Assessment Collection: Available Legal Procedures
by Stanley Feldsott, Esq.

Three basic legal procedures are available for the collection of assessments. They are as follows:

	Personal action against the owner for money
	Judicial foreclosure of the assessment lien
	Foreclosure of the assessment lien by power of private sale

Each procedure has its own advantages and disadvantages. No single procedure is best all of the time. Different situations arise that suggest using one procedure over the others.

The Judicial Foreclosure

In my opinion, judicial foreclosure is still—as a general rule—the preferred method of lien enforcement. In a judicial foreclosure, the action is commenced with the filing of a complaint in municipal court (unless the arrearage is more than $25,000). If uncontested (which approximately 95 percent of the cases are), it terminates some 60 days later with a judicial order for the sale of the member's property and a provision for a deficiency judgment (personal against the member) if the sale proceeds are not sufficient to totally satisfy the amount due plus the cost of the sale.

In a judicial foreclosure, there is a 90 day redemption period. This means that for a period of 90 days after the sale, the individual can come in and pay off the entire delinquency, all costs and advances and "redeem" (get back his property). This right of redemption actually works to the advantage of the association. Distressed property dealers generally shy away from sales that provide for a right of redemption. This leaves the association in a position where it and the owner can reach a complete resolution at any time.

Another advantage of the judicial foreclosure is that the sale occurs after a court order has been made specifically providing for the sale. Contrast this with the private sale where the property is sold and then the propriety of the sale is litigated. It is this very sequence of events that produces a potential exposure to liability. Like all self help remedies, first you act, then the court decides if you acted properly.

The major disadvantage to judicial foreclosure is that, as compared to the private sale, the judicial foreclosure is easier to contest. The owner need only file an answer. Of course, the prevailing party may recover attorney fees. Not too long ago, I had a case where the attorney fees awarded and paid were more than $60,000 in a suit over $3,000 in assessments.

The Private Sale

A significant number of associations are now using the private sale vehicle for collection of assessments. This procedure is set forth in detail in Civil Code, §2924 et seq. And is the same procedure utilized by most lenders in California when foreclosing on trust deeds and mortgages. It is a "self help" remedy. Court action is not involved prior to sale. To commence this procedure, the association complies with its document requirements and the mandates of Civil Code, §1367 relative to the preparation, recording and service of assessment liens. After waiting the required time, usually 30 days, the association causes the recording of a document entitled "Notice of Default and Election to Sell".

The content, as well as the size of print, for various portions of the Notice of Default is set forth in great detail in Civil Code, §2924c. Ninety days after recording of the Notice, the property is advertised for sale and then sold. The required advertising copy is also in §2924f of the Civil Code. Advertising must commence at least 20 days prior to the sale and generally appears once a week for three consecutive weeks. Without becoming further enmeshed in the "ins" and "outs" of the private sale process, suffice it to say that it is quick and inexpensive.

In a private sale, there is no redemption period after the sale occurs. This means that whoever purchases at the sale gets "title". At present, title companies still appear reluctant to "insure" the title from such a sale. If there is equity in the property, a lawsuit to set aside the sale or quit title almost always follows. The association, one way or another, winds up in the lawsuit.

The association will thus be drawn into a lawsuit where the court will undoubtedly try to find some way to set aside the sale so that the individual does not lose his/her home. This is especially true when one considers that the "sale" was probably only for a few hundred dollars in unpaid assessments. In such a situation, most judges will view the remedy to be rather harsh and try to find some way to set it aside. Because of the lack of any redemption period and the potential for making a "fast buck", distressed property dealers bid at sales where equity exists. The property is purchased at the sale for a relatively nominal price. The "buyer" will then attempt to extract several thousand dollars in additional money from the property owner in exchange for clearing title. Thus, the association becomes involved in expensive, multi-party, protracted litigation.

The intent of the assessment collection procedure utilized should be to collect the assessments with reasonable dispatch and minimal risk - not to cause an individual to lose his home or thousands of dollars. A procedure that exposes the association to significant liability should be used sparingly. Notice also that any right to a deficiency judgement is waived when this procedure is utilized.

The Personal Action

This involves a lawsuit against the individual personally. If pursued to judgement, the association, as a matter of law, waives all of its lien rights with respect to the assessments that are the subject of the lawsuit. Municipal court actions (including small claims court actions) can be a useful collection tool. This is particularly true where the owner has sold or lost his/her property or no equity exists.

This type of action also commences with the filing of a complaint (claim in small claims court) and, if not contested, ends about 60 days later with the granting of a judgement for money. Because a personal judgement extinguishes the assessment lien, this procedure should be utilized with care. The better practice would be to combine the personal action with a judicial foreclosure and then "elect" what you want at the time you are ready to request a judgement.

Conclusion

The appropriateness of the entire assessment process is potentially put at issue each time an action is commenced. Particular attention must be given to all documentary and statutory requirements. "Private sale" has become more popular over time. I believe this is because it tends to be more profitable for those companies who handle these foreclosures rather than because it is in the best interests of the association. It is often an effective collection tool. However, I do not believe that risks to the association, coupled with the availability of judicial foreclosure, justify its use.

With jurisdiction for most judicial foreclosures now in municipal court where even in contested cases, relatively quick trial dates are available, this is the vehicle of choice. The property is sold pursuant to court order with minimal risk to the association. The 90 day redemption period gives the owner one last chance to pay. Distressed property dealers are effectively excluded from the process and costs and time periods involved are comparable to the "private sale" process.