to Record Assessment Lien.”)

Required Information
An assessment lien must contain all of the following:

  • Itemized Statement of Amounts Owed – The assessment lien must state the amount of the delinquent assessments and any other sums imposed (i.e., late fees, interest, collection costs, etc.) in accordance with Civil Code Section 5650. (Civ. Code § 5675(a).) The itemized statement of these amounts which were provided to the owner in the pre-lien letter must also be recorded together with the assessment lien. (Civ. Code § 5675(b).)
  • Legal Description of the Member’s Property – The assessment lien must include a legal description of the member’s (owner’s) property (“separate interest”) within the association’s development against which the delinquent assessment and other sums are levied. (Civ. Code § 5675(a).)
  • Name of the Member – The assessment lien must include the name of the record owner of the separate interest against which the assessment lien is imposed. (Civ. Code § 5675(a).)
  • Name & Address of Foreclosure Trustee – In order for the assessment lien to be enforced by nonjudicial foreclosure, the assessment lien must state the name and address of the trustee authorized by the association to enforce the lien via foreclosure sale. (Civ. Code § 5675(c).)
  • Signed by Designated Person – The assessment lien must be signed by the person designated in the CC&Rs or by the association for that purpose, or if no one is designated, by the president of the association. (Civ. Code § 5675(d).)

Copy of Recorded Assessment Lien Mailed to all Owners
Once recorded, a copy of the recorded assessment lien must be mailed by certified mail to every person whose name is shown as an owner of the separate interest in the association’s records; the notice must be mailed no later than ten (10) calendar days after recordation. (Civ. Code § 5675(e).)

Decision to Record Assessment Lien

The decision to record a Notice of Delinquent Assessment (an “assessment lien”) against a member’s property for delinquent assessments must be made by the board of directors and may not be delegated to an agent of the association. (Civ. Code § 5673.)

Decision Made at Open Meeting & Recorded in Minutes
The decision must be made by at least a majority vote of the directors in an open board meeting, and the vote must be recorded in the minutes of that meeting. (Civ. Code § 5673.)

Suspension of Voting Rights

Provisions of an association’s bylaws may contain provisions that purport to allow an association’s board of directors to suspend a member’s voting rights as a form of discipline (e.g., in response to the member’s assessment delinquency or violation of the governing documents).  However, due to the language of Civil Code Section 5105 (regarding the election rules that an association is legally required to adopt), associations are not able to deny a ballot to a member “for any reason other than not being a member at the time when ballots are distributed.” (Civ. Code § 5105(g)(1).)

 

“Record Date” for Elections & Voter List

Record Date
The term “record date” refers to the date established in the provisions of an association’s bylaws or, in the absence of such a provision, by the association’s board of directors for the purpose of determining which members are entitled to vote at a member meeting/election (e.g., to develop the “Voter List”.) Notwithstanding any other law, an HOA’s election rules must prohibit the denial of a ballot to an owner for any reason other than not being an owner at the time when ballots are distributed. (Civ. Code § 5105(g)(1).)  The time when ballots are distributed therefore serves as the record date regardless of any contrary provisions in the association’s governing documents.

Contents of Voter List
The voter list must include the name, voting power, and either the physical address of the voter’s separate interest, the parcel number, or both. The mailing address for the ballot must be listed on the voter list if it differs from the voter’s physical address or if only the voter’s parcel number is used. (Civ. Code § 5105(a)(7).)

Verification of Individual Information on Voter List
The association must permit members to verify the accuracy of their individual information on the voter list at least thirty (30) days before ballots are distributed. (Civ. Code § 5105(a)(7).)

Adjourned Meetings
The record date also applies in the case of an adjourned meeting (i.e., if the association failed to achieve quorum at the initial meeting), unless the board fixes a new record date for the adjourned meeting. (Corp. Code § 7611(b).)

Cumulative Voting

Cumulative voting pertains to director elections. It provides every member with a number of votes equal to the director seats which are up for election, and further allows each member to distribute those votes amongst the candidates as they so choose provided that the total number of votes cast by the member does not exceed the number of seats up for election. For example, if there are five (5) seats up for election, every member is given five (5) votes. A member may cast all five (5) of his/her votes for a particular candidate, or three (3) votes for one candidate and two (2) votes for another, or one (1) vote for each of the five candidates, etc. so long as the total number of votes cast by the member does not exceed the number of seats up for election.

If an association’s governing documents provide for cumulative voting, the association is required to allow cumulative voting utilizing the required secret balloting procedures. (Civ. Code § 5115(e).)

Director Recalls
Cumulative voting has significant implications on the number of votes required to remove (recall) directors from the board. (See “Removal & Recall of Directors.”)

Developer Control
Provisions that allow for cumulative voting are automatically included in the bylaws of newly built associations in order to bolster the strength of the new homebuyers while the association is under developer control. Those provisions are included to satisfy the requirements imposed upon developers under 10 CCR § 2792.19 which mandate the use of cumulative voting for all director elections in which more than two (2) director positions are open for election by the association’s membership. (10 CCR § 2792.19(b)(1).) For master planned communities, developers may use a certain “class” of voting membership that grants the developer the right to elect a majority of the directors for an extended period of time. (10 CCR § 2792.32(f); See also “Developer Voting Rights & Classes of Membership.”)

Once the developer is no longer involved in the association, the association’s membership may vote to amend the bylaws in order to remove provisions that call for cumulative voting. The authority to do so is explicitly provided for under Corporations Code Section 7615(a).

Developer Voting Rights & Classes of Membership

A member of an association is generally entitled to cast one (1) vote for each unit the member owns within the association. (See “One Vote Per Unit.”) However, the developer of the association (the builder of the common interest development (“CID”)) is permitted to establish different classes of voting memberships in the association’s governing documents. (10 CCR § 2792.18.) Developers do so in order to maintain control of the CID for as long as possible as units are sold to individual homebuyers while the CID is being built-out.

Class A Membership
Class A members are designated as owners of units and have one (1) vote for each unit/lot owned. (10 CCR § 2792.18(b)(1).)

Class B Membership
Class B membership is reserved to the developer, who is given up to three (3) votes for each unit/lot held by the developer. (10 CCR § 2792.18(b)(2).) Class B membership is tied to the developer’s ownership of separate interests (units) that are subject to assessments. (10 CCR § 2792.16(f)(2).) Pursuant to 10 CCR § 2792.32(c), Class B membership automatically converts to Class A membership when any of the following occur:

  • When 75% of the authorized residential interests transfer to homebuyers;
  • On the 5th anniversary of the most recent conveyance of a residential interest to a homebuyer. This deadline can be extended indefinitely as long as a residential unit is transferred once every 5 years; or
  • On the 25th anniversary of the first conveyance of a residential separate interest in a master planned community.

Class C Membership
Class C membership may only be used in master planned communities and extends only to votes for electing directors to the board. It allows the developer to preserve control of the board by giving the developer the right to elect a majority of the directors for an extended period of time. (10 CCR §2792.32(f).) Pursuant to 10 CCR § 2792.32(f)(1), these rights automatically terminate when any of the following occur:

  • 75% of the residential interests have been conveyed to homebuyers;
  • On the 5th anniversary of the first conveyance of a residential interest to a homebuyer; or
  • On the 25th anniversary of the first conveyance of a residential interest in a master planned community.