SB 137 - Limits on Assessment Collection

Feldsott & Lee
A Law Corporation

This bill, affecting debts that arise on and after January 1, 2006, places new limits on an association’s ability to collect unpaid assessments. The bill provides that when an association of a common interest development seeks to collect delinquent assessments of less than $1,800, (not including accelerated assessments, late charges or fees) the association must either file a civil action in small claims court or record a lien. If the association chooses to record a lien, it would be prohibited from foreclosing until the amount equals or exceeds $1,800 or the assessments are more than 12 months delinquent.

The bill removes provisions authorizing the owner of a separate interest to pay assessments that are in dispute in full under protest and then require the board of directors of an association to respond to the owner’s written dispute of a debt within 15 days. Instead, associations must offer Internal Dispute Resolution (“IDR”) before pursuing a lien.

This bill allows foreclosures only when the amount of unpaid assessments is over $1,800, or when the assessments have remained unpaid for at least one year. It also imposes new conditions to the foreclosure procedure. Among these conditions, the bill requires the board of directors of an association to make the decision to foreclose upon a lien at an executive meeting of the board, by a majority vote, at least 30 days prior to any public sale, and to record the results of the vote in the meeting minutes. The board is also required to provide notice of the decision to foreclose, both to the association unit address, and to an additional address, if the unit owner has another address, and has provided written notice of the secondary address to the association.

Associations will be prohibited from recording a lien or initiating a foreclosure action without participating in IDR and ADR procedures if so requested by the owner. If it is determined through dispute resolution or alternative dispute resolution that an association has filed a lien for a delinquent assessment in error, the association will be required to reverse charges and take other corrective actions. The bill also requires the association to file an itemized statement of the charges owed by the owner together with the notice of delinquent assessment.

Previously, delinquent assessments were subject to a right of redemption only if a deficiency judgment may have been entered against the homeowner (i.e., when the equity in the home is less than the judgment amount). Now, foreclosure by an association to collect upon a debt for a delinquent assessment, is automatically subject to a right of redemption, with a redemption period of 90 days.

The bill also authorizes an association created to manage a common interest development to appear and participate in small claims court hearings through an agent, a management company representative, or bookkeeper who appears on behalf of the association.

To the extent existing funds are available, the Department of Consumer Affairs and the Department of Real Estate are required to develop an on line education course for the board of directors of an association regarding the role, duties, laws, and responsibilities of board members and prospective board members and the nonjudicial foreclosure process. To date, no funding has been set aside for this education course. #