Articles Posted in Assessment Collection

On August 13, 2010, the Federal Housing Finance Agency (FHFA) issued a proposed regulation to ban the use of deed-based or covenant-based transfer fees. The proposal would prohibit Fannie Mae, Freddie Mac and all federal home loan banks from purchasing mortgages for properties in communities with deed-based transfer fees. While the target of the regulation appears to be private transfer fees that require a payment to a third party each time a property is sold, the proposed rule, as currently written, would include deed-based transfer fees used by many community associations. Click here for a recent Los Angeles Times article that addresses this issue.

A Private Transfer Fee is defined any fee or payment required at time of sale of a property by a deed or covenant restriction.

This new rule, if adopted, could have a significant impact on those communities that have private transfer fees in their governing documents.
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By the Community Association Attorneys at SwedelsonGottlieb
So the board has done its due diligence, investigated its options and decided that chasing down the owner who has not paid their assessments for many months is likely to be a waste of time, money and association resources. The board has considered the options and opted to complete the non-judicial foreclosure process with the actual foreclosure sale on its lien. (See our prior article entitled, “To Foreclose or Not to Foreclose, That Seems to be the Question”) Because the senior lien or lien/trust deed securing the original purchase loan for the property is in an amount that exceeds the current (2010) depressed value of the property, no third party bid at the foreclosure sale and the association ended up with the property (unit/lot) after the 90-day redemption period.

Assuming that the ninety (90) day redemption period has ended (see our previous post on the homeowner’s right of redemption) and the trustee’s deed upon sale has been issued and recorded, the association is now the owner of the unit, lot/home (subject to the senior encumbrances). The board has lots of questions. We’ve got answers.
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When it comes to enforcing obligations secured by California real estate, California is a “single action” or “one-action” state. Civil Procedure Code Section 726(a) provides in part that “[t]here can be but one form of action for the recovery of any debt or the enforcement of any right secured by a mortgage upon real property.” This “one-action” rule applies when a California community association secures, as it should, the delinquent owner’s assessment obligation by recording a lien and then exercises its remedies to recover that debt. The purpose of the one-action rule is to protect the delinquent owner from being harassed by a lot of different actions filed against it by the association.
 

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As we make our way through the “Great Recession”, we find that many owners are still upside down in their units/homes, owing more to their lender than the current potential sales price. In many cases, the owners cannot afford to pay the bank and are looking to get out from ownership of their home or unit. Many owners are trying to do short sales, where they take an offer to buy their property for less than the loan amount and try to obtain their lender’s agreement to take less than the amount that is owed on their loan/trust deed. We are getting calls from community association managers and board members who are asking what to do when faced with the prospect of a short sale, where the owner is also asking their association to discount the amount that is owed for delinquent assessments, late fees, interest, collection fees and costs.
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When property is sold through non-judicial foreclosure on an assessment lien, buyers (third parties or the association) take ownership subject to a 90-day right of redemption, which allows the foreclosed owner to recover the property if the owner pays the delinquency and any fees and costs (Civil Code §1367.4(c)(4); Code of Civil Proc. §729.035).

This right of redemption is unusual in that it does not apply to non-judicial foreclosure on trust deeds; it was added to the law for community associations several years ago to help owners so they do not lose their homes because they did not pay their associations assessments or fees. Owners rarely take advantage of this right.
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We are seeing many associations deferring common area maintenance and repair because they are afraid to increase their regular assessments or levy special assessments because they are concerned that the owners cannot pay any more money. In many cases, associations are experiencing 20% to 30% (or more) delinquencies. This is but one additional consequence from the Great Recession. What boards and their association management need to understand is that their buildings were not designed to last forever, and their useful lives are reduced when maintenance and repair is deferred. More importantly, deferred maintenance usually results in a higher cost of repair later.

We were therefore not surprised by an article in the Santa Cruz Sentinel that reported on a 50-year-old condominium building that was yellow tagged by the city after the owners noticed the roof was sagging. Eight residents were required to temporarily relocate while repairs (including shoring) were made to the sagging roof.

While we understand that many associations are having hard times and difficulty collecting assessments, deferring maintenance is not a good idea, as it will not only increase the cost of repair later when the problem is more serious and there is damage to the structure of the buildings and the interior of units, but it will also lead to lawsuits from owners who have suffered damage to their units or a diminution in the value of their property.

Recent reports indicate that about 4 million U.S. homeowners are 90 days or more delinquent on their loans or in foreclosure proceedings. Many experts are forecasting another wave of foreclosures. Follow these links for some interesting stories from the following sources: L.A. Times, Foreclosure Pulse, and MSN Money Central
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David Swedelson was a speaker on a panel with this title at CAI’s recent 31st Annual CAI National Law Seminar in Tucson, Arizona. In preparation for that program, David Swedelson and firm Associate Stephanie Rohde authored an article entitled Collecting Delinquent Assessments in a Troubled Economy. Click here to download a PDF copy of that article which addresses assessment collection issues throughout the United States.

By Joan E. Lewis-Heard, Esq.
Senior Associate; SwedelsonGottlieb
For those community associations whose CC&Rs provide for assignment of rents from a tenant in the event an association owner who is renting their unit or home is delinquent in the payment of assessments, an association may collect the rent directly from the tenant to pay delinquent assessments.

If done properly, this can be done without a court order or the expense of a court appointed receiver. In order to do this, the following is required: 1) the CC&Rs must have an assignment of rents clause; 2) a lien for the delinquent assessments should be recorded to secure the debt; and 3) a statutory Demand to Pay Rent to a Party Other than Landlord, pursuant to Section 2938 of the Civil Code, is required to be delivered by mail or by hand to each tenant of the property and the landlord/owner. Follow this link for the required text of the demand to pay rent to party other than landlord.
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