Tag Archives: Assessment Collection

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.”)

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.

Sam Walker for Defendant and Appellant.
Barbara Jones for AARP as Amicus Curiae on behalf of Defendant and Appellant.
Noah Zinner for Housing and Economic Rights Advocates as Amicus Curiae on behalf of Defendant and Appellant.
Kent Qian for National Housing Law Project as Amicus Curiae on behalf of Defendant and Appellant.
Feldsott & Lee, Stanley Feldsott and Jacqueline Pagano for Plaintiff and Respondent.
Law Offices of Tom Fier and Tom Fier as Amicus Curiae on behalf of Plaintiff and Respondent.
Larry Rothman & Associates and Larry Rothman as Amicus Curiae on behalf of Plaintiff and Respondent.
SwedelsonGottlieb and Joan Lewis-Heard for ALS Lien Services as Amicus Curiae on behalf of Plaintiff and Respondent.

OPINION

FYBEL, J. —

INTRODUCTION

The Orange County Superior Court, after a decision by the appellate division (Huntington Continental Town House Assn., Inc. v. Miner (2014) 222 Cal.App.4th Supp. 13 [167 Cal.Rptr.3d 609] (Huntington Continental)), certified this case for transfer to this court pursuant to rule 8.1005(a)(1) of the California Rules of Court to address a single question. The question is whether a homeowners association is required by the Davis-Stirling Common Interest Development Act (Civ. Code, § 4000 et seq.) (the Davis-Stirling Act) to accept partial payments from an owner of a separate interest, who is delinquent in paying his or her assessments, after a lien has been recorded against the owner’s separate interest to secure payment of delinquent assessments and other charges. We ordered the case transferred to this court for hearing and decision.

We agree with the decision of the appellate division of the superior court in Huntington Continental, and hold that under Civil Code section 5655, subdivision (a) (section 5655(a)), a homeowners association (an association) must accept a partial payment made by an owner of a separate interest in a common interest development and must apply that payment in the order prescribed by statute. The obligation to accept partial payments continues after a lien has been recorded against an owner’s separate interest for collection of delinquent assessments. The remedies available to an association under Civil Code section 5720 depend upon the amount and the age of the balance of delinquent assessments following application of the partial payment.

[596] FACTS AND PROCEDURAL HISTORY

Joseph A. Miner, as trustee of The JM Trust, Dated January 1, 2005 (the Trust), owns a separate interest in a common interest development subject to the management of the Huntington Continental Townhouse Association, Inc. (HCTA), which is an association within the meaning of Civil Code section 4080.[1] HCTA charges owners of separate interests regular assessments, which are due on the first day of each month.

For nearly every month from 2003 to the beginning of 2009, Miner timely paid HCTA assessments for the Trust’s separate interest. He failed to pay the assessment due on April 1, 2009, and, thereafter, the Trust was delinquent in paying assessments. On October 13, 2010, HCTA sent a letter to the Trust, notifying it that assessments were delinquent in the amount of $3,864.96. Receiving no response to the letter, HCTA’s board of directors adopted a resolution to record a lien against the Trust’s separate interest for the delinquent assessments. A lien in the amount of $4,827.81 was recorded on January 7, 2011. Of that amount, $4,136 was for unpaid assessments and the rest was for late charges, interest, collection costs, and a returned check fee.

Four days after the lien was recorded, HCTA sent a notice to the Trust that the matter would be forwarded to legal counsel if the entire balance of the account was not paid within 30 days. On January 25, 2011, HCTA’s board of directors adopted a resolution to foreclose the delinquent assessment lien. Two months later, HCTA’s attorneys, Feldsott & Lee (Feldsott), sent a letter to the Trust, notifying it of HCTA’s intent to initiate foreclosure proceedings. The letter stated the total amount of delinquency was $6,197.11, of which $5,434.11 was for delinquent assessments and the rest was for attorney fees, costs, release of lien fee, and “file set up” fees.

On April 13, 2011, HCTA filed a limited jurisdiction complaint against the Trust and Miner, as trustee, asserting causes of action for account stated (first cause of action), open book account (second cause of action), and foreclosure of assessment lien (third cause of action). (Later, an amendment to the complaint named Miner as a defendant in his individual capacity.) Soon after the complaint was filed, Miner requested and received from Feldsott an itemized statement of the sums due for delinquent assessments and other fees. According to the itemized statement, the total due as of May 2, 2011, was $8,012.58, of which $5,923.58 was for delinquent assessments through May 31, 2011.

On May 6, 2011, Miner sent an e-mail to HCTA, proposing a payment plan under which the Trust would make monthly payments of $1,500 to $2,000. [597] He sent a $2,000 check to HCTA, which accepted it. Feldsott drafted a payment plan agreement calling for an initial payment of $2,000 followed by monthly payments of $1,500. The agreement was sent to the Trust, but Miner never signed it. The Trust thereafter made two payments totaling $1,500.

On October 17, 2011, Feldsott notified Miner that the Trust had failed to make the September and October payments under the payment plan agreement and failure to make those payments or reinstate the plan within 10 days would lead to its cancellation.

On several occasions, Miner requested a line-item accounting from the HCTA. On November 15 and December 12, 2011, Miner tendered the regular monthly assessments of $188. On December 16, Feldsott returned the checks on the ground it was “unable to accept partial payments.” Three days later, Feldsott provided Miner a statement of delinquent assessments and fees, according to which the total due was $6,418.47.

Miner mailed a cashier’s check for $3,500, dated December 29, 2011, to the home address of the HCTA president. On January 3, 2012, the HCTA president told Miner he would have Feldsott apply the $3,500 payment to the Trust’s account and have the HCTA provide the Trust with an updated accounting. In a letter dated January 5, 2012, Feldsott informed Miner the $3,500 check was being returned because “[o]ur office is unable to accept partial payments without first establishing a payment plan approved by the Board of Directors.” This letter included an account statement reflecting a total of $9,226.13 in charges, $3,568 in payments (not including the returned check for $3,500), and a balance of $5,658.13. On February 15, 2012, Feldsott sent a new account statement showing a total due of $6,837.68.

After a bench trial, the trial court found the Trust owed HCTA $5,715.39 as of September 2012, and HCTA had complied with the relevant statutory requirements to foreclose its lien. The judgment awarded HCTA damages of $5,715.93 on the first and second causes of action and ordered foreclosure of its lien under the third cause of action. The Trust and Miner timely filed a notice of appeal.

The superior court appellate division, in a unanimous opinion authored by Judge Griffin, reversed the judgment as to the third cause of action and reversed and remanded as to the first and second causes of action. (Huntington Continental, supra, 222 Cal.App.4th at pp. Supp. 17, 18.) The appellate division concluded the Davis-Stirling Act compelled HCTA to accept the $3,500 check even though it constituted a partial payment of the total amount owed on the account. (Huntington Continental, supra, at pp. Supp. 15, 17.) Under the Davis-Stirling Act, an association may not seek to collect through [598] judicial or nonjudicial foreclosure delinquent assessments in an amount less than $1,800. (Civ. Code, § 5720, subd. (b) (section 5720(b)). If HCTA had accepted the $3,500 check when tendered in December 2011, the total amount of unpaid assessments would have been less than $1,800. Therefore, the appellate division held HCTA could not pursue foreclosure of the assessment lien. (Huntington Continental, supra, at p. Supp. 17.)

At trial, HCTA’s counsel had conceded that “had that $3500 payment been applied to the account, the remaining balance would have been $760 and change.” Based on exhibits presented at trial, the appellate division of the superior court prepared an accounting of assessments only. (Huntington Continental, supra, 222 Cal.App.4th at p. Supp. 16, fn. 1.) According to that accounting, attached as an appendix to the appellate division’s opinion, as of December 1, 2011, the total amount of unpaid assessments was $2,704 and as of September 1, 2012, the total amount of unpaid assessments was $4,441. (Id. at pp. Supp. 19, 20.) Feldsott’s statement of account, dated December 19, 2011, showed total delinquent assessments of $7,264.57 and payment of $3,000 from funds held in trust.

DISCUSSION

I.

Standard of Review and Principles of Statutory Interpretation

General standards of appellate review apply to appeals transferred from the superior court appellate division for decision in the Court of Appeal. (People v. Disandro (2010) 186 Cal.App.4th 593, 599 [111 Cal.Rptr.3d 857].) In resolving the issue certified to this court by the superior court, we must interpret provisions of the Davis-Stirling Act. We review issues of statutory interpretation de novo. (Kavanaugh v. West Sonoma County Union High School Dist. (2003) 29 Cal.4th 911, 916 [129 Cal.Rptr.2d 811, 62 P.3d 54].)

(1) The fundamental task of statutory interpretation is to ascertain the Legislature’s intent to effectuate the statute’s purpose. (Smith v. Superior Court (2006) 39 Cal.4th 77, 83 [45 Cal.Rptr.3d 394, 137 P.3d 218].) In ascertaining the Legislature’s intent, we first consider the language of the statute itself, giving the words used their ordinary meaning. (Ibid.) The statutory language must be construed in the context of the statute as a whole and the overall statutory scheme, giving significance to every word, phrase, sentence, and part of the statute. (Ibid.)

If the statutory language is unambiguous, the plain meaning controls and consideration of extrinsic sources to determine the Legislature’s intent is [599] unnecessary. (Kavanaugh v. West Sonoma County Union High School Dist., supra,29 Cal.4th at p. 919.) “When the words are susceptible to more than one reasonable interpretation, we consider a variety of extrinsic aids, including the statutory context and the circumstances of the statute’s enactment, in determining legislative intent.” (Levy v. Superior Court (1995) 10 Cal.4th 578, 582 [41 Cal.Rptr.2d 878, 896 P.2d 171].) We read the statute as a whole to harmonize and give effect to all parts. (Ste. Marie v. Riverside County Regional Park & Open-Space Dist. (2009) 46 Cal.4th 282, 289 [93 Cal.Rptr.3d 369, 206 P.3d 739].)

II.

Relevant Provisions of the Davis-Stirling Act

The Davis-Stirling Act is codified as part 5 of division 4 of the Civil Code. Articles 1, 2, and 3 of chapter 8 of part 5 of division 4 of the Civil Code (Civ. Code, §§ 5650-5740) set forth comprehensive rules, restrictions, and procedures for imposing, paying, collecting, and enforcing regular and special assessments.

The Davis-Stirling Act requires an association to levy regular and special assessments “sufficient to perform its obligations under the governing documents and this act.” (Civ. Code, § 5600, subd. (a).) Article 2 of chapter 8 of part 5 of division 4 of the Civil Code addresses payment and delinquency in payment of assessments. Civil Code section 5650, subdivision (a) (section 5650(a)) states: “A regular or special assessment and any late charges, reasonable fees and costs of collection, reasonable attorney’s fees, if any, and interest, if any, as determined in accordance with subdivision (b), shall be a debt of the owner of the separate interest at the time the assessment or other sums are levied.”

Civil Code section 5655 addresses allocation of payments against the debt. Section 5655(a) states: “Any payments made by the owner of a separate interest toward a debt described in subdivision (a) of Section 5650 shall first be applied to the assessments owed, and, only after the assessments owed are paid in full shall the payments be applied to the fees and costs of collection, attorney’s fees, late charges, or interest.” (Italics added.) This section does not state an association has the discretion to decline to follow the procedure set forth in the statute.

(2) Under Civil Code section 5675, the amount of the assessment, “plus any costs of collection, late charges, and interest assessed in accordance with subdivision (b) of Section 5650,” becomes a lien on the owner of record’s separate interest in the common interest development once the association [600] causes to be recorded a notice of delinquent assessment setting forth certain required information (Civ. Code, § 5675, subd. (a)), together with an itemized statement of charges (id., § 5675, subd. (b)). The board of an association may, by majority vote in an open meeting, decide to record a lien for delinquent assessments. (Id., § 5673.)

Before recording the lien, an association must provide the owner of record notice that includes the information set forth in subdivisions (a) through (f) of Civil Code section 5660, including the right to request a meeting with the board to request a payment plan under Civil Code section 5665. (Civ. Code, § 5660.) Payment plans do not impede an association’s ability to record a lien on the owner’s separate interest (id., § 5665, subd. (d)), and, “[i]n the event of a default on any payment plan, the association may resume its efforts to collect the delinquent assessments from the time prior to entering into the payment plan” (id., § 5665, subd. (e)).

(3) If an association and an owner of a separate interest dispute the validity of a charge or sum levied by the association, the owner may pay the disputed amount, including collection costs, and, in addition to pursuing alternative dispute resolution, may commence a small claims action to recoup the disputed amount paid. (Civ. Code, § 5658, subd. (a).)

(4) Article 3 of chapter 8 of part 5 of division 4 of the Civil Code concerns collection of assessments and enforcement of liens. Under Civil Code section 5700, subdivision (a), a lien created by Civil Code section 5675 may be enforced “in any manner permitted by law,” including judicial or nonjudicial foreclosure, after the expiration of 30 days following the recordation of the lien. (Civ. Code, § 5700, subd. (a).) The decision to initiate foreclosure of a lien for delinquent assessments must be made by a majority vote of the board of directors of an association in an executive session (id., § 5705, subd. (c)), and must be preceded by an offer to the owner to participate in dispute resolution (id., § 5705, subd. (b)).

In the event an association’s board decides to pursue nonjudicial foreclosure, “[a]ny sale by the trustee shall be conducted in accordance with Sections 2924, 2924b, and 2924c applicable to the exercise of powers of sale in mortgages and deeds of trust.” (Civ. Code, § 5710, subd. (a).)

Particularly significant to this case is Civil Code section 5720, which places limits on foreclosure. Relevant parts of section 5720(b) state: “An association that seeks to collect delinquent regular or special assessments of an amount less than one thousand eight hundred dollars ($1,800), not including any accelerated assessments, late charges, fees and costs of collection, attorney’s fees, or interest, may not collect that debt through judicial or [601] nonjudicial foreclosure, but may attempt to collect or secure that debt in any of the following ways….”

(5) Section 5720(b) identifies three ways to collect or secure delinquent assessments in an amount less than $1,800. The first is “a civil action in small claims court….” (§ 5720(b)(1).) The second is “[b]y recording a lien on the owner’s separate interest upon which the association may not foreclose until the amount of the delinquent 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.” (§ 5720(b)(2).) The third is “[a]ny other manner provided by law, except for judicial or nonjudicial foreclosure.” (§ 5720(b)(3).)

The limitation on foreclosure of assessment liens for amounts under $1,800 does not apply to “[a]ssessments secured by a lien that are more than 12 months delinquent.” (Civ. Code, § 5720, subd. (c)(1).) (HCTA does not contend the assessments secured by its lien were more than 12 months delinquent at the time the Trust tendered the $3,500 check.)

III.

An Association Must Accept a Partial Payment Made by an Owner of a Separate Interest After a Lien Has Been Recorded.

Two statutes within the Davis-Stirling Act, section 5655(a) and Civil Code section 5720, are the focus of our analysis and central to our holding an association must accept a partial payment. Another, Civil Code section 5710, also warrants additional discussion.

A. Section 5655(a)

Section 5655(a) states: “Any payments made by the owner of a separate interest toward a debt described in subdivision (a) of Section 5650 shall first be applied to the assessments owed, and, only after the assessments owed are paid in full shall the payments be applied to the fees and costs of collection, attorney’s fees, late charges, or interest.” Two issues arise in interpreting section 5655(a). First, does it permit an owner to make a partial payment, that is, a payment which does not cover the owner’s entire debt under section 5650(a)? Second, does section 5655(a) require an association to accept a partial payment?

(6) On the first issue, the plain language of section 5655(a) unambiguously permits partial payments. The Davis-Stirling Act permits an association [602] to impose late charges, reasonable fees and costs of collection, reasonable attorney fees, if any, and interest on delinquent assessments. (§ 5650(a).) By creating an order of allocation, section 5655(a), in effect, recognizes a payment might not cover the full amount of the delinquency and other charges.

(7) On the second issue, the plain language of section 5655(a) requires an association to accept an owner’s partial payment. Section 5655(a) does not refer to any payment made by the owner and accepted by an association. Instead, section 5655(a) states, “[a]ny payments made by the owner” toward a debt described in section 5650(a) “shall” (italics added) be applied in the order set forth. (8) Use of the word “shall” connotes a mandatory act. “Under `well-settled principle[s] of statutory construction,’ we `ordinarily’ construe the word `may’ as permissive and the word `shall’ as mandatory, `particularly’ when a single statute uses both terms.” (Tarrant Bell Property, LLC v. Superior Court (2011) 51 Cal.4th 538, 542 [121 Cal.Rptr.3d 312, 247 P.3d 542].) In Diamond v. Superior Court (2013) 217 Cal.App.4th 1172, 1189-1190, 159 Cal.Rptr.3d 110, the court concluded the word “shall” in the Davis-Stirling Act, Civil Code former section 1367.1, subdivision (d), created a mandatory obligation to serve an owner of a separate interest with notice of delinquent assessment. (9) Under the statutory language of section 5655(a), if an owner of a separate interest makes any payment, the association cannot reject it, but is required to (“shall”) apply that payment to the debt in the statutory order of allocation. Quite simply, an association does not have the discretion to refuse to follow the statute’s mandate.

(10) Nothing in the Davis-Stirling Act provides that the rights and duties under section 5655(a) end when an association takes action to record a lien. Although section 5655(a) is in article 2 of chapter 8 of part 5 of division 4 of the Civil Code, entitled “Assessment Payment and Delinquency,” and not in article 3, entitled “Assessment Collection,” the headings in the Davis-Stirling Act “do not in any manner affect the scope, meaning, or intent of this act” (Civ. Code, § 4005). In the order of allocation, section 5655(a) includes “costs of collection” and “attorney fees,” thereby recognizing an owner can make a partial payment after an association has commenced measures, such as recording a lien, to collect the delinquency.

HCTA argues partial payments under section 5655(a) are permitted only when made pursuant to a payment plan under Civil Code section 5665. By its terms, section 5655(a) is not limited to payments made pursuant to a payment plan. To the contrary, section 5655(a) refers to payments “toward a debt described in subdivision (a) of Section 5650,” which describes a debt as “[a] regular or special assessment and any late charges, reasonable fees and costs of collection, reasonable attorney’s fees, if any, and interest, if any” [603] (§ 5650(a)). In a similar vein, HCTA asserts, “[i]f an association were required to accept partial payments at the whim of a delinquent homeowner, then there would be no reason for the [Davis-Stirling] Act to include various provisions relating to payment plans.” There are very good reasons for payment plans under section 5665, subdivision (a), notwithstanding an association’s obligation to accept partial payments. To the owner of a separate interest, a payment plan might reduce the monthly assessment obligation to an affordable amount, thereby avoiding further delinquency, reducing or eliminating late fees, and preventing the amount secured by the lien from increasing. To an association, the payment plan provides an income stream without having to undertake collection procedures.

(11) HCTA argues that permitting partial payments under section 5655(a) would be inconsistent with Civil Code section 5658, subdivision (a), which provides, “[i]f a dispute exists between the owner of a separate interest and the association regarding any disputed charge or sum levied by the association…, the owner of the separate interest may, in addition to pursuing dispute resolution …, pay under protest the disputed amount and all other amounts levied …, and commence an action in small claims court….” If the owner disputes a charge, HCTA asserts, “[t]he remedy is to pay all amounts in full, under protest, and to file a small claims suit or otherwise pursue resolution of the disputed sums.” Section 5658, subdivision (a) applies only when an owner disputes the validity or amount of a charge or sum, which is different from just not paying it. The Trust is not disputing any of the assessments or fees and, by not invoking the procedure of section 5658, subdivision (a), has forfeited any such claim. In other words, the Trust is not disputing it owes the assessments levied, but contends its tender of $3,500 reduced the balance of assessments owed to an amount lower than the threshold for HCTA to foreclose its lien.

B. Section 5720(b)

(12) Section 5720(b) prohibits an association from foreclosing a lien when the amount of delinquent assessments alone is less than $1,800. In this case, if HCTA had accepted the Trust’s check for $3,500, then the amount of delinquent assessments would have been less than $1,800 and, under section 5720(b), HCTA would not have been able to pursue foreclosure to collect the debt.

Civil Code section 5720 was added by statute in 2005 as Civil Code former section 1367.4. (Diamond v. Superior Court, supra, 217 Cal.App.4th at p. 1190.) The purpose of Civil Code former section 1367.4 was to protect the interest of an owner who has failed to timely pay an assessment levied by an association. (Diamond v. Superior Court, supra, at pp. 1190-1191.) “In 2005, [604] the Senate Judiciary Committee’s bill analysis stated: `This bill protects owners’ equity in their homes when they fail to pay relatively small assessments to their common interest development associations.'” (Id. at p. 1190.) “The Assembly Committee on Judiciary similarly stated: `This bill goes to the heart of home owner rights, touching upon the key issue of when, if ever, a homeowners’ association should have the right to force the sale of a member’s home when the home owner falls behind on paying overdue assessments or dues…. [¶] … [This bill] [s]eeks to protect a condominium owner’s property and equity when he or she misses payment on relatively small assessments imposed by their common interest development … association.'” (Ibid.)

Requiring an association to accept a partial payment reducing the amount of delinquent assessments to less than $1,800 is consistent with this stated legislative policy of protecting owners from losing their home equity over small amounts of delinquent assessments. Permitting an association to reject a partial payment could lead to the very situation the Legislature sought to avoid: foreclosure and loss of the owner’s equity in the home when the owner is delinquent in paying assessments in an amount under $1,800.

We disagree with the assertion made by HCTA and the amici curiae appearing on its behalf that requiring an association to accept partial payments will “seriously impede” an association’s ability to collect assessments. We recognize assessments are both necessary to the functioning of an association and required by the Davis-Stirling Act to be in an amount sufficient to perform an association’s obligations under the governing documents and the Davis-Stirling Act. (Civ. Code, § 5600, subd. (a); see Park Place Estates Homeowners Assn. v. Naber (1994) 29 Cal.App.4th 427, 432 [35 Cal.Rptr.2d 51] [associations “must assess fees on the individual owners in order to maintain the complexes”].)

An association has remedies, however, when the amount of delinquent assessments falls below $1,800. Section 5720(b) identifies three ways to collect or secure delinquent assessments in an amount less than $1,800 as well as to collect additional fees, collection costs, and interest: (1) “a civil action in small claims court”; (2) “recording a lien on the owner’s separate interest”; and (3) “[a]ny other manner provided by law, except for judicial or nonjudicial foreclosure.” (§ 5720(b)(1), (2) & (3).) Thus, in the situation presented by this case, an association would be able to maintain a lien on the owner’s separate interest and could pursue a small claims action to recover the debt. Although the lien could not be foreclosed until the conditions of section 5720(b)(2) had been met, the lien itself is a powerful coercion mechanism; for instance, the lien would have to be satisfied to permit the sale [605] of the home. Further, an association may foreclose a lien securing assessments in any amount that are more than 12 months delinquent. (Civ. Code, § 5720, subd. (c)(1).)

HCTA and the amici curiae appearing on its behalf assert that requiring an association to accept partial payments bringing the amount of delinquent assessments to less than $1,800 would permit delinquent owners to abuse the system by accepting the benefits of living in a common interest development at the expense of the other owners. It is possible for a situation to arise in which a clever and unscrupulous owner would be able to dodge foreclosure of a lien by making partial payments designed to bring the delinquent assessments under $1,800 in amount and less than 12 months in age. As we read the Davis-Stirling Act, the Legislature engaged in a balancing process and chose to accept that risk in order to protect owners from foreclosure and the loss of equity in their homes when the delinquent assessments are under $1,800 or less than 12 months delinquent. And, as we have explained, section 5720(b) grants an association various remedies to collect the debt.

C. Civil Code Section 5710

(13) In the event the board of an association decides to pursue nonjudicial foreclosure, “[a]ny sale by the trustee shall be conducted in accordance with Sections 2924, 2924b, and 2924c applicable to the exercise of powers of sale in mortgages and deeds of trust.” (Civ. Code, § 5710, subd. (a).) Under Civil Code section 2924c, subdivision (a)(1), the trustor or mortgagor may reinstate a loan once foreclosure proceedings have begun by paying the entire amount due — including principal, interest, taxes, assessments, and costs incurred in enforcing the obligation — at any time before entry of the decree of foreclosure.

HCTA argues, based on Civil Code section 5710, subdivision (a), that Civil Code section 2924c, subdivision (a)(1) applies to nonjudicial assessment lien foreclosures, requires payment in full to forestall foreclosure, and permits an association to decline partial payments after foreclosure has been initiated. Further, HCTA argues, an association’s right to decline partial payments must extend to judicial foreclosures, otherwise, as an unintended consequence, “[a]ssociations wishing to recover the fees and costs incurred in foreclosure would turn to private sale, which would undermine the objectives of the [Davis-Stirling] Act as well as the public interest served by promoting judicial foreclosures.”

(14) Civil Code section 5710, subdivision (a) states, in plain language, that “[a]ny sale by the trustee” (italics added) shall be conducted in accordance with the Civil Code sections applicable to the exercise of powers of [606] sale in mortgages and deeds of trust. In this case, HCTA pursued judicial foreclosure. The unintended consequence foretold by HCTA suggests not that the Legislature intended for an association to be able to decline partial payments. Instead, the Legislature intended for section 5655(a), requiring an association to accept partial payments, and section 5720(b), limiting foreclosure, to apply to both judicial and nonjudicial foreclosure and to prevail to the extent of any conflict with Civil Code section 2924c, subdivision (a)(1).

D. Policy Arguments

The parties and, in particular, the amici curiae raise policy considerations that are not based on statutory language. HCTA and the amici curiae appearing on its behalf assert the Trust is not a struggling homeowner but owns the home as an investment, and Miner made a calculated decision not to pay assessments. Amici curiae AARP, Housing and Economic Rights Advocates, and National Housing Law Project argue that “use of foreclosure as an enforcement tool on those having difficulty paying homeowner assessments can be both unjust and extremely damaging” and “[t]he consequences of foreclosure are particularly severe for older homeowners.”

The code sections of the Davis-Stirling Act dealing with assessment payments, delinquency, and assessment collection (Civ. Code, §§ 5650-5740) use the word “owner” or the term “owner of a separate interest” and do not distinguish between owners who occupy their separate interests and owners who do not. Nor do those code sections make any distinctions in treatment based on an owner’s age or wealth. Foreclosure of a lien is recognized by the Davis-Stirling Act as a legitimate means by which an association may seek to collect delinquent assessments, fees, charges, collection costs, and interest. The issues presented to us are a matter of statutory interpretation, and our task has been only to discern the Legislature’s intent through application of accepted principles of statutory construction.

IV.

Conclusion

(15) After considering the language of section 5655(a) and its context within the Davis-Stirling Act, we conclude an association must accept a partial payment made by an owner of a separate interest in a common interest development toward a debt described in section 5650(a) and must apply that payment first to assessments owed. That requirement continues after recordation of a lien pursuant to Civil Code sections 5673 and 5675.

(16) Accordingly, in this case, HCTA was required to accept the Trust’s check for $3,500 when tendered in December 2011. Had HCTA accepted the [607] check and applied it in the order prescribed by section 5655(a), the amount of delinquent assessments would have been less than $1,800. HCTA does not contend the assessments secured by its lien were more than 12 months delinquent at the time the Trust tendered the $3,500 check. Thus, under section 5720(b), HCTA could not pursue judicial foreclosure of the lien, and the trial court erred by issuing a decree of foreclosure.

The superior court appellate division’s opinion also addressed the sufficiency of the evidence to support the damages awarded under the first and second causes of action. (Huntington Continental, supra, 222 Cal.App.4th at p. Supp. 17.) The matter was not certified and transferred to this court to address that issue and, therefore, we decline to do so, and decline to address any other issues raised in the appellate briefs. (See Cal. Rules of Court, rule 8.1012(e).)

DISPOSITION

The judgment of the trial court is reversed as to the third cause of action and the matter is remanded with directions to enter judgment on that cause of action in favor of appellant. The judgment of the trial court as to the first and second causes of action is reversed and the matter is remanded in accordance with the judgment of the appellate division of the superior court. Appellant shall recover costs incurred on appeal.

Rylaarsdam, Acting P. J., and Thompson, J., concurred.

[1] “`Association’ means a nonprofit corporation or unincorporated association created for the purpose of managing a common interest development.” (Civ. Code, § 4080.)

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.)

Collection Policy

An association’s collection policy sets forth the “association’s policies and practices in enforcing lien rights or other legal remedies for default in the payment of assessments.” (Civ. Code § 5310(a)(7).) Those policies and practices typically include the recording and foreclosure of assessment liens, obtaining money judgments, and suspending membership privileges.

Contents
The collection policy also sets forth the association’s policy for imposing late charges, interest, collection fees and costs, payment plans, the member’s right to dispute the assessment debt through internal dispute resolution (IDR), and the member’s right to request alternative dispute resolution (ADR). (Civ. Code § 5660.) The collection and foreclosure notice required by Civil Code Section 5730 is often attached or incorporated into the collection policy.

When Distributed
The collection policy is a required part of the association’s annual policy statement that must be distributed to the members within thirty (30) to ninety (90) days before the end of the association’s fiscal year. (Civ. Code § 5310(a)(7); See also “Annual Policy Statement.”)

Pre-Lien Letter

At least thirty (30) days prior to recording an assessment lien on an owner’s separate interest for delinquent assessments, late charges, interest, collection fees and costs owed by that owner to the association, the association is required to provide the owner with a pre-lien letter (aka “intent to lien letter,” “pre-lien notice,” etc.) via certified mail. (Civ. Code § 5660.)

Required Information
The pre-lien letter must be sent to the owner of record via certified mail and include all of the following information:

  • Description of Collection/Lien Enforcement Procedures – A general description of the collection and enforcement procedures of the association (i.e., a description of the association’s assessment collection policy). (Civ. Code § 5660(a).)
  • Debt Calculation Method – A general description of the method of calculation of the delinquent amount owed to the association.(Civ. Code § 5660(a).)
  •  Right to Inspect Records – A statement that the owner has the right to inspect the association’s records pursuant to Civil Code Section 5205. (Civ. Code § 5660(a).)
  • Required Foreclosure Notice – The following statement in 14-point boldface type, if printed, or in capital letters, if typed: “IMPORTANT NOTICE: IF YOUR SEPARATE INTEREST IS PLACED IN FORECLOSURE BECAUSE YOU ARE BEHIND IN YOUR ASSESSMENTS, IT MAY BE SOLD WITHOUT COURT ACTION.” (Civ. Code § 5660(a).)
  • Itemized Statement of Debt – An itemized statement of the charges owed by the owner, including items on the statement which indicate the amount of any delinquent assessments, the collection fees and costs, reasonable attorney’s fees, and any late charges and interest, if any. (Civ. Code § 5660(b).)
  • Non-Liability for Association’s Error – A statement that the owner shall not be liable to pay the late charges, interest, collection fees and costs if it is determined that the assessment was paid on time to the association. (Civ. Code § 5660(c).)
  • Right to Request Meeting to Discuss Payment Plan – The owner’s right to request a meeting with the board to discuss a payment plan, as provided in Civil Code Section 5665. (Civ. Code § 5660(d).)
  • Right to Request IDR – The owner’s right to dispute the assessment debt by submitting a written request for dispute resolution to the association pursuant to the association’s “meet and confer” program established pursuant to Civil Code Section 5900 et. seq. (Civ. Code § 5660(e); See also “Internal Dispute Resolution (IDR).”) If the owner requests IDR before the lien is recorded, the association must participate in IDR with the owner prior to recording the lien. (See “Pre-Lien Dispute Resolution.”)
  • Right to Request ADR – The owner’s right to request alternative dispute resolution (ADR) with a neutral third party pursuant to Civil Code Section 5925 et. seq. before the association may initiate foreclosure against the owner’s separate interest, except that binding arbitration shall not be available if the association intends to initiate a judicial foreclosure. (Civ. Code § 5660(f).)

Related Links

“Pre-Lien Demands and FDCPA Concerns” – Published on HOA Lawyer Blog (April, 2017)

Late Charges & Interest

Regular and special assessments levied pursuant to an association’s governing documents are delinquent fifteen (15) days after they become due, unless the CC&Rs provide for a longer time period, in which case the longer time period applies. (Civ. Code § 5650(b).)  When an assessment is delinquent, an association may recover all of the following from the delinquent member:

  • Late Charge – A late charge not to exceed ten percent (10%) of the delinquent assessment or ten dollars ($10), whichever is greater (unless the CC&Rs specify a lesser amount, in which case the lesser amount applies);
  • Interest – Interest on the delinquent assessment and the collection fees and costs (including reasonable attorney’s fees) incurred by the association, at an annual interest rate not to exceed twelve percent (12%), commencing thirty (30) days after the assessment becomes due (unless the CC&Rs specify a lesser interest rate, in which case the lesser interest rate applies); and
  • Collection Costs – Reasonable collection fees and costs incurred in collecting the delinquent assessment (including reasonable attorney’s fees). (Civ. Code § 5650(b)(1)-(3); See also “Collection Fees & Costs.”)

No Interest on Unpaid Monetary Penalties (Fines)
Civil Code Section 5725 prohibits an association from characterizing or treating an unpaid monetary penalty (fine) “imposed by the association as a disciplinary measures for failure of a member to comply with the governing documents, except for late payments”  as a delinquent assessment. Therefore, the authority to impose interest in connection with delinquent assessments does not extend to such unpaid monetary penalties.

Interest on Unpaid Reimbursement Assessments
Reimbursement assessments (aka “compliance assessments”) refer to special assessments levied against an individual member’s separate interest to reimburse the association for its costs incurred in repairing damage to the common area caused by that member, his guest or tenant. (See “Reimbursement & Compliance Assessments.”) Where an association’s CC&Rs allow for the imposition of reimbursement assessments as a form of special assessment, the association may be able to impose interest on a delinquent reimbursement assessment pursuant to Civil Code Section 5650(b).

Where the CC&Rs do not contain provisions addressing reimbursement assessments, Civil Code Section 5725(a) allows the board to impose them in the form of “monetary charges.” However, Civil Code 5725(a) does not explicitly address whether such “monetary charges” may be characterized or treated as assessments for which the association may charge interest pursuant to Civil Code Section 5650(b).

Collection Fees & Costs

In addition to late charges and interest, an association is permitted to charge its “[r]easonable costs incurred in collecting [a] delinquent assessment” from a member, “including reasonable attorney’s fees.” (Civ. Code § 5650(b)(1).)  Those collection fees and costs, late fees, and interest are then incorporated into the member’s debt, and may be secured through recording an assessment lien against the member’s property. (Civ. Code §§ 5650(a), 5675(a); See also “Duty to Pay Assessments.”)

Fees Imposed by Management & Collection Vendors
Civil Code Section 5600(b) prohibits an association from imposing or collecting a fee “that exceeds the amount necessary to defray the costs for which it is levied.”  However, this restriction applies to associations, not their managing agents or collection vendors. An association’s management company or collection vendor is permitted to earn a profit on the collection fees it charges for generating pre-lien letters, assessment liens, etc.:

“…the duty to refrain from the conduct prohibited by [Section 5600(b)] is imposed solely on the ‘association,’ the nonprofit entity designated by statute as having the responsibility to manage the affairs of the common interest development. [Section 5600(b)] has no application to an association’s vendors…the [association’s managing agent] is not prohibited from earning a profit, or from charging any fee the competitive market will bear.” (Brown v. Professional Community Management, Inc. (2005) 127 Cal.App.4th 532, 539-540.)

Brown v. Professional Community Management, Inc.

(2005) 127 Cal.App.4th 532

[Assessments & Collection; Collection Fees] An association’s vendors are permitted to earn a profit on the fees it charges in connection with collecting delinquent assessments owed to the association.

Richard Paul Herman for Cross-complainant and Appellant. Fiore, Racobs & Powers, John R. MacDowell, Michael C. Fettig; Jackson, DeMarco & Peckenpaugh and Paul E. Van Hoomissen for Cross-defendants and Respondents.

OPINION
IKOLA, J.-

Cross-complainant Sabina Brown cross-complained against her homeowners association, Lake Forest Keys (LFK), and its property management company, Professional Community Management, Inc. (PCM). She alleged under various legal theories that she, and the class she purported to represent, had been charged assessments or fees exceeding the amount necessary to defray the costs for which the assessments or fees had been levied. In her “Corrected Third Amended Cross-Complaint” (cross-complaint), Brown claimed the alleged conduct of both LFK and PCM violated Civil Code section 1366.1 fn. 1 and gave rise to remedies against both cross-defendants for negligence, a violation of section 52.1 and article I of the California Constitution, civil conspiracy, and a violation of sections 1750 et seq., the Consumers Legal Remedies Act. [536]

The court sustained PCM’s demurrer to Brown’s cross-complaint without leave to amend, and entered a judgment of dismissal on the cross-complaint as to PCM. Brown contends the court erred by concluding PCM owed no duty to Brown under section 1366.1. She also contends the litigation privilege, section 47, subdivision (b)(2), does not apply to the alleged conduct. fn. 2 We disagree with Brown’s first contention, find it unnecessary to reach the second, and affirm the judgment.

FACTS

Our factual summary “accepts as true the facts alleged in the complaint, together with facts that may be implied or inferred from those expressly alleged.” (Barnett v. Fireman’s Fund Ins. Co.(2001) 90 Cal.App.4th 500, 505.) Brown’s cross-complaint is not a model of clarity. But she appears to challenge the legality of certain fees charged by PCM for providing collection services to LFK, which fees are then passed along to the delinquent homeowner. We extract from her cross-complaint the following material allegations.

PCM is in the business of providing services to homeowners associations such as LFK. The homeowners associations serviced by PCM levy “various fees, fines, liens, imposts, charges, [and] interest charges . . . against thousands of homeowners. . . .” In connection with its services to LFK, PCM prepares “‘late letters’ and ‘lien letters’ for which it charges a fee and therefore shares in the profits of these illegal fees.” The subject fees, “under whatever name, exceed ‘the amount necessary to defray the cost for which they are levied’ in violation of Civil Code, section 1366.1.” Brown alleges the fees in excess of those permitted by section 1366.1 have been charged negligently by PCM (first cause of action), the excessive charges entitle Brown to damages under section 52.1 (second cause of action), PCM conspired with LFK to charge excessively and shared in the “profits” by charging a “late letter fee” (third cause of action), and PCM has “represented that transaction [sic] involves rights, remedies or obligations which does not have or involve and which are specifically prohibited by flaw [sic] under Civil Code, Section 1366.1, in violation of Civil Code, Section 1770(a)(14)” (fourth cause of action).[537]

DISCUSSION

[1] “In determining whether plaintiff properly stated a claim for relief, our standard of review is clear: ‘”We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.” [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment; if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff.'” Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126.

Section 1366.1 Does Not Limit PCM’s Fees

[2] At the outset, we note that Brown offers no argument as to why the demurrer to her third cause of action should have been overruled. Her third cause of action alleged entitlement to a remedy under section 52.1, presumably on the ground that imposition of PCM’s fees constituted an infringement of rights secured to her by the federal and state Constitutions. We decline to address the third cause of action. “When an issue is unsupported by pertinent or cognizable legal argument it may be deemed abandoned and discussion by the reviewing court is unnecessary.” (Landry v. Berryessa Union School Dist. (1995) 39 Cal.App.4th 691, 699-700.) We turn to the other three causes of action, each of which is premised on conduct alleged to violate section 1366.1. fn. 3

[3] Because this case turns on the language of section 1366.1, and an understanding of the conduct it prohibits, we begin with the words of the statute. “An association shall not impose or collect an assessment or fee that exceeds the amount necessary to defray the costs for which it is levied.” (Italics added.) Section 1366.1 is part of the Davis-Stirling Common Interest Development Act (the Act), section 1350 et seq. Under the Act, an “‘association’ means a nonprofit corporation or unincorporated association created for the purpose of managing a common interest development.” [538] (§ 1351, subd. (a).) The Act requires that “[a] common interest development shall be managed by an association which may be incorporated or unincorporated.” (§ 1363, subd. (a).) An “association” is charged under the Act with many specific duties, responsibilities, and restrictions, one of which is set forth in section 1366.1 — not to charge an assessment or fee in excess of the amount necessary to defray the costs for which it is levied.

[4] In construing section 1366.1, “‘”as with any statute, we strive to ascertain and effectuate the Legislature’s intent”‘ [Citations.] ‘Because statutory language “generally provide[s] the most reliable indicator” of that intent [citations], we turn to the words themselves, giving them their “usual and ordinary meanings” and construing them in context [citation].’ [Citation.] If the language contains no ambiguity, we presume the Legislature meant what it said, and the plain meaning of the statute governs.” (People v. Robles  (2000) 23 Cal.4th 1106, 1111.)

[5]Here, the language of section 1366.1, in context, contains no ambiguity. The statute prohibits an “association” from charging fees or assessments in excess of the costs for which the fee or assessment is charged. As noted ante, an “association” is a defined term under the Act, and the definition requires the “association” to be a nonprofit entity. In contrast, the Act imposes separate duties on a managing agent. (See §§ 1363.1 & 1363.2.) And those statutory duties are owed to the “association” and its board of directors, not to individual owners of separate property interests in the common interest development. (Ibid.) Significantly, the Act does not require a managing agent to be a nonprofit entity. It is clear, both from the definitions in the Act and from the separately imposed duties, the Legislature meant “association,” when it used that term, and it meant “managing agent,” when it used that term.

[6] Thus, we understand the section 1366.1 prohibition, which runs expressly against an “association,” to mean, for example, that fees or assessments levied against homeowners for the purpose of defraying the cost of mowing the grass in the common areas, or of painting the association’s clubhouse, or of replacing the deck of the association’s swimming pool, or any other of the myriad of the association’s management and maintenance responsibilities, may not exceed the cost to the association for providing those services.

The Act contemplates the officers and directors of an association will be volunteer homeowners. (See § 1365.7 [limiting liability of volunteer officers and directors].) Surely, the individual homeowners acting as volunteer officers [539] and directors are not expected to perform all of the required services personally, and at no cost. Instead, the association must either hire employees or contract with others to provide the services. Landscape maintenance contractors are hired to mow the grass, painters are hired to paint the clubhouse, swimming pool contractors are hired to repair the pool deck, and managing agents, such as PCM, are hired to make these arrangements, and, importantly, to collect the fees and assessments levied against the homeowners. The costs incurred by the association, for which it levies an assessment or charges a fee, necessarily include the fees and profit the vendor charges for its services. While section 1366.1 prohibits an association from marking up the incurred charge to generate a profit for itself, the vendor is not similarly restricted. Plaintiff would have it that no vendor selling its services to an association could charge a fee, or, indeed, continue in business as a profit making enterprise. That cannot be the law.

Indeed, section 1366, subdivision (e), authorizes an association to charge homeowners the very type of fees challenged by plaintiff. “If an assessment is delinquent the association may recover all of the following: (1) Reasonable costs incurred in collecting the delinquent assessment, including reasonable attorney’s fees. [] (2) A late charge not exceeding 10 percent of the delinquent assessment or ten dollars ($10), whichever is greater, . . . [] (3) Interest on all sums imposed in accordance with this section, including the delinquent assessments, reasonable fees and costs of collection, and reasonable attorney’s fees, at an annual interest rate not to exceed 12 percent . . . . ” (Italics added.) In spite of this statutory authorization, Brown alleges that PCM prepares “‘late letters’ and ‘lien letters’ for which it charges a fee and therefore shares in the profits of these illegal fees.” The allegation is circular. The fees are not “illegal” unless they exceed the association’s costs, costs that necessarily include the fee charged for the service. And section 1366 contemplates that the association will incur reasonable costs in connection with its collection efforts.

[7]We conclude the duty to refrain from the conduct prohibited by section 1366.1 is imposed solely on the “association,” the nonprofit entity designated by statute as having the responsibility to manage the affairs of the common interest development. Section 1366.1 has no application to an association’s vendors. Competitive forces, not the statute, will constrain the vendors’ fees and charges.[540]

The Conspiracy Allegations Do Not Create a Duty Where None Exists

[8] Perhaps recognizing section 1366.1 applies only to an association, Brown nevertheless attempts to impose liability on PCM by alleging it conspired with the association to violate section 1366.1. The effort is unavailing. In Doctor’s Co. v. Superior Court(1989) 49 Cal.3d 39 (Doctor’s Company), the California Supreme Court held: “A cause of action for civil conspiracy may not arise . . . if the alleged conspirator, though a participant in the agreement underlying the injury, was not personally bound by the duty violated by the wrongdoing . . . .” (Id. at p. 44, italics added.) Thus, in Doctor’s Company, attorneys and expert witnesses hired by an insurance company could not be held liable for conspiring with the insurance company to violate a statutory duty owed only by the insurance company. (Id. at p. 49.)

[9] The rule established by Doctor’s Company is plain enough. But it was firmly cemented into our law in Applied Equipment Corp. v. Litton Saudi Arabia Ltd.(1994) 7 Cal.4th 503. “The invocation of conspiracy does not alter [the] fundamental allocation of duty. Conspiracy is not an independent tort; it cannot create a duty or abrogate an immunity. It allows tort recovery only against a party who already owes the duty and is not immune from liability based on applicable substantive tort law principles.” (Id. at p. 514, italics added.)

Having concluded PCM does not owe an independent duty under section 1366.1, we need only follow the high court’s precedent. PCM cannot be liable in tort for conspiring with LFK to charge fees in excess of the amount necessary to defray LFK’s costs. If, as Brown alleges, PCM “shares” in the “profits” represented by the fees for “late letters” and “lien letters,” PCM violates no duty owed by it, either to the association or its members, because it is not prohibited from earning a profit, or from charging any fee the competitive market will bear. On the other hand, if LFK is, in fact, “sharing” in the fees charged by PCM (i.e., kickbacks), LFK may be violating section 1366.1, but to the detriment, not the advantage, of PCM.

Since we conclude PCM owed no duty, we do not reach the issue whether the alleged conduct was privileged under section 47, subdivision (b)(2), the so-called litigation privilege. The demurrer was properly sustained without leave to amend as to all causes of action of Brown’s cross-complaint.[541]

DISPOSITION

The judgment is affirmed. PCM shall recover its costs on appeal.

Sills, P. J., and O’Leary, J., concurred.

 

FN 1. All further statutory references are to the Civil Code unless otherwise stated.

FN 2. The notice of appeal also purports to appeal from the denial of a motion for class certification. Because Brown has not briefed these issues, she has waived her appeal from the order denying class certification. (See People v. Stanley(1995) 10 Cal.4th 764, 793 [“‘[E]very brief should contain a legal argument with citation of authorities on the points made. If none is furnished on a particular point, the court may treat it as waived, and pass it without consideration. [Citations.]'”].)