Tag Archives: Nonjudicial Foreclosure

SB-1323 Foreclosure: equity sale: multiple listing.

Would expand the definition of an accessory dwelling unit to include a tiny home on wheels.

Current Status: Dead

FindHOALaw Quick Summary:

Existing law imposes various requirements to be satisfied before exercising a power of sale under a mortgage or deed of trust, including recording a notice of default, providing a mortgagor or trustor a copy of the recorded notice of default, providing notice of the time and place scheduled for the public auction sale of the real property and other notices related to the sale, determining the fees and expenses that may be paid from the sale, determining who may conduct the sale and act in the sale as an auctioneer for the trustee, determining the time and place where the auction sale may occur, and specifying how bids may be made and accepted at the auction sale.

This bill would amend to require that an equity sale of property under a power of sale of a mortgage or deed of trust be made by a real estate licensee and by publicly listing the property for sale on a multiple listing service with an initial listing price at the property’s appraised value. If the trustee receives multiple qualifying offers the bill would require the trustee to make counter offers to each offeror and comply with prescribed procedures.

The bill would require the trustee to reduce the listed price of the property if the trustee does not receive a qualifying offer within 30 days of listing the property, and every 30 days thereafter.

This bill would authorize the trustee to sell the property by public auction if the trustee does not receive a qualifying offer within 30 days of the 4th price decrease, or if a price decrease will result in the property’s listed price falling below the equity threshold.

The bill would also make conforming changes to the various requirements to be satisfied before exercising a power of sale under a mortgage or deed of trust, and would impose liability for damages resulting from specified violations of these provisions.

View more info on SB 1323
from the California Legislature's website

Highland Greens Homeowners Ass’n v. De Guillen (In re De Guillen)

(2019) 604 B.R. 826

[Assessment Liens; Continuing Lien; Foreclosure] The BAP held that the Davis-Stirling Act does not allow for continuing assessment liens and imposes an affirmative duty on Associations to provide additional pre-lien notices to delinquent homeowners before recording any subsequent assessment lien.

In re: Maria A. Basave De Guillen, Debtor. Highland Greens Homeowners Association of Buena Park, Appellant, v. Maria A. Basave De Guillen, Appellee.

OPINION

[829] LAFFERTY, Bankruptcy Judge:

INTRODUCTION

Highland Greens Homeowners Association (“Highland Greens”) appeals the bankruptcy court’s order sustaining in part Debtor Maria Basave de Guillen’s objection to Highland Greens’ proof of claim. The bankruptcy court found that, under California law, Highland Greens’ recorded notice of lien for delinquent homeowners assessments on Debtor’s condominium did not secure amounts accruing after the recordation of the lien. Accordingly, the bankruptcy court limited Highland Greens’ secured claim to the amount of its recorded pre-petition state court judgment, classifying the remainder of the claim as unsecured.

We AFFIRM.

FACTUAL BACKGROUND

Pre-petition, Debtor fell behind on the homeowners association (“HOA”) dues on her condominium in Buena Park, California (the “Property”). As a consequence, Highland Greens recorded a Notice of Delinquent Assessment Lien (the “Notice”) against the Property on December 1, 2008.[i] Highland Greens recorded an amendment to the Notice in April 2011 (the “2011 Amendment”). Both the Notice and the 2011 Amendment purported to include, in the amount subject to the lien, unpaid assessments and charges accruing after the date of the notice.

In August 2011, Highland Greens sued Debtor in state court to enforce its lien and, in April 2012, obtained a default judgment for foreclosure and a money judgment of $21,398.02 (consisting of $10,140 principal, attorney’s fees of $10,273.12, and collection costs of $2,885, minus a $1,900.10 payment). The money judgment was subsequently recorded, and Highland Greens began the foreclosure process, but no sale was ever conducted.

Debtor filed a chapter 13[ii] case on February 28, 2018.[iii] On Schedule D, she listed two debts to Highland Greens secured by the Property, one for $8,000, described as “interest on claim,” and another for $40,000, described as “assessments and attorney’s fees.” Her proposed plan provided for payment of both claims in full, with interest at ten percent on the $40,000 claim.

Highland Greens then filed a proof of claim for $64,137.20, purportedly secured by the Property, with interest at twelve [830] percent. The itemization attached to the proof of claim indicated that it consisted of: (1) the April 2012 money judgment of $21,398.02; (2) $8,572.63 in interest on the judgment; (3) post-judgment assessments through February 1, 2018 of $14,060; (4) late charges of $690; (5) post-judgment interest of $7,207.44; (6) post-judgment attorney’s fees and costs of $13,729.11; less (7) a payment credit of $1,520. The attachment to the proof of claim explained that the post-judgment assessments were secured by the Property pursuant to the Declaration of Covenants, Conditions and Restrictions (“CC&Rs”) recorded in 1964 against the Property. Highland Greens also asserted that it was entitled to twelve percent interest on any delinquent amounts pursuant to California Civil Code § 5650(b)(3).

Highland Greens attached eight pages of the CC&Rs to its proof of claim. The relevant provision (paragraph 12(b)) provides, among other things, that if a delinquency in assessments is not paid within ten days after delivery of a notice of default, the Board of Governors may file a claim of lien; the provision then lists the information that must be included in such claim of lien. The paragraph continues, “[u]pon recordation of a duly executed original or duly executed copy of such claim of lien by the Recorder of the County of Orange the lien claimed therein shall immediately attach and become effective, subject only to the limitations hereinafter set forth. Each default shall constitute a separate basis for a claim of lien or a lien.”

Debtor filed an objection to Highland Greens’ claim. She argued: (1) the claim should be disallowed in its entirety for lack of supporting documentation; (2) most of the claim should be reclassified as unsecured because Highland Greens did not comply with the procedures set forth in the Davis-Stirling Common Interest Development Act (“Davis-Stirling Act” or the “Act”), specifically, California Civil Code §§ 5660 and 5675, and there was no basis to find an equitable lien; (3) only the portion of the debt representing the amount owing under the judgment may be classified as secured; (4) the attorney’s fee portion of the claim should be disallowed as unreasonable and unsupported; and (5) the claim should not include future assessments because Debtor was current postpetition on those obligations.

Highland Greens filed an opposition in which it asserted: (1) the Notice recorded in 2008 complied with all procedural requirements and in any event had been adjudicated valid by the state court in the foreclosure lawsuit; (2) Debtor was barred by issue preclusion from challenging the validity of the lien; (3) Highland Greens was entitled under California Civil Code § 5650(b)(3) to twelve percent interest on the post-judgment assessments and related fees and costs; (4) Highland Greens was entitled to submit cost bills for its judgment enforcement activities, which increased the judgment amount; and (5) the assessment lien was a “continuing lien”; thus, assessments that became delinquent after the recordation of the lien were appropriately included in the amount secured by the lien, citing Bear Creek Master Ass’n v. Edwards, 130 Cal. App. 4th 1470, 1489, 31 Cal. Rptr. 3d 337 (2005).

Debtor filed a reply in which she argued that the Davis-Stirling Act prohibited Highland Greens from asserting a continuing lien. She contended that Bear Creek was not binding on the bankruptcy court and that federal courts in California had held to the contrary, citing In re Warren, No. 15-CV-03655-YGR, 2016 U.S. Dist. LEXIS 49917, 2016 WL 1460844 (N.D. Cal. Apr. 13, 2016), and In re Guajardo, No. 15-31452 DM, 2016 Bankr. LEXIS 769, 2016 WL 943613 (Bankr. N.D. Cal. Mar. 11, 2016).

[831] At the initial hearing on Debtor’s objection, counsel for Highland Greens stated that the HOA was relying on the assessment lien rather than the judgment lien as the basis for its security interest. The bankruptcy court requested further detail as to how the different components of the claim amount were calculated and continued the matter for further briefing, which the parties submitted.

At the final hearing on the claim objection, the bankruptcy court did not rule on the reasonableness of the attorney’s fees or any of the other arguments raised by Debtor. But it ruled that under applicable law there was no continuing lien based on the Notice. As such, the only basis for Highland Greens’ security interest was its judgment lien.[iv] Accordingly, the court sustained Debtor’s objection in part, allowing Highland Greens’ claim in full but reclassifying it as $29,970.65 secured (principal of $21,398.02 plus pre-petition interest of $8,572.63) and the $34,166.55 balance as unsecured. Shortly thereafter, the court entered its order on the Debtor’s claim objection, and Highland Greens timely appealed.[v]

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(B). We have jurisdiction under 28 U.S.C. § 158.

ISSUE

Did the bankruptcy court err in sustaining in part Debtor’s objection to Highland Greens’ claim?

STANDARD OF REVIEW

This appeal involves issues of statutory and contract interpretation, which we review de novo. See Veal v. Am. Home Mortg. Serv., Inc. (In re Veal), 450 B.R. 897, 918 (9th Cir. BAP 2011) (citations omitted) an order sustaining or overruling a claim objection “can raise legal issues (such as the proper construction of statutes and rules) which we review de novo . . . .”); Renwick v. Bennett (In re Bennett), 298 F.3d 1059, 1064 (9th Cir. 2002) (“Under California law, the interpretation of a contract is a question of law which the court reviews de novo.”).

DISCUSSION

This appeal requires us to determine whether, under California law, Highland Greens’ assessment lien was a continuing lien on the Property such that it secured amounts that became delinquent after Highland Greens recorded its Notice. This is a question of first impression for this Panel, and it presents some challenges. First, the statute in question does not expressly address the issue of an HOA’s right to a continuing lien. Second, the statute references the governing documents (the CC&Rs), which may or may not create a contractual basis for a continuing lien. Third, California Courts of Appeal have differed significantly in their assessment of the policy to be enhanced by the Davis-Stirling Act, i.e., is the purpose of the Act to facilitate the expeditious collection of HOA assessments or to safeguard the notice rights of homeowners?

[832] These variables and complexities notwithstanding, we do not write on a blank judicial slate: as discussed below, two federal courts have opined that the Davis-Stirling Act does not provide for the continuing lien that Highland Greens seeks. Highland Greens relies principally on Bear Creek, an older California Court of Appeal decision to the contrary. But that decision, as discussed below, did not address the matter of continuing liens as the primary issue on appeal nor did it consider the Act’s notice provisions. The court of appeal instead focused on what it plausibly believed to be the policy underlying the Act—to facilitate HOAs’ collection of delinquent assessments. But its view is not supported by the legislative history or other California cases. The decision’s rationale was, at least indirectly, called into question by a more recent California Court of Appeal decision, Diamond v. Superior Court, 217 Cal. App. 4th 1172, 159 Cal. Rptr. 3d 110, as modified on denial of reh’g (July 12, 2013), confirming that the most fundamental and important purpose of the statute is to protect homeowners (not associations), and that the statutory requirements for precision in the notice of lien provided to homeowners must override any goals of expedition or convenience to associations.

As discussed below, we conclude that there are two independent bases on which to affirm the bankruptcy court’s order sustaining Debtor’s objection in part. First, the language of the Notice and 2011 Amendment conflicts with the applicable CC&Rs, which do not authorize a continuing lien. Second, the Davis-Stirling Act does not authorize a continuing lien. In reaching this latter conclusion, we agree with the reasoning of the other federal courts to consider this issue that a continuing lien is inconsistent with the Act’s notice provisions and the expressed legislative purpose of the Act.

A. The Davis-Stirling Act

We begin, as we must, with the language of the relevant statutes. See United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241, 109 S. Ct. 1026, 103 L. Ed. 2d 290 (1989); Lee v. Hanley, 61 Cal. 4th 1225, 1232-33, 191 Cal. Rptr. 3d 536, 354 P.3d 334 (2015). The Davis-Stirling Act, enacted in 1985, authorizes condominium homeowners associations to levy assessments. Subject to certain limitations, a homeowners association “shall levy regular and special assessments sufficient to perform its obligations under the governing documents and this act.” Cal. Civ. Code § 5600.[vi] The Act also sets forth procedures for collecting delinquent assessments:

(a) 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.

(b) Regular and special assessments levied pursuant to the governing documents are delinquent 15 days after they become due, unless the declaration provides a longer time period, in which case the longer time period shall apply.

Cal. Civ. Code § 5650. In addition, it authorizes HOAs to recover reasonable collection costs, including attorney’s fees, late charges, and interest not to exceed twelve percent. Id. at § 5650(b)(1)-(3).

California Civil Code § 5675 provides for the placing of a lien on the owner’s interest in the condominium to secure delinquent assessments:

(a) The amount of the assessment, plus any costs of collection, late charges, and [833] interest assessed in accordance with subdivision (b) of Section 5650, shall be a lien on the owner’s separate interest in the common interest development from and after the time the association causes to be recorded with the county recorder of the county in which the separate interest is located, a notice of delinquent assessment, which shall state the amount of the assessment and other sums imposed in accordance with subdivision (b) of Section 5650, a legal description of the owner’s separate interest in the common interest development against which the assessment and other sums are levied, and the name of the record owner of the separate interest in the common interest development against which the lien is imposed.

Cal. Civ. Code § 5675. This section further requires that the notice of delinquent assessment must be signed by a designated person and include an itemized statement of charges; it also requires a copy of the notice to be mailed by certified mail to the record owner(s). Cal. Civ. Code § 5675(b)-(e). These notice requirements are to be strictly construed. Diamond, 217 Cal. App. 4th at 1189.

In applying these statutes, we are guided by (1) the plain language of the Davis-Stirling Act as interpreted by California federal and state courts; (2) the public policy behind the Act; and (3) principles of statutory construction. And, given that the Act references the “governing documents,” we also consider the terms of the applicable CC&Rs.

B. California Federal Cases Interpreting the Davis-Stirling Act

The Davis-Stirling Act itself does not provide for a continuing lien, and case law is scant regarding whether the Act may be fairly interpreted as so providing. Two federal courts in the Northern District of California have held that adding future assessments to a recorded lien securing delinquent assessments without recording a new lien is impermissible under the Davis-Stirling Act. In re Warren, 2016 U.S. Dist. LEXIS 49917, 2016 WL 1460844; In re Guajardo, 2016 Bankr. LEXIS 769, 2016 WL 943613.

In Guajardo, the bankruptcy court was tasked with determining the priorities between an HOA’s assessment lien and a federal tax lien for purposes of distributing the proceeds of a sale of property of the estate. The notice of delinquent assessment at issue in that case provided, “Additional monies shall accrue under this claim at the rate of the claimant’s regular monthly or special assessments, plus permissible late charges, costs of collection and interest, accruing subsequent to the date of this notice.” 2016 Bankr. LEXIS 769, 2016 WL 943613, at *1. The court held that this language was ineffective under both California contract law and the Davis-Stirling Act, for two reasons.

First, the CC&Rs at issue in that case provided that each “lienable default shall constitute a separate basis for a lien.” 2016 Bankr. LEXIS 769, [WL] at *3. The court found that the language of the notice that provided for the lien to include subsequent assessments and related charges was inconsistent with this provision. 2016 Bankr. LEXIS 769, [WL] at *3.[vii]

Second, and importantly, the court interpreted the language of California Civil Code § 5675 as limiting an assessment lien to the amount stated in the notice of delinquent assessment. Specifically, the statute [834] provides that the amount of the assessment (plus costs, late charges, and interest) shall be a lien on the owner’s separate interest. The statute further requires that the notice state the amount of the delinquent assessment and other sums. As such, the court found that adding future assessments to an existing lien would be “inconsistent with the portions of the Davis-Stirling Act requiring the unpaid amounts to be specifically set forth in the notice and in an attached accounting.” 2016 Bankr. LEXIS 769, [WL] at *3.

The bankruptcy court distinguished Bear Creek. As discussed below, in that case, the California Court of Appeal held that homeowners assessments that became due after the recordation of a lien notice were properly included in a judgment for lien foreclosure and breach of contract, based on the applicable CC&Rs and the provisions of the Davis-Stirling Act that, in turn, referenced the HOA’s governing documents. The Guajardo court noted that the CC&Rs in Bear Creek were much more specific as to future accruals than those at issue in the case before it, but the court also held that “the general imposition of a ‘present’ lien at the time of and by operation of the CCRs with respect to all future and potentially unknown assessments does not satisfy the notice and lien provisions of the Civil Code.” Id.

In Warren, the district court affirmed the bankruptcy court’s order sustaining a debtor’s objection to the secured claim of an HOA on grounds that the HOA’s lien was limited to the amounts stated in its notice of lien assessment. 2016 U.S. Dist. LEXIS 49917, 2016 WL 1460844 at *1. As in Guajardo, the lien notice in that case contained language that purported to constitute a prospective charge for future assessments and related costs. And like the bankruptcy court in Guajardo, the district court held that this language was impermissible under the Davis-Stirling Act. The court noted that the procedural notice requirements of the Davis-Stirling Act are to be strictly construed, citing Diamond, 217 Cal. App. 4th at 1191, and found that “[t]he Davis-Stirling Act limits the lien to the amount specified in the notice . . . .” 2016 U.S. Dist. LEXIS 49917, [WL] at *3-*4. The court went on: “Claimant should have filed additional liens to secure its interest in future unpaid assessments. To hold otherwise would offend the comprehensive notice scheme and homeowners’ rights to contest delinquent assessments as established in the Davis-Stirling Act.” 2016 U.S. Dist. LEXIS 49917, [WL] at *4.

C. California State Cases Interpreting the Davis-Stirling Act

In Bear Creek, the California Fourth District Court of Appeal affirmed a judgment for lien foreclosure and breach of contract based on a condominium owner’s failure to pay assessments. 130 Cal. App. 4th at 1472. The primary issue before the court of appeal was whether an HOA may charge an owner assessments for lots on which condominium units were planned but had not yet been built. Id. In affirming the trial court’s foreclosure judgment, the court of appeal held that the definition of “condominium” in the Davis-Stirling Act included unbuilt lots in a qualifying condominium plan. Id. at 1481-82. The court of appeal also affirmed the trial court’s finding that the HOA had properly served lien notices on the owner. Id. at 1488. Finally, the court of appeal considered the appellant’s argument that the trial court had improperly determined the amount of the lien assessments because it included amounts that came due after the recordation of the lien notice; it found that those amounts were properly included. Id. at 1489.

[835] The court of appeal rejected the owner’s argument that no “recurring liens” were authorized under the relevant statutes such that the amount of the assessments secured by the lien was limited to the amount initially stated in the lien notice. The court noted that former California Civil Code § 1367 (recodified at § 5675), in describing the amounts to be secured by the lien, referenced former California Civil Code § 1366 (recodified at § 5600), which in turn referenced the homeowners association’s “governing documents.” Id. at 1488.

Specifically, California Civil Code § 1367(b) provided: “[t]he amount of the assessment, plus any costs of collection, late charges, and interest assessed in accordance with Section 1366, shall be a lien on the owner’s interest in the common interest development from and after the time the association causes to be recorded with the county recorder of the county in which the separate interest is located, a notice of delinquent assessment. . . .” Id. at 1488. The cross-referenced statute, former California Civil Code § 1366, provided, in relevant part: “the association shall levy regular and special assessments sufficient to perform its obligations under the governing documents and this title.”[viii]

The court next looked to the governing documents, specifically, the CC&R’s. The CC&Rs provided that “any demand or claim of lien or lien on account of prior delinquencies shall be deemed to include subsequent delinquencies and amounts due on account thereof.” Id. Further, the recorded lien notices provided that “[a]dditional monies shall accrue under this claim at the rate of the claimants’ regular monthly or special assessments, plus permissible late charges, costs of collection and interest, accruing subsequent to the date of this notice.” Id. Based on this language, the court of appeal held that “all of the sums included on the liens and lien notices are authorized by the CC & R’s and statutory law. The amounts here determined by the court to be owing as liens are no more than the amounts authorized by the governing documents and statutes.” Id.

The court of appeal opined that its holding was consistent with the legislative purpose of providing homeowners associations a quick and efficient means of seeking relief against a nonpaying owner:

Were the relevant provisions to be construed as [the owner] suggests, the described statutory purpose of providing for a quick and efficient means of enforcing the CC & R’s would be seriously undermined; each month, or at such other intervals as the assessments are charged under a given set of CC&R’s, the association would be required to record successive liens. A successive recordation requirement would impose a heavy—and needless—burden upon homeowners’ associations, fraught with risk to the association, and undue windfall to the delinquent homeowner, should any installment be overlooked. We are unwilling to construe Civil Code section 1367 to require such an oppressive burden. Both delinquent homeowners and the public at large are placed on notice, with the recordation of the initial assessment lien, that subsequent regularly and specially levied assessments, if they continue unpaid, will accrue in due course. The purpose of the lien notice and recordation will have been served, and the [836] association’s remedy justly preserved, by the initial recordation of lien.

Id. at 1489.

Two years after the decision in Bear Creek, the California Sixth District Court of Appeal held that the notice provisions of the Davis-Stirling Act are to be strictly construed. Diamond, 217 Cal. App. 4th at 1189. The issue in Diamond was whether “substantial compliance” with the pre-lien and pre-foreclosure notice requirements of the Davis-Stirling Act was sufficient to permit an HOA to proceed with foreclosure. The court of appeal held that it was not. In its opinion, the court of appeal examined the legislative history of the Act and concluded that it was intended to “protect the interest of a homeowner who has failed to timely pay an assessment levied by a homeowners association.” Id. at 1190-91. As such, the notice requirements were intended to be mandatory. Id.

The court of appeal noted that its conclusion was supported by California Supreme Court precedent, including Li v. Yellow Cab Co., 13 Cal. 3d 804, 815, 119 Cal. Rptr. 858, 532 P.2d 1226 (1975) (“If a provision of the [Civil] [C]ode is plain and unambiguous, it is the duty of the court to enforce it as it is written.”); Chase v. Putnam, 117 Cal. 364, 367-368, 49 P. 204 (1897) (“a lien which is the creature of statute can be enforced only in the manner prescribed by the statute.”). Diamond, 217 Cal. App. 4th at 1192-93.

D. Bear Creek does not control the outcome of this appeal.

Highland Greens argues that we must follow Bear Creek because there are no other California state court decisions on point. It points out that in the absence of a state supreme court decision on the issue, a federal court is obligated to follow a decision of an intermediate court of appeal unless there is convincing evidence that the highest court of the state would decide differently. Sec. Pac. Nat’l Bank v. Kirkland (In re Kirkland), 915 F.2d 1236, 1238-39 (9th Cir. 1990) (citing American Triticale, Inc. v. Nytco Services, Inc., 664 F.2d 1136, 1143 (9th Cir. 1981); Stoner v. New York Life Ins. Co., 311 U.S. 464, 467, 61 S. Ct. 336, 85 L. Ed. 284 (1940)).

In predicting how the state’s highest court would decide the issue, we look to “intermediate appellate court decisions, decisions from other jurisdictions, statutes, treatises, and restatements as guidance.” In re Kirkland, 915 F.2d at 1239 (citations omitted). Bear Creek appears to be the only California intermediate appellate decision addressing the propriety of continuing liens under the Davis Stirling Act. Nevertheless, for the reasons discussed below, we conclude that Bear Creek is factually distinguishable and that the California Supreme Court would not likely decide the issue in accord with Bear Creek.

In determining that delinquent HOA assessments which came due after the recordation of the lien notices were properly included in the amount secured by the lien, the court of appeal in Bear Creek relied primarily on the language of the CC&Rs and the lien notices, all of which provided that any lien for delinquent HOA assessments would be deemed to include subsequent delinquencies. Because certain provisions of the Act referred to the HOA’s governing documents, and those documents provided for a continuing lien, the Bear Creek court concluded that the continuing lien was consistent with the Act.

Here, however, the CC&Rs do not provide for a continuing lien; as such, Bear Creek is factually distinguishable in a critical respect, and we may ignore it. Further and importantly, relevant [837] to our anticipation of the California Supreme Court’s eventual view, the Bear Creek court of appeal did not take into account the Act’s notice provisions as they pertained to the issue of a continuing lien and failed to consider that, although one purpose of the Act may be to facilitate an HOA’s collection of delinquent assessments, see Bear Creek, 130 Cal. App. 4th at at 1489,[ix] the cases citing directly to legislative history emphasize that the purpose of the Davis-Stirling Act is to protect homeowners. See Diamond, 217 Cal. App. 4th at 1190 (“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.”) (quoting Assem. Com. on Judiciary, Analysis of Sen. Bill No. 137 (2005-2006 Reg. Sess.) as amended Apr. 5, 2005, pp. 1-2); Huntington Continental Townhouse Ass’n, Inc. v. Miner, 230 Cal. App. 4th 590, 603-04, 179 Cal. Rptr. 3d 47 (2014) (same).

Although Diamond did not involve the identical issue raised here, the opinion’s thorough analysis of the legislative history and citations to precedent all supported its determination that the requirements of the Davis-Stirling Act must be strictly construed, and support the conclusion that the California Supreme Court would not follow Bear Creek. This conclusion is bolstered by the analysis in Guajardo and Warren. As noted by the District Court for the Northern District of California:

The Davis-Stirling Act reflects the legislature’s intent to impose and rigorously enforce its procedural requirements to protect the interest of the homeowner. See Diamond v. Superior Court, 217 Cal. App. 4th 1172, 1191, 159 Cal. Rptr. 3d 110 (2013) (the procedural notice requirements prescribed in the Davis-Stirling Act must be “strictly construed” such that “substantial compliance is insufficient”). Accordingly, the Court finds that the language of the 2008 Lien purporting to secure future assessments is not permissible under the Davis-Stirling Act.

In re Warren, 2016 U.S. Dist. LEXIS 49917, 2016 WL 1460844, at *4.

Applying these principles to the matter before us, we conclude that here, the Notice and 2011 Amendment, which purported to secure future assessments, were (1) inconsistent with the applicable CC&Rs; and (2) impermissible under the Davis-Stirling Act, which limits the lien to the amount specified in the notice, see Cal. Civ. Code § 5675(a); in turn, the notice must include an itemized statement showing the delinquent assessments (and related fees and costs) owing at the time of the notice. See Cal. Civ. Code § 5660(b); See also In re Guajardo, 2016 Bankr. LEXIS 769, 2016 WL 943613, at *2-*3.

E. Highland Greens’ arguments in support of its interpretation of the Davis Stirling Act are inconsistent with established principles of statutory construction.

In the absence of evidence of contrary legislative intent, courts are to follow [838] the principle of statutory construction, expressio unius est exclusio alterius, or “the expression of one thing in a statute ordinarily implies the exclusion of other things.” In re J.W., 29 Cal. 4th 200, 209, 126 Cal. Rptr. 2d 897, 57 P.3d 363 (2002). See also People v. Guzman, 35 Cal. 4th 577, 587, 25 Cal. Rptr. 3d 761, 107 P.3d 860 (2005) (“[I]nsert[ing] additional language into a statute violate[s] the cardinal rule of statutory construction that courts must not add provisions to statutes.”)(second and third alterations in original)(quoting Sec. Pac. Nat’l Bank v. Wozab, 51 Cal. 3d 991, 998, 275 Cal. Rptr. 201, 800 P.2d 557 (1990)); Cal. Civ. Proc. Code § 1858 (“In the construction of a statute or instrument, the office of the Judge is simply to ascertain and declare what is in terms or in substance contained therein, not to insert what has been omitted, or to omit what has been inserted; and where there are several provisions or particulars, such a construction is, if possible, to be adopted as will give effect to all.”).

Highland Greens argues that certain provisions of the Davis-Stirling Act support its contention that a continuing lien is permitted under that Act. First, it notes that California Civil Code § 5650 permits collection costs to be added to the amount secured by the lien, when those costs are generally incurred after the lien is recorded.[x] But this provision does not support Highland Greens’ position. To the contrary, the legislature’s omission of subsequent delinquent assessments from the list of charges authorized strongly indicates that it did not intend those amounts to be added.

Despite the above argument, Highland Greens also contends that, if we affirm the bankruptcy court’s ruling, it would mean that a delinquent owner would be able to stop a foreclosure sale by paying only the face amount of the lien without paying the costs of enforcing the lien, apparently assuming an HOA would need to record separate liens to secure collection costs. But, as Highland Greens points out, the statute explicitly provides that the lien may include collection costs.

Second, Highland Greens cites California Civil Code § 5720(b)(2), which permits an HOA to record a lien for less than $1,800 but requires the HOA to wait to foreclose until the amount of delinquent assessments exceeds that amount (or the assessments secured by the lien become more than twelve months delinquent).[xi] Highland Greens argues that, because this provision apparently allows for the addition of subsequent delinquent assessments to the lien amount, any lien may include such assessments without requiring a new [839] notice. But the fact that this provision applies only to liens securing amounts less than $1,800 supports the conclusion that it excludes liens securing higher amounts. In other words, the provision may fairly be interpreted as an exception to the general rule prohibiting addition of delinquencies without specific notice. Additionally, this provision, as written, promotes the purpose of protecting “owners’ equity in their homes when they fail to pay relatively small assessments to their common interest development associations.” Diamond, 217 Cal. App. 4th at 1190 (quoting Sen. Com. on Judiciary, Analysis of Sen. Bill No. 137 (2005-2006 Reg. Sess.) Mar. 29, 2005, p. 1.). As stated by the district court in Warren:

Section 5720(b)(2) simply provides an association with the option to wait to record the lien until delinquent assessments exceed $1,800. Alternatively, the association may record the lien and wait a year to foreclose thereon… Section 5720(b)(2) does not allow an association to bypass the notice and recording requirements in Sections 5660, 5670, and [5675] merely because the initial lien secures an amount below the $1,800 threshold to initiate foreclosure proceedings.

In re Warren, 2016 U.S. Dist. LEXIS 49917, 2016 WL 1460844, at *4 (footnote omitted).

F. Highland Greens’ policy arguments are contradicted by the California Court of Appeal’s holding in Diamond.

Finally, Highland Greens, (joined by amicus curiae Community Associations Institute), urges us to follow Bear Creek and reverse the bankruptcy court because to do otherwise would negatively impact all California HOAs and their members. Highland Greens contends that HOAs would have to record liens for delinquent assessments on a monthly basis to secure all amounts owed, and that doing so would result in higher collection costs that would then be passed on to the delinquent owner.

This argument is certainly consistent with the court of appeal’s comments in Bear Creek, 130 Cal. App. 4th at 1489. But it ignores the fact that the Davis-Stirling Act “reflects the legislature’s intent to impose and rigorously enforce its procedural requirements to protect the interest of the homeowner.” In re Warren, 2016 U.S. Dist. LEXIS 49917, 2016 WL 1460844, at *4 (citing Diamond, 217 Cal. App. 4th at 1191). While we acknowledge that requiring HOAs to file “successive liens” imposes a burden, that is an issue for the legislature to address.

CONCLUSION

Because we find no error in the bankruptcy court’s interpretation of California law, we AFFIRM.

i Under California law, the recordation of such a notice, if it complies with certain statutory requirements, creates a lien against the owner’s interest in the subject property. Cal. Civ. Code § 5675.

[ii] Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.

[iii] Debtor had filed a previous chapter 13 petition in July 2017. That case was dismissed pre-confirmation on February 16, 2018.

[iv] Under California law, the assessment lien merged into the judgment. Diamond Heights Village Ass’n, Inc. v. Financial Freedom Senior Funding Corp., 196 Cal. App. 4th 290, 301-02, 126 Cal. Rptr. 3d 673 (2011).

[v] Highland Greens filed its notice of appeal on September 4, 2018. It filed an amended notice of appeal six days later. Two appeal numbers were assigned due to administrative error. The appeals were thus consolidated, with all papers to be filed under BAP No. CC-18-1248.

[vi] The Davis-Stirling Act was renumbered in 2014. It is currently codified at sections 4000-6150 of the California Civil Code; it was formerly found at sections 1350-1378.

[vii] The CC&Rs, Notice, and 2011 Amendment contain language that is substantially similar to the documents at issue in Guajardo.

[viii] That section was recodified at California Civil Code § 5600(a) and contains substantively identical language.

[ix] In concluding that the purpose of the Act was to facilitate collection of delinquent assessments, the court of appeal in Bear Creek relied on quoted language from Park Place Estates Homeowners Ass’n v. Naber, 29 Cal. App. 4th 427, 432, 35 Cal. Rptr. 2d 51 (1994) (“Because homeowners associations would cease to exist without regular payment of assessment fees, the Legislature has created procedures for associations to quickly and efficiently seek relief against a non-paying owner.”). But the court of appeal in Park Place Estates did not support its conclusion by any citation to legislative history.

[x] California Civil Code § 5650 merely lists the types of costs that may be added to the amount of delinquent assessments. California Civil Code § 5675 provides that the assessed costs and interest will be part of the lien.

[xi] hat statute provides, in relevant part: 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 nonjudicial foreclosure, but may attempt to collect or secure that debt in any of the following ways:… (2) By 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… Cal. Civ. Code § 5720(b)(2).

Mashiri v. Epsten Grinnell & Howell

(2017) 845 F.3d 984

[FDCPA; Collection Notice] Homeowner successfully alleged that HOA law firm violated FDCPA because pre-lien notice payment demand timeline was inconsistent with the right under the FDCPA to dispute the debt within 30 days of receipt of letter.

Asil Marhiri (argued), Mashiri Law Firm, San Diego, California, for Plaintiff-Appellant. Anne Lorentzen Rauch (argued), Mandy D. Hexom, and Rian W. Jones, Epsten Grinnell & Howell APC, San Diego, California, for Defendants-Appellees.

OPINION

[985] PAEZ, Circuit Judge:

Zakia Mashiri (“Mashiri”) appeals the dismissal of her complaint alleging that the [986] law firm of Epsten Grinnell & Howell and attorney Debora M. Zumwalt (collectively, “Epsten”) committed unlawful debt collection practices in violation of the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §§ 1692 et seq., the Rosenthal Fair Debt Collection Practices Act (“Rosenthal Act”), Cal. Civ. Code §§ 1788 et seq., and the California Unfair Competition Law, Cal. Bus. & Prof. Code §§ 17200, et seq. Mashiri alleges that Epsten sent her a debt collection letter in May 2013 demanding payment of an assessment fee from her homeowners’ association. She alleges that the letter contained language that overshadowed and conflicted with her FDCPA right to thirty days in which to dispute the debt. On a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the district court dismissed Mashiri’s FDCPA claims, concluding that the collection letter satisfactorily explained her right to dispute the debt and therefore did not improperly threaten to record a lien. Because Mashiri’s state law claims were dependant on her FDCPA claims, the court also dismissed Mashiri’s Rosenthal Act and Unfair Competition Law claims.

We hold that the district court erred. Mashiri has alleged a plausible claim for relief because the collection letter contains language that overshadows and conflicts with her FDCPA debt validation rights when reviewed under the “least sophisticated debtor” standard. We also reject Epsten’s argument, raised for the first time on appeal, that in sending the collection letter, it merely sought to perfect a security interest and is therefore subject only to the limitations in § 1692f(6). We hold that Epsten is subject to the full scope of the FDCPA. We reverse and remand for further proceedings consistent with this Opinion.

Mashiri alleges that she owns a home in San Diego, California and is a member of the Westwood Club homeowners’ association (“HOA”).¹ As a member, Mashiri incurs annual assessment fees. Mashiri failed to pay in a timely manner the $385 fee assessed in July 2012.

In a collection letter dated May 1, 2013 (the “May Notice”), Epsten, on behalf of the HOA, sought to collect Mashiri’s overdue assessment fee, as well as corresponding late, administrative, and legal fees. The May Notice also included a warning that failure to pay the assessment fee would result in the HOA recording a lien against Mashiri’s property. This notice is required by section 5660 of the Davis-Stirling Common Interest Development Act, Cal. Civ. Code §§ 4000 et seq., which governs the collection of overdue homeowners’ association assessments.² The May Notice stated, in pertinent part:

This letter is to advise you that $598.00 is currently owing on your Association assessment account. Failure to pay your assessment account in full within thirty-five (35) days from the date of this letter will result in a lien being recorded against your property upon authorization of the Board of Directors. All [987] collection costs incurred will be charged to your account.

Unless you notify this office within 30 days of receiving this notice that you dispute the validity of the debt or any portion thereof, this office will assume this debt is valid. If you notify this office in writing within thirty (30) days of receiving this notice that the debt, or any portion thereof, is disputed, we will obtain verification of the debt or a copy of the judgment against you (if applicable) and a copy of [] such verification or judgment will be mailed to you.

. . . .

You have the right to inspect the association records pursuant to Corporations Code Section 8333. You may submit a written request to meet with the Board to discuss a payment plan for this debt. You shall not be liable to pay the charges, interest and costs of collection if it is determined the assessment was paid on time to the Association. You have the 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 required in Civil Code Section [5900] et seq., and the Board offers to participate in dispute resolution. You have the right to request alternative dispute resolution with a neutral third party pursuant to Civil Code Section [5925] et seq. before the association may initiate foreclosure against your separate interest, except that binding arbitration shall not be available if the association intends to initiate a judicial foreclosure.

. . . .

IMPORTANT NOTICE: IF YOUR SEPARATE INTEREST IS PLACED IN FORECLOSURE BECAUSE YOU ARE BEHIND IN YOUR ASSESSMENTS, IT MAY BE SOLD WITHOUT COURT ACTION.

. . . .

This is a communication from a debt collector attempting to collect a debt and any information obtained will be used for that purpose.

Accompanying the May Notice, Epsten included copies of Mashiri’s account statement and the HOA’s assessment collection policy.

On or about May 20, 2013, in a letter to Epsten, Mashiri disputed the debt and requested that Epsten validate it. Mashiri also stated that she never received a bill for the July 2012 assessment fee. Approximately two weeks later, on June 5, Epsten responded with another copy of Mashiri’s account statement.

On June 18, 2013, Epsten, on behalf of the HOA, recorded a lien on Mashiri’s property in the amount of $928, reflecting the $598 she previously owed and $330 in additional legal fees. Three days later, on June 21, Mashiri sent the HOA a check for $385. In a letter accompanying the check, Mashiri disputed the balance of the debt. As required by the Davis-Stirling Act, on June 24, Epsten notified Mashiri of the lien. Cal. Civ. Code § 5675(e).

Mashiri ultimately filed her complaint alleging violations of the FDCPA, the Rosenthal Act, and the Unfair Competition Law based on the contents of the May Notice. Epsten subsequently moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. The district court granted Epsten’s motion to dismiss, concluding, inter alia, that the May Notice “complied with the clarity and accuracy requirements” of the FDCPA and therefore “did not threaten to take action that could not legally be taken” as prohibited by the FDCPA. The district court dismissed Mashiri’s state law claims as dependant on [988] her FDCPA claims. Mashiri timely appealed.

II.

We review de novo a dismissal under Rule 12(b)(6). Ariz. Students’ Ass’n v. Ariz. Bd. of Regents, 824 F.3d 858, 864 (9th Cir. 2016). For purposes of our review, we accept the complaint’s well-pleaded factual allegations as true and construe all inferences in favor of Mashiri. Id. The “complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009) (internal quotation marks omitted). “The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007)).

III.

Congress enacted the FDCPA “to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses.” 15 U.S.C. § 1692(e). In furtherance of these stated goals, “[t]he FDCPA subjects ‘debt collectors’ to civil damages for engaging in certain abusive practices while attempting to collect debts.” Ho v. ReconTrust Co., NA, 840 F.3d 618, 620 (9th Cir. 2016).

Mashiri challenges the district court’s ruling that she did not allege a plausible violation of § 1692g of the FDCPA, and its corresponding dismissal of the § 1692e(5) and state law claims that depended on her § 1692g claim. See 15 U.S.C. § 1692g. She argues that the May Notice violated § 1692g for two reasons. First, she contends that the May Notice demanded payment sooner than the expiration of the debtor’s thirty-day dispute period. Second, she claims that by threatening to record a lien within thirty-five days, irrespective of whether she disputed the debt, Epsten failed to explain effectively a debtor’s right to dispute the debt. Epsten counters that it was not attempting to collect a debt and therefore the May Notice needed to comply only with the obligations in § 1692f(6) of the FDCPA relating to enforcement of security interests. Epsten further argues that even if it is subject to § 1692g, it complied with the statutory requirements. We turn first to whether Epsten is subject solely to § 1692f(6), and then discuss whether Mashiri has sufficiently alleged a violation of § 1692g and related claims.

For the first time in its answering brief, Epsten argues that it is subject only to § 1692f(6)³ because it sent the May Notice to perfect the HOA’s right to record an assessment lien against Mashiri’s property under California Civil Code section 5660. “Ordinarily, we decline to consider arguments raised for the first time on appeal.” Dream Palace v. Cty. of Maricopa, 384 F.3d 990, 1005 (9th Cir. 2003). [989] We have, however, recognized an exception where “the issue presented is purely one of law and either does not depend on the factual record developed below, or the pertinent record has been fully developed.” Cold Mountain v. Garber, 375 F.3d 884, 891 (9th Cir. 2004) (quoting Bolker v. Commissioner, 760 F.2d 1039, 1042 (9th Cir. 1985)). Here, Epsten presents a legal issue concerning the applicability of FDCPA provisions when a debt collector seeks, in part, to perfect a security interest and preserve the creditor’s right to record a lien. The pertinent facts, including the communications between Epsten and Mashiri, are not disputed. In addition, Mashiri responded to Epsten’s argument in her reply brief and therefore suffers no prejudice if we consider the argument. See Dream Palace, 384 F.3d at 1005. Accordingly, we address the issue.

The FDCPA defines “debt” as “any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.” 15 U.S.C. § 1692a(5) (emphasis supplied); see also Ho, 840 F.3d at 621 (“For the purposes of the FDCPA, the word ‘debt’ is synonymous with ‘money.'”). “The FDCPA imposes liability only when an entity is attempting to collect debt.” Ho, 840 F.3d at 621.

The contents of the May Notice plainly belie Epsten’s contention that it did not attempt to collect a debt. The May Notice requested payment of Mashiri’s homeowner’s assessment fee, stating: “This letter is to advise you that $598.00 is currently owing on your Association assessment account. Failure to pay your assessment account in full within thirty-five (35) days from the date of this letter will result in a lien being recorded against your property.” See supra at 5 (emphasis added). Mashiri’s obligation to pay the assessment fee relates to her household and arises from her membership in the HOA. The overdue assessment fee is a debt under § 1692a(5).

Epsten nonetheless argues that, based on the definition of a “debt collector” under § 1692a(6),⁴ entities engaged in the enforcement of security interests are subject only to § 1692f(6). There was, however, no existing security interest for Epsten to enforce at the time it sent the May Notice because a lien had yet to be recorded against Mashiri’s property. Rather than seeking to enforce an existing security interest or lien, the May Notice sought to collect Mashiri’s overdue assessment fee and to make necessary disclosures that would perfect the HOA’s security interest and permit it to record a lien at a later date. See Cal. Civ. Code § 5660 (providing that “[a]t least 30 days prior to recording a lien upon the separate interest of the owner of record to collect a debt that is past due under Section 5650, the association shall notify the owner of record in writing by certified mail” of specified information).⁵

[990] In addition, Epsten’s interpretation of § 1692a(6) is incorrect. As we recently observed in Ho, “[i]f entities that enforce security interests engage in activities that constitute debt collection, they are debt collectors.” 840 F.3d at 622. Ho addressed whether a trustee’s communications—limited solely to pursuing non-judicial foreclosure—were debt collection activities for purposes of the FDCPA. Id. at 619-20, 623. In contrast to this case, the trustee sought to enforce a secured loan and sent a notice of default that did not request payment but instead “merely informed Ho that the foreclosure process had begun, explained the foreclosure timeline, apprised her of her rights and stated that she could contact [the lender] (not [the trustee]) if she wished to make a payment.” Id. at 623. We held that where an entity is engaged solely in the enforcement of a security interest and not in debt collection, like the trustee and unlike Epsten, it is subject only to § 1692f(6) rather than the full scope of the FDCPA. See id. at 622 (“We do not hold that the FDCPA intended to exclude all entities whose principal purpose is to enforce security interests. . . . We hold only that the enforcement of security interests is not always debt collection.”).

Because Epsten sent the May Notice as a debt collector attempting to collect payment of a debt—irrespective of whether it also sought to perfect the HOA’s security interest and preserve its right to record a lien in the future—it is subject to the full scope of the FDCPA, including § 1692g and § 1692e. See id. Epsten’s attempt to escape liability under § 1692g and § 1692e therefore fails.

As noted above, Mashiri argues that she alleged a violation of § 1692g on two grounds. First, she argues that the May Notice requested payment by a date that was inconsistent with a debtor’s right to dispute the debt within thirty days from receipt of the notice. Second, she argues that Epsten’s threat to record a lien within thirty-five days of the date of the letter overshadowed her right to dispute the debt. We address each of these arguments below, and hold that Mashiri has alleged a plausible § 1692g violation on both grounds.

The FDCPA requires a debt collector to send the debtor a written notice that informs the debtor of the amount of the debt, to whom the debt is owed, her right to dispute the debt within thirty days of receipt of the letter, and her right to obtain verification of the debt.⁶ Because the [991] notice must inform the debtor of her right to obtain verification of the debt, the notice is commonly referred to as a “validation” notice. However, “[t]he statute is not satisfied merely by inclusion of the required debt validation notice; the notice Congress required must be conveyed effectively to the debtor.” Swanson v. S. Or. Credit Serv., Inc., 869 F.2d 1222, 1225 (9th Cir. 1988).

Importantly, notice of the debtor’s right to dispute the debt and to request the name of the original creditor must not be overshadowed or inconsistent with other messages appearing in the communication.⁷ 15 U.S.C. § 1692g(b). Overshadowing or inconsistency may exist where language in the notice would “confuse a least sophisticated debtor” as to her validation rights. Terran v. Kaplan, 109 F.3d 1428, 1432 (9th Cir. 1997). In other words, “[u]nder the law of this circuit, whether the initial communication violates the FDCPA depends on whether it is likely to deceive or mislead a hypothetical ‘least sophisticated debtor.'” Id. at 1431 (internal quotation marks omitted).

Turning to Mashiri’s first basis for a § 1692g violation, Mashiri claims that the May Notice did not provide a debtor thirty days in which to dispute the debt. We have previously observed that a § 1692g violation would result if a debt collector demanded payment prior to the expiration of the thirty-day dispute period to which debtors are entitled. As we explained in Terran:

A demand for payment within less than the thirty-day timeframe necessarily requires the debtor to [forgo] the statutory right to challenge the debt in writing within thirty days, or suffer the consequences. For this reason, requiring a payment that would eliminate the debt before the debtor can challenge the validity of that debt directly conflicts with the protections for debtors set forth in section 1692g.

Id. at 1434.

In this case, the May Notice demanded payment within thirty-five days of the date of the letter, which is inconsistent with a debtor’s right to dispute a debt within thirty days of receipt of the letter. By the time a debtor receives such a letter, there may be fewer than thirty days before payment is due.⁸ Moreover, even if the debtor received the letter promptly, in order for the payment to be received within thirty-five days of the date of the letter, the debtor would likely need to mail the payment prior to the thirtieth day of the dispute period. See Chauncey v. JDR Recovery Corp., 118 F.3d 516, 519 (7th Cir. 1997). The least sophisticated debtor, when [992] confronted with such a notice, would reasonably forgo her right to thirty days in which to dispute the debt and seek verification. The infringement of the debtor’s right to thirty days in which to dispute the debt plausibly violates § 1692g. See Terran, 109 F.3d at 1434.

Mashiri alleged a plausible § 1692g violation for the additional reason that the least sophisticated debtor may not understand, on the basis of the May Notice, that upon notifying Epsten of a dispute, debt collection activities would “cease . . . until the debt collector obtains verification of the debt . . . and a copy of such verification . . . is mailed to the consumer by the debt collector.” 15 U.S.C. § 1692g(b). Rather, the May Notice stated that a lien “will” be recorded if Mashiri “fail[ed] to pay.” The least sophisticated debtor would likely (and incorrectly) believe that even if she disputed the debt and Epsten had not yet mailed verification of the debt to her, Epsten would record a lien on the thirty-fifth day after the date of the letter. “In this manner, the letter effectively overshadows the disclosed right to dispute by conveying an inaccurate message that exercise of the right does not have an effect that the statute itself says it has.” Pollard v. Law Office of Mandy L. Spaulding, 766 F.3d 98, 105 (1st Cir. 2014).

Epsten relies on Shimek v. Weissman, Nowack, Curry & Wilco, P.C., 374 F.3d 1011 (11th Cir. 2004) (per curiam) for the proposition that, upon receipt of a request for debt verification, the FDCPA does not require a debt collector to take affirmative action to stop the recording of a lien that had already been filed. That case, however, correctly recognizes that “sending a lien to the clerk of the court [for filing] after a verification of the debt was requested is clearly contrary to § 1692g(b)’s requirement that a debt collector shall ‘cease collection of the debt’ once the verification is requested.” Id. at 1014. In addition, Shimek is factually inapposite because “[u]nder Georgia law, the filing of a lien by a creditor is a necessary step for securing payment of a debt,” and the Eleventh Circuit “assum[ed] the propriety of filing the lien with the Court Clerk contemporaneously with the demand letter.” Id. at 1013-14. In California, pursuant to the Davis-Stirling Act, a homeowners’ association may not record a lien with a county recorder’s office contemporaneously with mailing the demand letter, but instead must provide notice of the debt at least thirty days prior to recording a lien, during which time a debtor-homeowner may dispute the debt. Cal. Civ. Code § 5660.

The obligations imposed on the HOA pursuant to the FDCPA, including the provision requiring suspension of debt collection activities pending debt verification, are thus consistent with the requirements the HOA must satisfy pursuant to the Davis-Stirling Act. The HOA’s right to record a lien thirty days after providing notice under section 5660 is not absolute, but instead is dependent on whether the homeowner disputes the debt. Indeed, pursuant to the Davis-Stirling Act, if the homeowner disputes the debt and requests an informal dispute resolution proceeding, the HOA must participate in dispute resolution “prior to recording a lien.” Cal. Civ. Code § 5670.

In this context, the threat of recording of a lien is a debt collection activity, which under the FDCPA must cease if the debtor-homeowner disputes the debt and the debt collector has not yet mailed verification of the debt to the debtor-homeowner. The Davis-Stirling Act does not mandate otherwise. Epsten was obligated to explain such debt validation rights in an effective manner. See Swanson, 869 F.2d at 1225. In [993] failing to do so, the threat of filing a lien overshadowed Mashiri’s right to dispute the debt, in violation of § 1692g. Because Mashiri has plausibly alleged a violation of § 1692g on the basis of inconsistency and overshadowing, we reverse the district court’s dismissal of that claim.

IV. Conclusion

We hold that Mashiri has plausibly alleged a claim under § 1692g, and we reverse the district court’s dismissal of that claim. Because we reverse the district court’s dismissal of Mashiri’s § 1692g claim, we reverse the district court’s dismissal of Mashiri’s claims that depended on § 1692g and arose under § 1692e(5), the Rosenthal Act, and the Unfair Competition Law.⁹

REVERSED and REMANDED.

¹The facts are derived from the complaint and its accompanying exhibits, as well as documents that the district court judicially noticed.

²The Davis-Stirling Act “consolidated the statutory law governing condominiums and other common interest developments.” Berryman v. Merit Prop. Mgmt., Inc., 152 Cal. App. 4th 1544, 62 Cal. Rptr. 3d 177, 183 (Cal. Ct. App. 2007) (internal quotation marks omitted). In enacting the Davis-Stirling Act, the California legislature “intended to protect homeowners from being foreclosed upon for small sums of delinquent assessments.” Huntington Cont’l Town House Ass’n v. Miner, 222 Cal. App. 4th Supp. 13, 167 Cal. Rptr. 3d 609, 612 (Cal. App. Dep’t Super. Ct. 2014).

³Section 1692f(6) prohibits:

Taking or threatening to take any nonjudicial action to effect dispossession or disablement of property if—

(A) there is no present right to possession of the property claimed as collateral through an enforceable security interest;

(B) there is no present intention to take possession of the property; or

⁴Section 1692a(6) provides, in pertinent part:

The term “debt collector” means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. . . . For the purpose of section 1692f(6) of this title, such term also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests.

⁵We also note that the Rosenthal Act, which functions as “the state analogue of the FDCPA,” does not exempt homeowners’ associations attempting to collect overdue assessment fees pursuant to California Civil Code § 5660. See Ho v. ReconTrust Co., NA, 840 F.3d 618, 623 n.8 (9th Cir. 2016).

⁶Section 1692g(a) provides that the debt collector must notify the debtor of the following:

(1) the amount of the debt;

(2) the name of the creditor to whom the debt is owed;

(3) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector;

(4) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and

(5) a statement that, upon the consumer’s written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.

⁷The terms “overshadowing” and “inconsistent” are often used interchangeably. See, e.g., Pollard v. Law Office of Mandy L. Spaulding, 766 F.3d 98, 104 (1st Cir. 2014) (“We note at the outset that, in the section 1692g milieu, courts do not always distinguish between violations based on the overshadowing of a validation notice and violations based on inconsistencies.”).

⁸Although Epsten asks us to take judicial notice of a certified mail receipt showing that Mashiri received the May Notice on May 2, 2013, the district court did not consider the certified mail receipt, and we decline to do so as well. The date on which Mashiri received the May Notice is irrelevant because we undertake an “objective analysis that takes into account whether the least sophisticated debtor would likely be misled by a communication.” Evon v. Law Offices of Sidney Mickell, 688 F.3d 1015, 1017 (9th Cir. 2012) (emphasis added and internal quotation marks omitted).

⁹To the extent Mashiri asserted claims under § 1692e, the Rosenthal Act, or the Unfair Competition Law on grounds unrelated to her § 1692g claim, Mashiri does not challenge the district court’s dismissal of those claims.

Bear Creek Master Association v. Edwards

(2005) 31 Cal.Rptr.3d 337

[Duty to pay; Assessment Liens] A recorded assessment lien secures the assessment debt that continues to accrue on the owner’s account; the debt is not limited solely to the amount stated in the lien at the time the lien was initially recorded.

Law Office of Lucia Enriquez and Lucia Enriquez; Quinn Emanuel Urquhart Oliver & Hedges, and John S. Gordon, Los Angeles, attorneys for Defendants and Appellants.
Fiore, Racobs & Powers, Peter E. Racobs and Michelle A. Buchmeier, Palm Desert, attorneys for Plaintiff and Respondent.

Certified for Partial Publication.^[FN.*]

OPINION

WARD, J.

Defendants and appellants Parlan L. Edwards and Gloria Renico Edwards, as trustees of the Parlan L. Edwards and Gloria Renico Edwards Family Trust (the Trust), appeal from a judgment in favor of plaintiff and respondent Bear Creek Master Association (Bear Creek), on Bear Creek’s action for breach of contract and foreclosure. Although both Edwardses are named trustees of the trust, the primary actor throughout has been Parlan L. Edwards; for convenience, therefore, we refer to “Edwards” in the singular, as the representative of the Trust and as the person who performed most of the salient acts on defendants’ behalf.

Edwards and the Trust also appeal postjudgment orders for attorney fees and requiring them to post additional security pending appeal.

The key issue in the appeal is whether a homeowners’ association may charge homeowners’ association dues or assessments for unbuilt property within a planned and partially built homeowners’ association development. The Trust’s parcel was planned for eight condominium units, out of a phase of sixteen, but none of the units on the Trust’s portion of the property had actually been constructed. This dispute arose because the Trust failed to pay homeowners’ association assessments; indeed, it refused to do so on the theory that assessments are chargeable only to a “condominium unit,” but that there were no built-out “units” on the Trust’s property.

As we shall explain below, we affirm the judgment and the postjudgment orders.

FACTS AND PROCEDURAL HISTORY

Bear Creek is the master homeowners’ association for the master Bear Creek development. Country Club Villas (CCV) is the homeowners’ association, or subassociation, within the Bear Creek master development. The property at issue is located within the CCV subassociation area within the Bear Creek master development. The property comprises what is described as units 9-16 of Phase IV of the Country Club Villas subassociation. Units 9-16 were eight unbuilt condominium units within CCV Phase IV. Sixteen condominiums were originally designed for CCV Phase IV; eight condominiums were built in “pods” of two units each, but the remaining eight units, comprising units 9-16, were never constructed.

A company called Watt Bear Creek had owned units 9-16 of CCV Phase IV, but lost title to that property through foreclosure. The property was acquired by Bear Creek Limited, which was owned by Bill Johnson. Edwards apparently lent a sum of money to Johnson, which Johnson failed to repay.

At the time that Edwards lent the funds to Johnson, he did not further investigate the status of Johnson’s property; he simply relied on Johnson’s representation that the property was worth twice the amount borrowed. He did no research in the Riverside County Assessor’s Office, he did not research recorder’s office records regarding the property, and he never read the Bear Creek CC & R’s applicable to the property. Edwards testified that he had purchased numerous properties in the past and that he was familiar with title reports, [341] but that he did not review any title report on the property before lending to Johnson.

Johnson defaulted on the Edwards loan, and Edwards foreclosed. Again, before foreclosing and taking title to the property, Edwards did not check the assessor’s records, did not check the recorder’s records, and did not obtain a title report. Edwards foreclosed on the property and took title for the Trust in approximately December 1997. Edwards’s attorney, Lucila Enriquez, telephoned the Bear Creek property manager in January 1998 to explain that Edwards was now the owner of units 9-16 of CCV Phase IV. Attorney Enriquez told the property manager that she was representing Edwards in connection with his ownership of the lots, and advised that she and Edwards had had some difficulty accessing the property. She followed up the telephone conversation with a copy of the title document showing the transfer from Johnson to Edwards.

The deed giving title to Edwards, on behalf of the trust, listed attorney Enriquez’s address as the address to which the recorded deed was to be mailed. It was to attorney Enriquez’s address, therefore, that Bear Creek sent various notices to Edwards, as owner of units 9-16 of CCV Phase IV.

Among other things, Bear Creek mailed homeowners’ association ballots and notices of association assessments to Edwards, always to attorney Enriquez’s address. As already noted, attorney Enriquez herself had telephoned Bear Creek’s property manager in January of 1998 to inform Bear Creek that the Trust had acquired ownership of the property. The homeowners’ ballots for each of the Trust’s units were voted and returned. The ballots included a space to write in the owner’s address; except in two instances in which the address space was left blank, the voted ballots that Edwards returned all gave attorney Enriquez’s address as the owner’s address.

Bear Creek also sent notices of delinquent homeowners’ association assessments for the units, and notices of intent to file a lien. These notices were sent both by first class mail and by certified mail with return receipt requested, to the Trust at attorney Enriquez’s address. The certified mail envelopes were returned unclaimed, but the first class mail was not returned by the post office.

Before Bear Creek filed the instant suit, no one had ever informed Bear Creek that attorney Enriquez was not authorized to receive communications from Bear Creek at her address. Normally, if a property owner wishes to change its address of record with Bear Creek, the owner notifies the property manager in writing. The property manager never received such a notification with respect to units 9-16 of CCV Phase IV.

Bear Creek adduced evidence that it had charged association assessments to prior owners of units 9-16, even though those eight units were unbuilt. Bear Creek also charged assessments to other unbuilt units within the Bear Creek master development. The triggering event is when one unit in a phase is sold; after that, assessments are charged to each unit in the phase. Bear Creek consistently charged such assessments against every unit in a phase which had sold one property, and had done so regardless of whether the unit consisted of a house, townhouse, condominium, or unbuilt structure.

Edwards testified that he believed the assessments, under the CC & R’s, applied only to “condominiums.” Inasmuch as there were no condominium buildings on his property, he took the view that he had no duty to pay the assessments. He further testified that he also believed that he [342] had no right, as he owned no “units” or “condominiums,” to vote in homeowners’ association elections. He claimed that Bear Creek had erred in sending him any homeowners’ association ballots, but that he had voted the ballots only to “protect” himself. The day following this testimony, however, Edwards executed a proxy with respect to the Bear Creek election for three members of the board of directors, and cast 24 ballots (three for each unit of his property) in that election. Edwards did not deny sending the proxy, but testified that he had immediately sent a revocation of the proxy “[t]o the same man I sent the proxy to.”

In December 1998, Edwards executed a deed of trust on the property in favor of attorney Enriquez; this transaction was to secure payment of Enriquez’s attorney fees in representing Edwards in various matters concerning the property; Edwards had encountered numerous difficulties in getting the property ready to develop. Among other things, he learned after he had acquired the property that tax assessments were delinquent.

Edwards gave evidence that he and attorney Enriquez had had difficulty gaining access to the Bear Creek development, a gated community. Edwards spoke to an onsite employee to apply for vehicle stickers for his and Enriquez’s cars. In the vehicle permit application, Edwards requested that stickers for his and his wife’s cars be mailed to his business address. He testified that he duly received the vehicle permits, and never thought to do anything else about changing his record address with the property manager.

In any event, Bear Creek charged assessments and sent notices for these assessments to Edwards at attorney Enriquez’s address. Edwards disputed the legality of the assessments, inasmuch as there were no built-out structures corresponding to units 9-16 of CCV Phase IV. Bear Creek sent notices of delinquency, filed lis pendens until its lien could be established, and filed the instant action for, among other things, judicial foreclosure, foreclosure of an equitable lien, and breach of contract. Edwards answered on October 13, 2000. (Edwards also filed a cross-action which was later dismissed as to Bear Creek — as a sanction for discovery abuses — and apparently transferred to a different court to be consolidated with a different action involving different parties. The cross-complaint is not in issue on this appeal.)

After considerably protracted and contentious pretrial proceedings, trial began on May 27, 2003. The court exercised its discretion to try the equitable issues and questions of law first, to the court, reserving jury trial for the common law issues, if any remained.

The trial proceeded normally for the first two days. On the third day of trial, attorney Enriquez did not appear. Edwards, who had been traveling with her, reported that Enriquez had suffered chest pains while en route to court that day, and went to the emergency room for evaluation. On the following day, a Friday, Enriquez again did not appear. She sent a letter and a note to the court by fax, after normal business hours. The note stated that Enriquez was placed on a 60-day medical leave for further evaluation, but the note was not signed under oath and gave no details of Enriquez’s medical condition.

The following Monday, June 2, 2003, the court ordered attorney Enriquez to appear by June 5, 2003, or to submit a sworn declaration of a physician explaining why Enriquez had failed to appear in court. Enriquez instead filed a request for a continuance of the trial for 60 days for claimed medical disability. Enriquez [343] averred that she was completely debilitated and could not “function in day to day activities.” She also appended a doctor’s letter which stated only vaguely that Enriquez’s condition was being “worked-up,” and that “[d]epending on the outcome of the work-up, she may return to work prior to or after the estimated sixty-days period.” This letter was unsworn and provided no intelligible information on Enriquez’s medical condition.

On June 5, 2003, the date set to resume trial, neither attorney Enriquez nor Edwards appeared. The court therefore ordered a postponement of the trial until July 30, 2003 (approximately 60 days from the onset of attorney Enriquez’s alleged medical disability). The order advised both Enriquez and Edwards that, if Enriquez was medically unable to resume trial on July 30, 2003, Edwards should be prepared to go forward with new counsel; the 60-day continuance should afford Edwards sufficient time for new counsel to prepare to proceed.

On July 30, 2003, attorney Enriquez again failed to appear. A new attorney, Carter F. Johnston, appeared on Enriquez’s behalf. This time, attorney Enriquez averred that she may have suffered a small stroke four or five days earlier. This claim was supported only by unsworn doctors’ statements, despite the court’s earlier order that Enriquez must present verified evidence of her medical condition, substantiating her incapacity to appear at trial.

Attorney Johnston also claimed that he was unprepared to proceed with the trial on July 30, 2003, despite the court’s express direction to attorney Enriquez to inform her client (Edwards) of the need to proceed without fail on that date, and to obtain new counsel if necessary to do so. The court denied attorney Johnston’s request for a further continuance. The highly unusual circumstances of attorney Enriquez’s absenting herself from court in the midst of trial, without providing verified evidence of any medical disability or incapacity, resulted in an order for sanctions, which has been reviewed in a separate appeal. (Bear Creek Master Association v. Edwards(Sept. 21, 2004, E034591) [nonpub. opn.])

The case then proceeded on July 30 and 31, 2003. The court issued a statement of decision, finding in favor of Bear Creek on both the judicial and equitable foreclosure causes of action. Because no triable issues of fact remained with respect to any alleged breach of contract, the court also granted Bear Creek’s motion for a directed verdict on that cause of action. The court thereupon gave judgment for Bear Creek in the amounts requested. The court further found that Bear Creek was the prevailing party and thus entitled to attorney fees.

Edwards moved for a new trial. This was apparently denied, and Edwards filed a notice of appeal from the judgment.

Bear Creek submitted a motion for attorney fees; Bear Creek then moved to amend the judgment to include both the attorney fees and costs award and an amount previously ordered as sanctions. The court signed the judgment as amended.

Bear Creek then objected to the amount of the undertaking Edwards had posted before taking an appeal; inasmuch as the judgment had been substantially increased by the addition of the attorney fees and costs award, Bear Creek asked the court to order Edwards to provide an increased undertaking on appeal. The court found that the undertaking already deposited was insufficient, in light of the amounts added to the judgment for attorney fees and costs, and ordered Edwards to deposit [344] additional funds for the undertaking on appeal. Edwards filed a second notice of appeal, encompassing the award of attorney fees and costs as well as the requirement of an additional undertaking on appeal.

This court eventually consolidated these two appeals.

ANALYSIS

Edwards raises a plethora of issues, some of which are duplicative, and none of which has merit, with only one possible minor exception.

I. Edwards Was Required to Pay Assessments, Notwithstanding the Absence of an Actual Structure on the Property

Edwards’s primary contention throughout the action was that assessments pertain only to a “condominium,” and that a “condominium” must contemplate an actual, existing structure. In the absence of a building or structure, no duty to pay assessments arose under either statutory law or under the Bear Creek CC & R’s. Edwards thus argues, first of all, that the court erred in denying his motion for a directed verdict on all causes of action. He asserts that Bear Creek could not prove an essential element of all the causes of action: to wit, the existence of a “condominium.”

A. The Davis-Stirling Act Defines a “Condominium” as “Space” Described in a Qualifying Instrument

Edwards insists that “[v]acant land is not a condominium.” This claim is based upon a proposed construction of the relevant statutory authority and, to some extent, of the Bear Creek CC & R’s. The construction of both statutes and contractual documents presents questions of law, which we review de novo. (Regents of the University of California v. Superior Court (1999) 20 Cal.4th 509, 531, 85 Cal.Rptr.2d 257, 976 P.2d 808; Morgan v. City of Los Angeles Bd. of Pension Comrs. (2000) 85 Cal.App.4th 836, 843, 102 Cal.Rptr.2d 468.)

Civil Code section 783 was enacted in 1963. (Stats.1963, ch. 860, § 1, p. 2090.) It defined a condominium as “an estate in real property consisting of an undivided interest in common in a portion of a parcel of real property together with a separate interest in space in a residential, industrial or commercial building on such real property, such as an apartment, office or store.” (Italics added.) An amendment in 1969 did not alter this language in the statute. (Stats.1969, ch. 275, § 1, p. 624 [amending the description of a possible condominium interest from an “estate for years” to an “estate for years, such as a leasehold or subleasehold”].)

In 1984, however, the definition of a “condominium” was changed considerably. Civil Code section 783 was amended to read: “A condominium is an estate in real property consisting of an undivided interest in common in a portion of a parcel of real property together with a separate interest in space, the boundaries of which are described on a recorded final map, parcel map, condominium plan or other document in sufficient detail to locate all boundaries thereof. The area within such boundaries may be filled with air, earth, or water or any combination thereof and need not be physically attached to the land except by easements for access and, if necessary, support. The description of such space may refer to (i) boundaries described in the recorded final map, parcel map, condominium plan or other document; (ii) physical boundaries, either in existence, or to be constructed, such as walls, floors and ceilings of a structure or portion thereof; (iii) an entire structure containing one or more separate interests [345] in space; or (iv) any combination thereof. The portion of the parcel of real property held in undivided interest may be all of the real property of an existing parcel or lot (except for the separate interests in space) or may include a particular three-dimensional portion thereof, the boundaries of which are described on a recorded final map, parcel map, condominium plan or other document. The area within the boundaries may be filled with air, earth, or water, or any combination thereof, and need not be physically attached to land except by easements for access and, if necessary, support. A condominium may include in addition a separate interest in other portions of such real property….” (Italics added.) Civil Code section 1350 was amended to reflect that, “As used in this title unless the context otherwise requires: [¶] 1. `Condominium’ means a condominium as defined in Section 783 of the Civil Code. [¶] 2. `Unit’ means the elements of a condominium which are not owned in common with the owners of other condominiums in the project. [¶] 3. `Project’ means the entire parcel of real property divided, or to be divided into condominiums, including all structures thereon. [¶] 4. `Common areas’ means the entire project excepting all units therein granted or reserved….” (Stats.1984, ch. 291, § 2, p. 1518.)

Thus, we see that “condominium” was radically redefined to mean a separate interest in space, within boundaries described by certain qualifying documents. The “space” may consist of air, earth or water, or any combination of these things, so long as the boundaries of that space are adequately described in the proper recorded document. There was no longer any requirement for an existing building or structure as a defining characteristic of a condominium.

In 1985 (effective in 1986), the Legislature enacted the Davis-Stirling Common Interest Development Act (the Davis-Stirling Act). (Stats.1985, ch. 874, § 14, p. 2774.) To accomplish this, the Legislature repealed Civil Code section 783, and enacted a new Civil Code section 783 (Stats.1985, ch. 874, §§ 8, 9, p. 2772), reading as follows: “A condominium is an estate in real property described in subdivision (f) of Section 1351.” In other words, the definition of “condominium” was transferred from Civil Code section 783, to Civil Code section 1351, subdivision (f).

The Legislature also repealed Title 6 of Part 4 of Division 2 of the Civil Code (beginning with § 1350), and enacted replacement provisions (the Davis-Stirling Common Interest Development Act). New Civil Code section 1351, subdivision (f), defines a condominium as: “an undivided interest in common in a portion of real property coupled with a separate interest in space called a unit, the boundaries of which are described on a recorded final map, parcel map, or condominium plan in sufficient detail to locate all boundaries thereof. The area within these boundaries may be filled with air, earth, or water, or any combination thereof, and need not be physically attached to land except by easements for access and, if necessary, support. The description of the unit may refer to (1) boundaries described in the recorded final map, parcel map, or condominium plan, (2) physical boundaries, either in existence, or to be constructed, such as walls, floors, and ceilings of a structure or any portion thereof, (3) an entire structure containing one or more units, or (4) any combination thereof. The portion or portions of the real property held in undivided interest may be all of the real property, except for the separate interests, or may include a particular three-dimensional portion thereof, the boundaries of which are described on a recorded [346] final map, parcel map, or condominium plan. The area within these boundaries may be filled with air, earth, or water, or any combination thereof, and need not be physically attached to land except by easements for access and, if necessary, support….”

This definition of a “condominium,” derived from former Civil Code section 783, as amended in 1984, carried forward the changed description of a condominium, so that it no longer required the existence of a structure or building.

B. Civil Code Section 1646 Is Inapplicable

Edwards relies on the original definition of condominium, as set forth in the pre-1984 versions of Civil Code section 783. He strenuously argues that that definition requires a “condominium” to consist of a structure or building. Edwards further argues that, pursuant to Civil Code section 1646, contracts — here, the Bear Creek CC & R’s — must be construed according to the law and usage “of the place” where the contract was made.^[FN.1] This “place,” Edwards maintains, is pre-1984 California; thus, the term “condominium,” according to the “law and usage” of California before 1984 must be construed to require an actual structure. The Bear Creek CC & R’s were created before 1984, and should therefore be subject to the pre-1984 definition in Civil Code section 783.

Edwards’s reliance on Civil Code section 1646 is misplaced. He is attempting to import a “law of time” rather than a “law of place” into the CC & R’s as a contract or instrument. Whether pre- or post-amendment law is applied, the CC & R’s properly apply the law of place where the contract was created or intended to be performed: i.e., California. Civil Code section 1646 is irrelevant to the question whether the new definition of “condominium” under California law applies to the Bear Creek CC & R’s.

C. The New Definition of a “Condominium,” Not Requiring a Structure, Applies to Edwards’s Property

The Davis-Stirling Act by its own terms applies to all common interest developments, even those that were created before the Act was adopted. (Civ.Code, § 1352; Villa de las Palmas Homeowners Assn. v. Terifaj (2004) 33 Cal.4th 73, 81, fn. 2, 14 Cal.Rptr.3d 67, 90 P.3d 1223.; Nahrstedt v. Lakeside Village Condominium Association (1994) 8 Cal.4th 361, 378, fn. 8, 33 Cal.Rptr.2d 63, 878 P.2d 1275.) Civil Code section 1352 states in relevant part: “This title applies and a common interest development is created whenever a separate interest coupled with an interest in the common area or membership in the association is, or has been, conveyed….” (Italics added.)

Edwards attempts to avoid the application of the Davis-Stirling Act to his property by arguing that he acquired no fee simple estates in the deed by which he took title to units 9-16 of CCV Phase IV. He contends that the Trust owns an “undivided parcel of land [which] has not yet been divided into separate interests.” Thus, Edwards contends, the trust does not own any “condominiums,” defined as consisting both of an “undivided interest in common in a portion of real property,” [347] together with “a separate interest in space….” (Civ.Code, § 783.)

Edwards’s argument is disingenuous. The deed by which the Trust received title recites that the property received does qualify as a “condominium” — eight of them, in fact — consisting of both an “undivided interest” in common areas and a fee simple interest in a condominium unit.

Edwards’s deed conveyed an “undivided 8/16th fractional interest” in the common areas of “lots 1 and 2 of Tract Map 20829, in the County of Riverside, State of California, as per map recorded in Book 161, pages 3 through 4, inclusive, of Maps, in the Office of the County Recorder of said County.” The undivided (common) interest in lots 1 and 2 of Tract Map 20829 specifically excluded, “all living units and garages shown upon Country Club Villas-Phase 4 Condominium Plan recorded in the Office of the County Recorder of Riverside County, California on September 9, 1986 as Instrument No. 219590.” (Italics added.) In other words, the “undivided interest” conveyed in lots 1 and 2 of Tract Map 20829 included common areas and excluded the condominium units themselves, which were to be owned exclusively by their owners/occupiers: i.e., the fee simple portion of the condominium unit.

Edwards purchased eight such condominium units: units 9 through 16, with the exclusive right to use, possess and occupy those units. That Edwards owns more than one unit does not detract from Edwards’s exclusive right, in fee simple, to occupy the living unit and garage areas for units 9 through 16, as described on the CCV Phase IV condominium plan. Indeed, there would be utterly no point in describing Edwards’s title to “Living unit and garage Nos. 9 through 16 as shown upon the condominium plan,” if the deed did not convey a fee simple interest in those condominium units.

Edwards’s argument that the land itself is “undivided,” is an example of the logical fallacy of “equivocation,” in which he has shifted the meaning of the word. The “undivided interest” conveyed in the deed is ownership, held in common with all the other owners in lots 1 and 2 of Tract Map 20829, to the common areas in lots 1 and 2. The condominium areas—the living units and garages as described in the condominium plan — are specifically excluded from the description of Edwards’s “undivided interest.” That Edwards has not sold any individual units — whether constructed or not — is wholly irrelevant to the existence of both an undivided (common) interest and a fee simple (exclusive) interest, which comprise a condominium. The eight units Edwards acquired meet the statutory definition of a “condominium” under the Davis-Stirling Act, inasmuch as they are specifically described in a qualifying condominium plan, the CCV Phase IV plan as described in Edwards’s deed. Edwards has failed to demonstrate that the Davis-Stirling Act does not apply to his condominium units.

D. Edwards Was Not Entitled to a Directed Verdict

Inasmuch as we have concluded that the Davis-Stirling Act, and its definition of a “condominium,” applied to Edwards’s property, we necessarily also conclude, as did the trial court, that Edwards owns eight “condominiums.” In light of this conclusion, we categorically reject Edwards’s initial contention, that the trial court erred in denying a motion for directed verdict, premised on the notion that Bear Creek could not prove the existence of any “condominiums” for which assessments were payable. Bear Creek did prove the existence of eight condominiums; Edwards was not entitled to a directed verdict.

[348] E. Edwards Had a Duty to Pay Assessments

Under both the Davis-Stirling Act and the Bear Creek CC & R’s, assessments become due upon all units in a phase after the first unit in a phase has sold. The evidence at trial was uncontradicted that the first unit in CCV Phase IV sold no later than 1986, long before Edwards acquired his units. This event triggered the duty of each owner of a unit in that phase to pay assessments. The CC & R’s declared, “The Annual Assessments … shall commence as to all lots (including those owned by Declarant) on the first day of the month following the conveyance of the first lot by Declarant to an individual Owner; provided however, that annual assessments shall commence for all Lots located within a phase of the Properties which has been annexed hereto on the first day of the month following the conveyance of the first lot in such phase by Declarant to an individual Owner….” CCV Phase IV had been annexed into the Bear Creek master development in August of 1986.

The evidence was therefore without dispute that the triggering events — annexation and first sale of a lot to an individual owner — had taken place with respect to CCV Phase IV. Thereafter, Bear Creek at all times charged annual assessments against each unit in CCV Phase IV, whether or not the unit had been built out.

Edwards owned eight units in CCV Phase IV. Edwards therefore owed a duty under both the Davis-Stirling Act and the Bear Creek CC & R’s to pay those assessments, regardless of the absence of an actual condominium structure or building. The definition of a “condominium” as a unit of “space,” which “space” may consist of air, water or earth, in no wise requires an actual structure or building; rather, it requires a specific description in a particular kind of qualifying recorded instrument. Such an instrument (condominium plan) exists here. As a matter of law, based upon statutory construction, interpretation of the written CC & R’s, and undisputed facts, the Trust owed a duty to pay assessments to Bear Creek for each of the eight condominium units it owned.

F. Edwards Failed to Pay Any Assessments

The evidence was undisputed that the Trust at all times failed and refused to pay any assessments for any of its condominium units. The evidence was further undisputed as to the amounts of the regular assessments charged and which remained unpaid. As a matter of law, therefore, Bear Creek had demonstrated that Edwards owed a duty to pay assessments and had failed to do so. Bear Creek was therefore entitled to pursue its enforcement remedies under the CC & R’s.

II. Bear Creek Properly Gave Notice of Its Liens

Edwards next complains that Bear Creek failed to comply with the statutory notice requirements for filing its liens against Edwards’s lots.

A. Notice Was Given to the Owner at the Owner’s Designated Address

More specifically, Edwards argues that Bear Creek “never complied with notice requirements to Edwards, the only person entitled to notice.” He contends that the notices sent to him at attorney Enriquez’s address were of no effect, because he never designated her as his agent; he further asserts that Bear Creek should not have been permitted to present evidence on the issue of agency, because that issue was not specifically alleged in Bear Creek’s complaint.

[349] 1. Notice Was Mailed to Edwards (the Owner) at the Address Selected by Both Edwards and His Attorney

The claim that Edwards did not receive proper notice is disingenuous. Attorney Enriquez’s address was the address listed on Edwards’s title deed to the property. Bear Creek consistently sent information, mailings, requests and notices to Edwards at attorney Enriquez’s address. Attorney Enriquez consistently responded, on Edwards’s behalf, to these mailings, requests and notices.

For example, Bear Creek first sent notice of the overdue assessments to Edwards(i.e., to “Edward Trust” [sic] — the record owner — by name), in care of attorney Enriquez, on February 27, 1998. Attorney Enriquez, using her own letterhead, replied on behalf of Edwards, advising Bear Creek that Edwards “dispute[d] [the] `Notice of Past Due Assessments,'” on the bases both that Edwards had never received an initial statement concerning assessments on the property, and that there were no structures on the property. Notably, attorney Enriquez’s correspondence did not advise Bear Creek to use any other address to contact Edwards. Attorney Enriquez also responded on Edwards’s behalf in several other instances, and the Edwardses themselves never made any written request to have Bear Creek’s correspondence sent to them at any other address.

The only exception was Edwards’s request to an unknown person at the gate kiosk for parking decals; the decals were duly sent to his business address. Otherwise, however, Edwards took no steps to prevent Bear Creek from sending its correspondence to him at attorney Enriquez’s address. Indeed, Bear Creek sent ballots to Edwards at attorney Enriquez’s address, which ballots Edwards then personally cast. As to one set of eight ballots, Edwards himself filled in attorney Enriquez’s address as the owner’s address in the space provided on each ballot. On another set of eight ballots, he again wrote in attorney Enriquez’s address as the owner’s address on six of the eight ballots (two ballots left the owner’s address space blank). Edwards himself therefore consistently designated attorney Enriquez’s address as the proper mailing address for the Trust, the property owner.

Edwards testified at trial that he had voted the ballots — giving attorney Enriquez’s address as the “owner’s” mailing address — in error, or that he had done so only to “protect” his rights. A mere two days after giving this testimony, however, he executed a proxy for each of his eight units, to cast three ballots per unit, or 24 total votes, in the election of Bear Creek’s Board of Directors. He faxed this proxy to the designated election inspector, who in turn cast the ballots as directed by Edwards’s proxy instructions. The execution of the proxy was wholly inconsistent both with Edwards’s claim that he owned no assessable “units,” and with the assertion that Bear Creek was not entitled to correspond with him at attorney Enriquez’s address. Under Bear Creek’s CC & R’s, only assessable units are entitled to vote in association elections. The notice of the election presumably was not sent to Edwards at any address other than the one Edwards had designated on all the earlier ballots as the Trust’s correspondence address: attorney Enriquez’s address. The proxy was faxed from the same fax number that attorney Enriquez used for her fax communications to and from the court. Edwards attempted to disclaim the proxy, testifying that he had also sent a fax revoking the proxy; he did not say when he sent the revoking fax, however, and the election inspector testified that no such revocation was received before the close of [350] the election. Notably also, Edwards produced no document to substantiate his claim that he had revoked his proxy. (In addition, Edwards’s testimony failed to explain why he had faxed his election proxy in the first place, had he truly believed he had no assessable lots, and thus was not entitled to vote in any Bear Creek elections.)

Civil Code section 1367, subdivision (a), provides in relevant part that, “[b]efore an association may place a lien upon the separate interest of an owner to collect a debt which is past due under this subdivision, the association shall notify the owner in writing by certified mail of the fee and penalty procedures of the association, provide an itemized statement of the charges owed by the owner, including items on the statement which indicate the assessments owed, any late charges and the method of calculation, any attorney’s fees, and the collection practices used by the association, including the right of the association to the reasonable costs of collection….” (Italics added.)

Manifestly, Bear Creek complied with this requirement. The notice was sent by certified mail to the owner at the address consistently used by the owner and the owner’s attorney. Attorney Enriquez refused to sign the certified mail receipts, and the lien notices were returned to Bear Creek. Bear Creek had also sent the lien notices by first class mail, however, and none of the first class mail envelopes were returned.

2. Notice Cannot Be Defeated by Willful Failure to Accept Certified Mail

Edwards claims that Bear Creek failed to comply strictly with Civil Code section 1367, arguing that “there is no presumption of notice absent a signed certified receipt,” citing Code of Civil Procedure section 1020. This argument is again disingenuous. Code of Civil Procedure section 1020 provides that, “Any notice required by law, other than those required to be given to a party to an action or to his attorney, the service of which is not governed by the other sections of this chapter and which is not otherwise specifically provided for by law, may be given by sending the same by registered mail with proper postage prepaid addressed to the addressee’s last known address with request for return receipt, and the production of a returned receipt purporting to be signed by the addressee shall create a disputable presumption that such notice was received by the person to whom the notice was required to be sent.”

Code of Civil Procedure section 1020 is permissive; where a notice is required to be sent by mail, compliance with the mailing requirement may be satisfied by sending the notice by registered mail with a return receipt requested. Code of Civil Procedure section 1020 does not require mailed notices to be sent by registered mail. Likewise, while a signed return receipt may create a rebuttable presumption that the notice was received, the absence of such a signed return receipt does not negate any other presumptions concerning mailed items. Under Evidence Code section 641, “[a] letter correctly addressed and properly mailed is presumed to have been received in the ordinary course of mail.”

Of course, a presumption of receipt is rebutted upon testimony denying receipt. (Slater v. Kehoe (1974) 38 Cal.App.3d 819, 832, fn. 12, 113 Cal.Rptr. 790; accord Craig v. Brown & Root, Inc. (2000) 84 Cal.App.4th 416, 421-422, 100 Cal.Rptr.2d 818.) The presumption of Evidence Code section 641 properly applied here, unless rebutted by a denial of receipt. Attorney Enriquez did not testify, and thus never denied under oath that she [351] had received the lien notices mailed to Edwards at her address. Edwards was in no position to deny receipt of the mail at attorney Enriquez’s address.

Even if we accept for the sake of the argument, however, that the tenor of Edwards’s evidence was the intent to deny receipt of the lien notices, “the disappearance of the presumption does not mean there is insufficient evidence to support the trial court’s finding [i.e., of receipt of notice].” (Craig v. Brown & Root, Inc., supra, 84 Cal.App.4th at p. 421, 100 Cal.Rptr.2d 818, italics in original) “`”[I]f the adverse party denies receipt, the presumption is gone from the case. [But] [t]he trier of fact must then weigh the denial of receipt against the inference of receipt arising from proof of mailing and decide whether or not the letter was received.“‘” (Id. at p. 422, 100 Cal.Rptr.2d 818, italics in original.)

Here, the evidence was uncontradicted that Bear Creek mailed the lien notices both by certified mail, as required, and by first class mail. Attorney Enriquez refused to sign for the certified letters, and those letters were returned by the post office. The first class letters were not returned, however. The correspondence from attorney Enriquez, on Edwards’s behalf, plainly demonstrated knowledge of the disputed assessments. The inference is inescapable: attorney Enriquez in fact received all the notices, but simply refused to accept the certified mail.

The requirement to send the lien notices by certified mail cannot be defeated by the simple expedient of refusing to sign the return receipt. “Where a statute provides for service by registered or certified mail, the addressee cannot assert failure of service when he wilfully disregards a notice of certified mail delivered to his address under circumstances where it can reasonably be inferred that the addressee was aware of the nature of the correspondence.” (Hankla v. Governing Bd. (1975) 46 Cal.App.3d 644, 655, 120 Cal.Rptr. 827.)

3. The Notice Was Properly Served, Whether Regarded as Served on the Owner or on the Owner’s Agent

That “agency” was not specifically pled is a red herring. First, Edwards consistently designated a certain address as the Trust’s (owner’s) address for correspondence with Bear Creek. That the designated address happened also to be attorney Enriquez’s address does not defeat the evidence that notice was given to the owner at the owner’s designated mailing address.

Second, the evidence also supported the view that Enriquez was Edwards’s agent with respect to any correspondence with Bear Creek. Either Enriquez was Edwards’s actual agent, or she was his ostensible agent. “Ostensible authority is such as a principal, intentionally or by want of ordinary care, causes or allows a third person to believe the agent to possess.” (Civ.Code, § 2317.) Here, all of Edwards’s and Enriquez’s actions intentionally or negligently fostered the belief that Enriquez’s address was the owner’s address for purposes of all correspondence from Bear Creek and that Enriquez was empowered to act on Edwards’s behalf with respect to the CCV Phase IV property and the disputed assessments. As the trial court remarked, “it appears to the court . . . that when it’s convenient to use Miss Enriquez and her address, that’s what they do. And when it is not convenient, then there is a disclaimer that Miss Enriquez has no [sic; any?] authority to act on his behalf. Mr. Edwards . . . will be estopped from making that claim.”

The issue of agency, if any, was not an issue “outside” the pleadings. (Cf. 4 Witkin, [352] Cal. Procedure (4th ed., 1997) Pleading, § 488, p. 579, § 873, p. 330 [“In actions by a principal on a contract made by the agent, that pleading [i.e., the fact of agency] is unnecessary; it is sufficient to allege [the ultimate fact] that plaintiff and defendant entered into the contract”].) The issue to be tried was “notice.” The issue of notice necessarily encompasses evidence of the means by which notice was accomplished. Inasmuch as notice may be accomplished either directly or through an agent, the evidence adduced was within the issues raised by the pleadings.

Edwards was properly served with the lien notices in compliance with Civil Code section 1367.

B. The Court Properly Determined the Amount of the Lien Assessments

In connection with the attack on the propriety of the lien notice, Edwards asserts that the amount of the lien must be limited to the amount initially stated in the notice; in other words, Edwards argues that no “recurring liens” are authorized under Civil Code section 1367, and that Bear Creek’s recovery must therefore be limited to the amount stated in the initial lien notice, or $484.54 per lot. (We note, as an aside, that each of the notices actually specified $587.08 as the amount of delinquent assessments; together with costs, $879.58 was the amount sought per lot for unpaid assessments, to the date of notice.)

We are not persuaded. Civil Code section 1367, subdivision (b), provides in relevant part, “The amount of the assessment, plus any costs of collection, late charges, and interest assessed in accordance with Section 1366, shall be a lien on the owner’s interest in the common interest development from and after the time the association causes to be recorded with the county recorder of the county in which the separate interest is located, a notice of delinquent assessment. . . .” [Italics added.]

Civil Code section 1366, in turn, refers to provisions for assessments in an association’s “governing documents,” such as the Bear Creek CC & R’s. Article V, Section 11(b), of the Bear Creek CC & R’s provides that a lien includes: “[t]he total amount claimed to be due and owing for the amount of delinquency, interest thereon, collection costs, and estimated attorneys’ fees.” It further provides that “any demand or claim of lien or lien on account of prior delinquencies shall be deemed to include subsequent delinquencies and amounts due on account thereof.” (Italics added.) The recorded lien notices, also mailed to Edwards, included the statement that, “[a]dditional monies shall accrue under this claim at the rate of the claimants’ regular monthly or special assessments, plus permissible late charges, costs of collection and interest, accruing subsequent to the date of this notice.”

As Bear Creek observes, all of the sums included on the liens and lien notices are authorized by the CC & R’s and statutory law. The amounts here determined by the court to be owing as liens are no more than the amounts authorized by the governing documents and statutes.

Pursuant to Civil Code section 1366, subdivision (a), “[c]ondominium homeowners associations must assess fees on the individual owners in order to maintain the complexes.” (Park Place Estates Homeowners Assn. v. Naber (1994) 29 Cal.App.4th 427, 431-432, 35 Cal.Rptr.2d 51, italics original.) Those fees are statutorily prescribed to be “a debt of the owner . . . at the time the assessment . . . [is] levied.” (Civ.Code, § 1367, subd. (a).) “These statutory provisions reflect the Legislature’s recognition of the importance of assessments to the proper functioning of condominiums in this state. Because homeowners associations would cease to exist without regular payment of assessment [353] fees, the Legislature has created procedures for associations to quickly and efficiently seek relief against a nonpaying owner.” (Park Place Estates Homeowners Assn. v. Naber, supra, 29 Cal.App.4th at p. 432, 35 Cal.Rptr.2d 51, italics added.)

Were the relevant provisions to be construed as Edwards suggests, the described statutory purpose of providing for a quick and efficient means of enforcing the CC & R’s would be seriously undermined; each month, or at such other intervals as the assessments are charged under a given set of CC & R’s, the association would be required to record successive liens. A successive recordation requirement would impose a heavy — and needless — burden upon homeowners’ associations, fraught with risk to the association, and undue windfall to the delinquent homeowner, should any installment be overlooked. We are unwilling to construe Civil Code section 1367 to require such an oppressive burden. Both delinquent homeowners and the public at large are placed on notice, with the recordation of the initial assessment lien, that subsequent regularly and specially levied assessments, if they continue unpaid, will accrue in due course. The purpose of the lien notice and recordation will have been served, and the association’s remedy justly preserved, by the initial recordation of lien.

Inasmuch, also, as Edwards has admitted that the assessments, charges, and other moneys due and owing under the CC & R’s have never been paid, we find no error in the court’s determination of the amounts due.

III.-VI.^[FN.**]

DISPOSITION

The trial court is ordered to strike from its statement of decision the findings that Bear Creek was not guilty of unclean hands or fraud. The amendment to the statement of decision in no wise affects the validity of the judgment, however. The judgment is in all respects affirmed. The appeal from the postjudgment order setting the amount of the security deposit on appeal is moot. Costs on appeal are awarded to Bear Creek as the prevailing party on appeal.

McKINSTER Acting P.J., and KING, J., concur.

___________________________________________________________________________

[FN.*] Pursuant to California Rules of Court, rule 976.1, this opinion is certified for publication with the exception of parts III, IV, V and VI.

[FN.1] Civil Code section 1646 states: “LAW OF PLACE. A contract is to be interpreted according to the law and usage of the place where it is to be performed; or, if it does not indicate a place of performance, according to the law and usage of the place where it is made.”

[FN.**] See footnote *, ante.

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).)

Nonjudicial Foreclosure*
Judicial Foreclosure*
Lawsuit for Money Damages (whether Superior Court or Small Claims).

*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).” )

Diamond Heights Village Association, Inc. v. Financial Freedom Senior Funding Corp.

(2011) 196 Cal.App.4th 290

[Assessment Collection; Judgment Lien Merger] When a HOA assessment lien is enforced by the HOA through judicial action, the debt secured by the assessment lien is merged into the judgment.

Ragghianti Freitas, David F. Feingold and Rodrigo D. Dias for Plaintiff and Appellant and for Plaintiff and Respondent.
Steyer Lowenthal Boodrookas Alvarez & Smith, Jeffrey H. Lowenthal, Carlos A. Alvarez and Benjamin R. Ehrhart for Defendant and Appellant and for Defendant and Respondent.

OPINION

[294] SEPULVEDA, J.

Plaintiff Diamond Heights Village Association, Inc. (Association), sued the owners of a condominium unit for failing to pay assessments levied for maintenance of common areas. The Association also sued Financial Freedom Senior Funding Corporation (Financial Freedom), which holds a deed of trust on the unit securing a reverse mortgage loan. In its single cause of action against Financial Freedom, the Association sought foreclosure of assessment liens and priority over the deed of trust. Financial Freedom obtained a summary judgment in its favor. A bench trial against the unit owners on other causes of action was held, at which the court partially voided Financial Freedom’s deed of trust.

The Association appeals the summary judgment for Financial Freedom, and Financial Freedom appeals the judgment on the remaining claims voiding its property interest. Financial Freedom also appeals the court’s attorney fee orders.

We affirm summary judgment for Financial Freedom on the lien foreclosure cause of action and reverse the judgment on the remaining claims to the extent it voids Financial Freedom’s deed of trust. The trial court erred in voiding Financial Freedom’s security interest in the property when Financial Freedom had not been joined as a party on the claims being tried, and final judgment had already been entered in its favor. We affirm the court’s attorney fee orders.

I. FACTS

The Association maintains a 396-unit residential condominium complex in San Francisco known as Diamond Heights Village. Diamond Heights Village is governed by a first restated declaration of covenants, conditions, and restrictions (CC&R’s) recorded in 1990. Under the CC&R’s, homeowners agree to pay assessments levied by the Association for maintenance of Diamond Heights Village. (See Civ. Code, § 1366 [authorizing assessments].)

[295]

A. Assessment liens

Mark Williams owned a unit in Diamond Heights Village and failed to pay the assessments. The Association recorded notices of delinquent assessment in 1994 and 1995. To avoid collection efforts by the Association and other creditors, Williams filed five separate bankruptcy petitions from 1995 to 1999, each of which was dismissed. Several days after the fifth bankruptcy petition was dismissed, Williams conveyed the Diamond Heights Village condominium unit to himself and his mother, Lois Crosby, as joint tenants. In 2000 and 2001, the Association recorded assessment liens against the condominium unit. (Civ. Code, § 1367.)

B. Judgment on assessment liens

In 2002, the Association obtained a default judgment against Williams for foreclosure of the assessment liens. The total amount of the judgment, including attorney fees and costs, was $39,199.^[[1]^] The Association did not record an abstract of judgment. The court issued a writ of execution for the sale of the unit to satisfy the judgment. Crosby, now a joint tenant of the unit, filed a petition for bankruptcy to evade the Association’s collection efforts. A second writ of execution was issued and a foreclosure sale was set for 2004, after Crosby’s bankruptcy petition was dismissed, but Williams filed a sixth bankruptcy petition on the day set for the sale. That bankruptcy petition, like all the others, was dismissed. Several months later, Williams and Crosby embarked on another transaction affecting the condominium unit before a foreclosure sale was conducted.

C. New first deed of trust

In October 2004, Crosby applied for a reverse mortgage with defendant Financial Freedom, a subsidiary of IndyMac Bank. A homeowner must be 62 years of age or older to qualify for a reverse mortgage with Financial Freedom. Crosby, born in 1920, qualified. Crosby’s application stated that there was an outstanding judgment against her and listed the Association among those holding a lien on the property.

Financial Freedom ordered a preliminary title report that noted title ownership by Crosby and her son, Williams, as joint tenants. The preliminary title report did not list the Association’s assessment liens despite their [296] recordation with the county recorder’s office. The Association’s judgment had not been recorded and was not listed in the title report.^[[2]^]

In November 2004, Financial Freedom obtained certification from the Association concerning certain features of Diamond Heights Village, such as unit ownership in fee simple and the provision of property and liability insurance. The Association also certified that there was nothing in the CC&R’s “that would prevent the placing of a first mortgage lien on an individual unit or would jeopardize the first lien status of such a mortgage due to future association assessments.” (Italics added.) Financial Freedom’s certification form did not ask if there were unpaid past assessments.

Financial Freedom completed the transaction in December 2004, creating a new first mortgage. Williams transferred his one-half interest in the unit to his mother, Crosby, giving her full title to the unit. Crosby then executed a deed of trust in favor of Financial Freedom to secure a reverse mortgage loan. The two documents—Williams’s grant deed and Crosby’s deed of trust—were notarized by the same person on the same date, and recorded within seconds of each other. Williams did not receive any consideration from his mother for the transfer of his ownership interest in the unit. In funding the loan, Financial Freedom paid off first and second deeds of trust totaling $219,935. Financial Freedom also paid $48,948 in cash to Crosby. Financial Freedom funded the loan in an amount no less than $278,505.

D. Amended judgment on assessment liens

An amended judgment against Williams and Crosby for foreclosure of the Association’s assessment liens was entered in 2005. The amended judgment included interest and costs incurred from the time of the original 2002 judgment and totaled $51,184. The Association did not record an abstract of judgment for the amended judgment. The Association obtained a writ of execution for the sale of the unit, but Crosby filed another petition for bankruptcy. The petition was later dismissed. The judgment was last renewed in January 2008 for an updated amount of $64,854.

E. Complaint to set aside fraudulent transfer and to foreclose lien

The Association learned of Financial Freedom’s first deed of trust at some point and, in an effort to establish priority for its assessments over Financial Freedom’s deed of trust, filed the present action in December 2007. The [297] Association stated six causes of action: setting aside fraudulent transfer; conspiracy; breach of contract (CC&R’s); foreclosure of a lien; open book account; and injunctive relief. All of the causes of action were stated against Williams and Crosby but only the fourth cause of action for foreclosure of a lien was stated against Financial Freedom. The fourth cause of action also named judgment creditor Hassen & Associates as a defendant. In that cause of action, the Association alleged that homeowners Williams and Crosby owed assessments amounting to $67,149 as of December 2007 (plus assessments accruing after filing of the complaint). It was further alleged that the homeowners had not satisfied the 2000 and 2001 assessment liens, nor the 2002 judgment and that those liens and judgment “remain valid and encumber the property.” The Association alleged that Financial Freedom’s 2004 deed of trust is subordinate to the liens and judgment held by the Association. While seeking judicial foreclosure of the assessment liens, the Association also stated its intention to reserve its right to enforce the existing judgment foreclosing the same liens.

F. Answers and cross-complaint

Financial Freedom answered the complaint raising several affirmative defenses, including the statute of limitations. It also filed a cross-complaint for declaratory relief and other claims. Financial Freedom asserted that it has a valid first lien against the Diamond Heights Village condominium unit and that it is “a bona fide encumbrancer with respect to said lien.” It sought a judicial determination of the rights and interests of itself and the Association in the property. Judgment creditor Hassen & Associates also answered the complaint. Homeowners Williams and Crosby never answered the complaint and their default was entered in March 2008.

G. Summary judgment motion

In February 2009, Financial Freedom moved for summary judgment on the Association’s complaint, which stated a single cause of action against Financial Freedom for foreclosure of liens. Financial Freedom noted that the Association did not have a judgment lien and was basing its priority claim upon the assessment liens. Financial Freedom argued that the Association’s action for foreclosure of the assessment liens, and the claimed priority under them, failed because (1) foreclosure of the assessment liens had already been litigated, reduced to judgment, and merged into that judgment; (2) foreclosure of the assessment liens was time-barred; and (3) the CC&R’s expressly subordinated assessment liens to first mortgage holders like Financial Freedom.

[298] Judge Charlotte Woolard ruled on the motion on May 6, 2009, and granted summary judgment on the first ground. The court ruled that the Association’s assessment liens merged into the judgment in the earlier foreclosure action against the homeowners, that the judgment was unrecorded, and that Financial Freedom’s recorded deed of trust thus had priority.

H. Judgment for Financial Freedom

Financial Freedom requested dismissal of its cross-complaint and sought entry of judgment in its favor. In June 2009, Judge Woolard entered a judgment in favor of Financial Freedom and against the Association decreeing that the Association “shall recover nothing, and shall obtain no relief, as against defendant Financial Freedom, in this action.” The court denied Financial Freedom’s motion for contractual attorney fees under the CC&R’s because there was “no privity” between Financial Freedom and the Association. (Civ. Code, § 1717.)

I. Trial of remaining claims

The Association’s remaining claims against homeowners Williams and Crosby and judgment creditor Hassen & Associates were tried before Judge Nancy Davis on May 26, 2009, a few weeks after Judge Woolard had granted summary judgment to Financial Freedom. The Association contended that Judge Woolard’s summary judgment ruling in Financial Freedom’s favor did not preclude Judge Davis from setting aside the alleged fraudulent conveyance and determining Financial Freedom’s security interest as a result of setting aside that conveyance. The court agreed and proceeded to resolve issues affecting Financial Freedom despite a dispositive ruling in Financial Freedom’s favor on the only cause of action against it and its absence from trial on the remaining claims. The only defendant appearing at trial was judgment creditor Hassen & Associates.

The court issued a statement of decision in August 2009. The court found that “the transfer from Williams to Crosby was fraudulent and must be set aside to the extent necessary to satisfy the Association’s claim” for assessments. The court noted that, “[a]t the time of the transfer, Williams and Crosby owned the Unit as Joint tenants, each owning an undivided one-half interest. As the transfer is set aside, the result is that Williams and Crosby remain joint tenants and were joint tenants at the time the deed of trust was granted to Financial Freedom by Crosby.” Crosby “could encumber her own one half interest, but could not encumber the one half interest in the Unit owned by Williams who, at the time, was a judgment debtor of the Association.” The court ruled that the deed of trust “conveyed by Crosby to Financial [299] Freedom is void to the extent [the deed] purported to encumber Williams’s one half interest” in the condominium unit.

The court’s statement of decision acknowledges that a fraudulent transfer is not voidable against “a person who took in good faith and for a reasonably equivalent value.” (Civ. Code, § 3439.08, subd. (a).) The court ruled that Financial Freedom was not a bona fide encumbrancer entitled to the protection of this statute because Financial Freedom “actively participated in the transfer from Williams to Crosby” and performed an inadequate title review that failed to discover the recorded assessment liens. The court also suggested that Financial Freedom forfeited any claim to bona fide encumbrancer status by dismissing its cross-complaint for declaratory relief and choosing not to appear at trial.

J. Judgment for the Association

The court entered a judgment in August 2009 ordering the Diamond Heights Village condominium unit sold and declaring the rights of the Association, homeowners, Financial Freedom, and judgment creditor Hassen & Associates to the proceeds of the sale. The court declared Hassen & Associates to have senior position, with right of first payment. The court ordered the remaining funds held until any appeal was resolved and, thereafter, “divided between the Association and Financial Freedom in accordance with their one-half secured interest” in the unit. The court awarded the Association $89,562 for assessments through May 2009, payable from Williams’s one-half interest in the property. The court also awarded the Association attorney fees against the homeowners under the CC&R’s, later assessed at $82,086, to be paid from Williams’s property interest. Financial Freedom was left with just Crosby’s original one-half interest in the property to secure its mortgage loan and payments of at least $278,505. Sale proceeds from that one-half interest may be insufficient to pay the full amount owed to Financial Freedom.

In September 2009, Financial Freedom filed a motion to vacate the judgment. Financial Freedom argued that the court had no jurisdiction to enter a judgment affecting Financial Freedom’s deed of trust because (1) the prior summary judgment fully adjudicated the Association’s single cause of action against Financial Freedom, (2) the Association’s appeal of the summary judgment divested the court of jurisdiction before the court ruled on the remaining claims affecting Financial Freedom’s interest, and (3) Financial [300] Freedom was not a defendant on the Association’s remaining claims and not a party to the trial. The court denied the motion in February 2010.

K. The appeals

We are presented with three related appeals, which we have consolidated for purposes of briefing, argument, and decision. On the summary judgment in Financial Freedom’s favor on the foreclosure cause of action: the Association appeals the judgment and Financial Freedom separately appeals the post judgment order denying it attorney fees. On the judgment following trial in the Association’s favor on the cause of action for fraudulent conveyance and all other remaining claims: Financial Freedom appeals both the judgment (and order denying its motion to vacate the judgment) and the post judgment order awarding the Association attorney fees.

II. DISCUSSION

A. Summary judgment was properly granted to Financial Freedom

As noted above, the Association recorded assessment liens against the Diamond Heights Village condominium unit in 2000 and 2001. (Civ. Code, § 1367.) In 2002, the Association obtained a default judgment against homeowner Williams for foreclosure of the assessment liens. The Association did not record an abstract of judgment. The court issued writs of execution for the sale of the unit to satisfy the judgment but the homeowners’ petitions for bankruptcy stayed proceedings and prevented levy. It was at this juncture that Williams conveyed his one-half interest in the property to his joint tenant and mother, Crosby, and she then mortgaged the entire property to Financial Freedom.

The Association then filed a new complaint in which it asserted a single cause of action against Financial Freedom for foreclosure of the Association’s assessment liens and sought priority over Financial Freedom’s deed of trust. Financial Freedom moved for summary judgment arguing, among other things, that the Association’s action for foreclosure of the assessment liens, and claimed priority under them, failed because foreclosure of the assessment liens had already been litigated, reduced to judgment, and merged into that judgment. Judge Woolard granted the motion. The court ruled that the Association’s assessment liens merged into the judgment from the earlier foreclosure action against the homeowners, the judgment was unrecorded, and Financial Freedom’s recorded deed of trust thus had priority.

(1) The court was correct. A condominium assessment becomes a debt of the owner when the assessment is levied by the condominium association. [301] (Civ. Code, § 1367.1, subd. (a).) “The debt is only a personal obligation of the owner, however, until the community association records a `notice of delinquent assessment’ against the owner’s interest in the development. Recording this notice creates a lien and gives the association a security interest in the lot or unit against which the assessment was imposed.” (Sproul & Rosenberry, Advising Cal. Common Interest Communities (Cont.Ed.Bar 2003) § 5.36, p. 328 [hereafter, Common Interest Communities]; see Civ. Code, § 1367, subd. (d).) The lien dates from the time the lien is properly recorded. (Thaler v. Household Finance Corp. (2000) 80 Cal.App.4th 1093, 1100-1102 .) “California follows the `first in time, first in right’ system of lien priorities.” (Id. at p. 1099.) Condominium assessment liens follow this same system. An assessment lien is “prior to all other liens recorded subsequent to the notice of assessment, except that the [CC&R’s] may provide for the subordination thereof to any other liens and encumbrances.”^[[3]^] (Civ. Code, § 1367, subd. (d).)

(2) It is generally understood that a lien is not a debt but acts as “security for payment of a debt or other obligation.” (4 Cal. Real Estate (3d ed. 2003) § 10:128, p. 395 (rel. 11/2003); see Civ. Code, § 2872.) The debt is the assessment, which is secured by the assessment lien. An assessment lien may be enforced “in any manner permitted by law,” including judicial foreclosure. (Civ. Code, § 1367, subd. (e).) When an assessment lien is enforced through judicial action, the debt secured by the lien is merged into the judgment. The doctrine of merger is an aspect of res judicata. (Passanisi v. Merit-McBride Realtors, Inc. (1987) 190 Cal.App.3d 1496, 1510.) “Under that aspect a claim presented and reduced to judgment merges with the judgment and is thereby superseded. [Citation.] The claimant’s remedy thereafter is to enforce the judgment; he may not reassert the claim.” (Ibid.)

“[W]hen a final judgment is entered, all causes of action arising from the same obligation are merged into the judgment and all alternative remedies to enforce that obligation extinguished by the judgment granting one of those remedies. [Citation.] The creditor cannot thereafter enforce the original obligation, because the judgment `”. . . creates a new debt or liability, distinct from the original claim or demand, and this new liability is not merely evidence of the creditor’s claim, but is thereafter the substance of the claim itself.”‘ ([Citation,] italics in original.) In other words, the . . . judgment extinguishes the contractual rights and remedies previously extant, [302] substituting in their place only such rights as attach to a judgment.” (O’Neil v. General Security Corp. (1992) 4 Cal.App.4th 587, 602.)

(3) Once a judgment is obtained, the judgment creditor may create a judgment lien by recording an abstract of judgment or may choose to levy execution, thereby creating an execution lien. (Code Civ. Proc., §§ 674, 697.710; Kahn v. Berman (1988) 198 Cal.App.3d 1499, 1507, fn. 7.) An execution lien does not arise when a writ of execution is issued by the court, but rather when the levying officer levies the property (constructively seizes it) by recording a copy of the writ of execution and notice of levy. (Code Civ. Proc., §§ 697.710, 700.010, 700.015, subd. (a); Kahn, supra, at p. 1508; see generally 8 Witkin, Cal. Procedure (5th ed. 2008) Enforcement of Judgment, § 99, p. 143.) The record here does not show that a levy ever occurred to create an execution lien, and the Association makes no claim to having an execution lien. The Association relies exclusively upon its assessment liens, despite having already foreclosed those liens in a 2002 judgment. The claim is unavailing. Those liens were foreclosed and the debts they secured were merged into the judgment. The Association’s remedy was to record the judgment, in which case the judgment lien would have given the Association priority over Financial Freedom. (Code Civ. Proc., § 697.310 et seq.)

(4) The Association seems to argue that an assessment lien lasts forever, even if foreclosed in a prior proceeding. This is incorrect. A lien is not a debt but acts as “security for payment of a debt or other obligation.” (4 Cal. Real Estate, supra, § 10:128, p. 395 (rel. 11/2003).) All liens are “extinguished by the lapse of time” if an enforcement action is not timely pursued on the principal obligation.^[[4]^] (Civ. Code, § 2911, subd. 1.) Where an action is timely pursued, the debt secured by the lien merges into the judgment. The judgment then becomes the debt. The judgment is enforceable for a period of 10 years, and longer if renewed. (Code Civ. Proc., §§ 683.020, 683.120, subd. (b).) (5) The Association has an enforceable judgment. It does not, however, have a lien on the property because the assessment liens and underlying debts merged into the judgment and the judgment was not recorded.

The Association argues that application of the merger doctrine under these circumstances creates the anomalous situation of a condominium association losing priority the moment a judgment is entered on an assessment. The Association argues that assessment liens should work like real estate attachment liens imposed during litigation. Where an attachment lien is in effect, a [303] judgment lien created on the same property relates back to the date the attachment lien was created and preserves the judgment creditor’s original priority. (Code Civ. Proc., § 697.020, subd. (b).) But a judgment itself does not relate back to the date of the attachment liens—it is the judgment lien that does so. Here, there is no judgment lien. The Association, therefore, has an unsecured judgment and may pursue enforcement against the homeowners. The Association may not, however, relitigate foreclosure of its assessment liens in an effort to achieve priority over Financial Freedom’s deed of trust.

The Association maintains that it is not really relitigating the assessments but, instead, the fraudulent conveyance that gave Financial Freedom a deed of trust. But Financial Freedom was not named as a defendant in the fraudulent conveyance cause of action. Financial Freedom was named as a defendant in a single cause of action for judicial foreclosure of the assessment liens. In that cause of action, the Association sought recovery against the homeowners for past assessments and alleged that the 2000 and 2001 liens encumber the property to secure the assessments. Those allegations were asserted, and adjudicated, in prior litigation. They may not be relitigated now. The trial court properly granted summary judgment to Financial Freedom on the Association’s cause of action to foreclose the previously litigated assessments liens.

B. The trial court erred in rendering a judgment on remaining claims that impaired Financial Freedom’s interests

The trial court granted defendant Financial Freedom summary judgment on the only cause of action stated against it. The order was filed on May 6, 2009. Financial Freedom then dismissed its cross-complaint, and Judge Woolard entered judgment for Financial Freedom on June 3, 2009. The judgment decreed that the Association “shall recover nothing, and shall obtain no relief, as against defendant Financial Freedom, in this action.”

Trial of the Association’s remaining claims against other defendants commenced before Judge Davis on May 26, 2009, and judgment was entered on August 17, 2009. Trial of those remaining claims was proper, including trial of the Association’s cause of action against the homeowners for fraudulent conveyance of their condominium unit. It was not proper, however, to void Financial Freedom’s security interest in the property (in whole or part) when Financial Freedom had not been joined as a party to the fraudulent conveyance cause of action, and final judgment had already been entered in its favor.

The Association brought its first cause of action to set aside a fraudulent transfer of real property against homeowners Williams and Crosby. A transfer is fraudulent if the debtor made the transfer “[w]ith actual intent to hinder, [304] delay, or defraud any creditor of the debtor,” “[w]ithout receiving a reasonably equivalent value in exchange for the transfer,” and with the intent to incur debts beyond the debtor’s ability to pay. (Civ. Code, § 3439.04, subd. (a)(1), (2).) Here, the Association alleged that Williams fraudulently conveyed his one-half interest to Crosby for no consideration in order to evade his debt to the Association, and that the transfer left Williams insolvent. The Association further alleged that Crosby was complicit in the fraudulent scheme. Crosby, once she obtained full ownership of the property, took out a reverse mortgage loan and made Financial Freedom the beneficiary of a deed of trust securing the loan. The Association did not allege that Financial Freedom participated in the homeowners’ fraudulent scheme. In fact, the Association did not name Financial Freedom as a defendant in its action to set aside the alleged fraudulent conveyance. Nor did the Association name the trustee of the deed of trust, Alliance Title Company. The Association’s position, adopted by Judge Davis, was that the court could void Financial Freedom’s security interest in the conveyed property despite Financial Freedom’s nonjoinder. This was error.

(6) The Association was free to exclude Financial Freedom from the fraudulent conveyance cause of action if it sought only a personal judgment against Williams and Crosby. But if the Association wanted to void Financial Freedom’s interest in the property, it should have joined the deed beneficiary as a party. (Code Civ. Proc., § 379.) Transferees are necessary parties “in an action to declare a transfer void as fraudulent.” (Heffernan v. Bennett & Armour (1952) 110 Cal.App.2d 564, 586-587.) Williams transferred his one-half interest to Crosby, making her the principal transferee, but the transaction also included Crosby’s execution of a deed of trust benefitting Financial Freedom. The Association may not void the deed of trust without joining Financial Freedom as a party and giving it an opportunity to defend the transfer. Trust beneficiaries, like Financial Freedom, “are necessary parties to an action affecting the security of a deed of trust.” (Monterey S.P. Partnership v. W. L. Bangham, Inc. (1989) 49 Cal.3d 454, 461; accord, Sylvester v. Sylvester (Alaska 1986) 723 P.2d 1253, 1259-1260 [mortgagee a necessary party in fraudulent conveyance action to set aside mortgage].) A deed of trust is, in practical effect, a mortgage with a power of sale. (Monterey S.P. Partnership, supra, at p. 460.) A respected commentator on the law has noted that a mortgagee is not indispensable to a fraudulent conveyance action “if the conveyance is to be set aside subject to the mortgage, . . . [b]ut where the suit is to set aside a previously given mortgage as fraudulent, then the mortgagee is a proper party defendant.” (3A Moore, Moore’s Federal Practice (2d ed. 1996) ¶ 19.09[6], p. 19-191.) The Association argues that Financial Freedom’s absence from the trial is the fault of Financial Freedom itself because it dismissed its cross-complaint seeking a declaration of its interests. This is incorrect. [305] Financial Freedom was entitled to abandon its cross-complaint after obtaining summary judgment in its favor on the only cause of action stated against it in the complaint. It was the Association’s obligation, as plaintiff in the fraudulent conveyance cause of action, to name parties necessary to obtaining the relief it sought.

The judgment voiding Financial Freedom’s interest in the property is also defective in another respect. Judge Woolard granted Financial Freedom’s summary judgment motion on May 6, 2009, and entered judgment on June 3, 2009. Judge Davis did not enter judgment on the remaining claims until August 17, 2009, over two months after Financial Freedom obtained a judgment decreeing that the Association “shall recover nothing, and shall obtain no relief, as against defendant Financial Freedom, in this action.” Judge Davis’s judgment also came after the Association appealed Judge Woolard’s judgment in Financial Freedom’s favor. Despite that final decree, and its appeal, Judge Davis issued a judgment granting the Association relief against Financial Freedom. Judge Davis voided Financial Freedom’s deed of trust as to one-half of the property and gave the Association priority over Financial Freedom on that half. This, too, was error.

(7) Judge Woolard properly entered judgment for Financial Freedom in this multiple defendant action after adjudicating the single cause of action stated against it. (Nguyen v. Calhoun (2003) 105 Cal.App.4th 428, 437.) “A judgment is the final determination of the rights of the parties in an action or proceeding.” (Code Civ. Proc., § 577, italics added.) “It is elementary that where a tribunal has jurisdiction over the parties and the subject matter, the jurisdiction continues until a final judgment is entered. . . .” (Riley v. Superior Court (1957) 49 Cal.2d 305, 309, italics added.) The court lost jurisdiction over Financial Freedom once judgment was entered in its favor, and thus had no power to void its property interest in the condominium unit.

Therefore, we must reverse the judgment entered by Judge Davis and remand the case with directions to enter a judgment affecting the rights only of those defendants properly before it: homeowners Williams and Crosby and judgment creditor Hassen & Associates. The judgment shall not invalidate any part of Financial Freedom’s deed of trust or otherwise impair its interests in the property.

C. The trial court was correct in ruling that Financial Freedom is not entitled to attorney fees

(8) Attorney fees incurred to enforce a contract are recoverable by the party prevailing on the contract if the contract specifically provides for such [306] recovery. (Civ. Code, § 1717.) The Diamond Heights Village CC&R’s contain several attorney fee provisions. The CC&R’s state that the Association may maintain a lawsuit against a unit owner for delinquent assessments, and that any judgment against the owner shall include an award of reasonable attorney fees. The Association is also entitled to attorney fees, according to the CC&R’s, in a court action to foreclose assessment liens. The CC&R’s also contain a general attorney fee provision, which states that the Association, or any owner, has the right to enforce the CC&R’s and is entitled to recover attorney fees in such an action.

The Association, in its foreclosure cause of action against the homeowners, Financial Freedom, and judgment creditor Hassen & Associates, included in its complaint a plea for an award of contractual attorney fees against the homeowners. The Association did not request attorney fees against Financial Freedom. Nevertheless, Financial Freedom filed a motion for contractual attorney fees after obtaining summary judgment in its favor. The court denied the motion, and Financial Freedom challenges that denial on appeal. The trial court was correct.

Civil Code section 1717, subdivision (a) provides in pertinent part that “[i]n any action on a contract, where the contract specifically provides that attorney’s fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney’s fees in addition to other costs.”

(9) Civil Code “[s]ection 1717 was enacted to establish mutuality of remedy where [a] contractual provision makes recovery of attorney’s fees available for only one party [citations], and to prevent oppressive use of one-sided attorney’s fees provisions.” (Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 128.) In this case, for example, the attorney fee provision in the CC&R’s entitling the Association to attorney fees if it prevailed in an action against a condominium unit owner would reciprocally entitle the owner to fees should he or she prevail.

Civil Code section 1717 is also interpreted “to further provide a reciprocal remedy for a nonsignatory defendant, sued on a contract as if he were a party to it, when a plaintiff would clearly be entitled to attorney’s fees should he prevail in enforcing the contractual obligation against the defendant.” (Reynolds Metals Co. v. Alperson, supra, 25 Cal.3d at p. 128.) Thus, a [307] defendant who did not sign the contract containing the fee provision was held to be entitled to attorney fees where the defendant was unsuccessfully sued as an alleged coventurer bound by the contract. (Ibid.) Had the plaintiff in that case prevailed on its claim, the defendant would have had to pay the plaintiff’s attorney fees. (Ibid.) The court reasoned that the defendant therefore had a reciprocal right to fees when she prevailed. (Id. at p. 129.)

These principles do not aid Financial Freedom because the Association did not sue Financial Freedom under the CC&R’s, never sought fees against Financial Freedom under the CC&R’s, and was not entitled to fees against Financial Freedom had the Association prevailed. Civil Code section 1717 covers signatories to a contract containing a fee provision and those who are sued as alleged parties to the contract or otherwise alleged to be bound by its terms. The Association never alleged that Financial Freedom was bound by the CC&R’s. The Association included Financial Freedom in the cause of action for judicial foreclosure of liens because Financial Freedom claimed a senior lien that the Association disputed. The action between the Association and Financial Freedom rested upon a legal question as to lien priority, not contractual enforcement of the CC&R’s.

Financial Freedom argues that it is nevertheless entitled to fees because “as a practical matter” Financial Freedom, and not the legally liable homeowners, would have had to bear the cost of the fees if the Association prevailed against the owners. Financial Freedom reasons as follows: if the Association prevailed on its judicial foreclosure claim and assertion of lien priority, the Association would have been entitled to fees against the homeowners under the CC&R’s. Those fees, as a debt of the homeowners, would have been paid to the Association from the sale proceeds before Financial Freedom, as a junior lienholder on half the property, received any proceeds (or Financial Freedom would have to pay the Association’s secured debt and fees to protect Financial Freedom’s property interest and avoid foreclosure of the property). Financial Freedom argues that this collateral economic consequence of a foreclosure action entitles it to fees.

Financial Freedom’s argument relies upon Saucedo v. Mercury Sav. & Loan Assn.(1980) 111 Cal.App.3d 309 (Saucedo). In Saucedo, home buyers took the property subject to an existing loan secured by a deed of trust. (Id. at p. 311.) The deed holder refused to allow the purchasers to assume the loan without paying a transfer fee and increased interest, and threatened to enforce a due-on-sale clause requiring full payment of the loan. (Ibid.) The purchasers filed a successful suit to enjoin the deed holder from [308] enforcing the due-on-sale clause, and the court held that they were entitled to attorney fees. (Id. at pp. 312, 315.) The court found that the purchasers would not have been liable for fees had the deed holder prevailed because the loan note was between the deed holder and prior owner but also found that “as a . . . practical matter” the purchasers would have to pay off the secured debt, including attorney fees, if they wanted to prevent foreclosure and retain their home. (Id. at p. 315.) The court concluded that “[t]his practical `liability’ of the nonassuming grantee [purchaser] is sufficient to call into play the remedial reciprocity established by Civil Code section 1717.” (Ibid.) Since the purchasers would, “as a real and practical matter” be required to pay attorney fees incurred by the deed holder to prevent foreclosure, the purchasers were entitled to recover attorney fees when they prevailed in a declaratory relief action that forestalled foreclosure. (Ibid.)

There are distinguishing points between Saucedo and this case. A central point of distinction is that the purchasers who recovered fees in Saucedo were the successors in interest to the property subject to the promissory note containing the disputed due-on-sale clause and fee provision. (See Leach v. Home Savings & Loan Assn. (1986) 185 Cal.App.3d 1295, 1304-1306 [distinguishing and limiting Saucedo].) Here, the Association and Financial Freedom are complete strangers to each other, and the dispute rests upon the priority of competing security interests established by separate documents (an assessment lien and a deed of trust). The case resembles Clar v. Cacciola (1987) 193 Cal.App.3d 1032, 1037-1039 more than it resembles Saucedo, supra, 111 Cal.App.3d at page 315. In Clar, this District Court of Appeal refused to extend the reciprocal attorney fee provision of Civil Code section 1717 where the parties advanced competing claims on the priority of two deeds of trust. (Clar, supra, at pp. 1038-1039.) The prevailing defendants in Clar claimed a right to recover attorney fees because, had they lost, the plaintiffs’ attorney fees would have been added to the secured debt under the terms of the deed of trust, which the defendants would have had to pay “to prevent foreclosure and protect their equity in the property.” (Id. at p. 1037.) The court held that the defendants’ potential obligation to pay fees was too speculative. (Id. at pp. 1037-1038.)

(10) Likewise, Financial Freedom’s claim for attorney fees stretches Civil Code section 1717 too far. The statute is meant to prevent “oppressive use of one-sided attorney’s fees provisions” (Reynolds Metals Co. v. Alperson, supra, 25 Cal.3d at p. 128), not to abolish the general rule that each party pay its own attorney fees. It is one thing to grant nonsignatories the right to attorney fees where they are sued as if they were contracting parties liable for fees or otherwise held to the terms of the contract, and quite another to grant nonsignatories the right to attorney fees where no legal liability for fees was ever asserted and only an attenuated economic impact is threatened. The “practical liability” approach advocated by Financial Freedom is fraught with [309] peril. As one commentator has noted, “[i]n practical liability . . . cases, courts must make very fact specific analyses about the prevailing party’s potential liability had [he or] she lost. Nearly identical factual circumstances could yield entirely different results. The danger with analyzing the prevailing party’s practical liability is subjectivity and lack of guidelines for the courts to follow.” (Miller, Attorneys’ Fees for Contractual Non-Signatories Under California Civil Code Section 1717: A Remedy in Search of a Rationale (1995) 32 San Diego L.Rev. 535, 578-579, fn. omitted.) We decline Financial Freedom’s invitation to embark on this course.

D. The Association was entitled to attorney fees against the homeowners

As noted earlier, claims against the remaining defendants were tried after defendant Financial Freedom obtained summary judgment. Following that trial, the court awarded the Association, as the prevailing party, attorney fees against defendant homeowners Williams and Crosby under the CC&R’s and a statute authorizing fee recovery in a condominium association’s action to collect delinquent assessments. (Civ. Code, §§ 1717, 1366, subd. (e)(1).) Financial Freedom does not deny the validity of these fee provisions but argues that fees should have been denied in this instance because “as a practical matter” Financial Freedom as a junior lienor on one-half of the foreclosed property, not the homeowners, will bear the economic impact of the fee award. We again note our reluctance to embrace the practical liability approach to Civil Code section 1717 but have no occasion to discuss it further here. We are reversing the judgment to the extent that it voided Financial Freedom’s senior lienor status on the property, and thus no adverse economic impact attends the court’s order awarding fees to the Association against the homeowners. Financial Freedom’s objection to the fee award is therefore moot.

III. DISPOSITION

The June 3, 2009 judgment in favor of Financial Freedom is affirmed. The August 17, 2009 judgment in favor of the Association is reversed to the extent that it voided, in whole or part, Financial Freedom’s deed of trust on the property. The case is remanded with directions to amend the judgment consistent with the views expressed in this opinion, and to permit Financial Freedom an opportunity to address the court concerning amendment at any hearing conducted on the matter.

The September 24, 2009 order denying Financial Freedom attorney fees against the Association is affirmed. The February 8, 2010 order granting the Association attorney fees against Williams and Crosby is affirmed.

[310] The parties shall bear their own costs and attorney fees incurred on these appeals.

Ruvolo, P. J., and Rivera, J., concurred.

[1] Monetary amounts are rounded to the nearest dollar in this opinion.

[2] The title report did list an abstract of judgment in favor of Hassen & Associates in the amount of $6,438 that was recorded in 1996. On appeal, it is undisputed that Hassen & Associates has a judgment lien superior to the secured interest of the Association and Financial Freedom.

[3] To ensure financeability of condominiums, most CC&R’s “provide that the association’s lien is subordinate to the lien of any first deed of trust” regardless of when recorded, and Financial Freedom argued as an alternative basis for summary judgment that the CC&R’s here are no exception. (Common Interest Communities, supra, § 5.46 p. 339, italics added; see generally 9 Miller & Starr, Cal. Real Estate (3d ed. 2001) §§ 25B:92, 25C:57, pp. 25B-181 to 25B-185, 25C-182 to 25C-183 (rel. 10/2007) [hereafter, Cal. Real Estate].) We resolve the summary judgment on the ground adopted by the trial court and thus do not reach that issue.

[4] As yet another alternative basis for summary judgment, Financial Freedom argued that the Association’s 2007 action to foreclose on the 2000 and 2001 liens was time-barred. (See Cause of Action to Enforce Condominium Assessment (1989) 20 Causes of Action 827, § 9, accessible on Westlaw, database updated Sept. 2010 [assessment liens subject to statute of limitations].) We need not reach that issue.

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.)

Code of Civil Procedure Section 729.090. Rents & Profits During Redemption Period.

(a) From the time of the sale until a redemption, the purchaser is entitled to receive from the person in possession the rents and profits from the property or the value of the use and occupation of the property.

(b) Notwithstanding subdivision (a), the purchaser is liable to the person who redeems for any rents or profits that have been received by the purchaser pursuant to subdivision (a).

(c) The purchaser, from the time of sale until redemption, 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 from the court. Such order may be granted with or without notice in the discretion of the court.

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