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Assessment Laws Focus Attention on Association Assessment Collection Policies and Procedures

Since at least 1996, California's assessment collection laws contain specific requirements for enforcement of an owner's duty to pay assessments. Here are some examples:

  • Member protections have been enhanced by the addition of opportunities to discuss disputes over assessments with the board or a board representative.
  • After liens are recorded, members may now ask their associations to mediate or arbitrate assessment disputes. (Members may not request binding arbitration if the association intends to foreclose its lien judicially.)
  • The authority and timing for recording liens for any amount or age of assessment are unchanged. However, a board must now specifically decide to record a lien against a particular separate interest during an open, noticed board meeting. Its decision must be documented in the minutes.
  • The process of foreclosing an assessment lien now cannot be commenced until assessment principal reaches $1,800 or until an assessment is delinquent for one year. Even if the threshold is immediately met, associations must still wait at least 30 days after recording a lien before commencing foreclosure of that lien.
  • A board must now specifically decide to commence foreclosure of a lien while in closed, executive session, and its decision must be documented (only by identifying the assessor's parcel number for the owner's property) in the minutes of the next open, noticed board meeting.
  • Since some associations will now face delays in collecting assessments through a foreclosure, there is new emphasis on using small claims court, where there is no waiting period and no minimum delinquency amount. Policies should advise the members of the authority of the Association to pursue delinquent assessments in small claims court.
  • Since some associations must now wait to exercise a foreclosure remedy until delinquent account balances are significantly higher, there is now greater risk of intervening lender foreclosures or inadequate equity in a delinquent owner's property, prompting new interest in filing simple claims for money judgments and the process of foreclosing liens judicially. These remedies should be discussed in the Association's collection policy.
  • Judicial foreclosure can also permit associations to recover assessments through a delinquent owner's wages, bank accounts, other property and other assets if the sale of the owner's property is inadequate to cover the assessment debt.
  • Owners can now, in theory, buy back their property after a nonjudicial foreclosure sale, but the new process is unclear and could result in further expense and litigation. This concern, as well as heightened community scrutiny, “fair debt” protections for delinquent owners, and the risk of damage or defamation claims are likely to prompt associations to reconsider collection options other than nonjudicial foreclosure.
  • Most collection policy “grace periods” are probably inadequate in face of new delay and meeting requirements created by new laws. Each community's situation will be different and will call for individual consideration of grace periods before liens.
  • Annual disclosure of members' right to submit secondary addresses for collection notices can be included in collection policies. Failing to make this disclosure at budget time, however, could put collections at risk.
  • Association addresses for correspondence about assessment issues and ordinary payments, as well as addresses for overnight delivery of payments should be confirmed or updated. Keeping collection policies current will require much more careful vigilance.
  • Given the extensive changes in collection laws for 2006, it is virtually certain that existing collection policies contain misinformation and procedures that no longer comport with the law.
  • The new collection laws are in effect and apply today, regardless of whatever terms are in existing collection policies. Collection policies must, by law, be included with pre-lien letters as an added form of disclosure. Outdated policies should not be sent to delinquent owners.

These are just a few of the key statutory requirements concerning assessment collection procedures. Evolving changes in the law, coupled with an uncertain economic times suggest that directors should, at least sixty days prior to distribution of the pro forma budget, review the assessment collection policy to be sure it maximizes collection rights and reflects the community's goals and needs. Any modifications to that policy should then be included in the annual budget distribution to the members.

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