CA Foreclosure Law - Civil Code 1367
1367.
(a) A regular or special assessment and any late charges,
reasonable costs of collection, and interest, as assessed in
accordance with Section 1366, shall be a debt of the owner of the
separate interest at the time the assessment or other sums are
levied. Before 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. In
addition, any payments toward that debt shall first be applied to the
assessments owed, and only after the principal owed is paid in full
shall the payments be applied to interest or collection expenses.
(b) 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, which shall state the amount of the assessment and other sums imposed in accordance with Section 1366, a legal description of the owner's interest in the common interest development against which the assessment and other sums are levied, the name of the record owner of the owner's interest in the common interest development against which the lien is imposed, and, in order for the lien to be enforced by nonjudicial foreclosure as provided in subdivision (e) the name and address of the trustee authorized by the association to enforce the lien by sale. The notice of delinquent assessment shall be signed by the person designated in the declaration or by the association for that purpose, or if no one is designated, by the president of the association, and mailed in the manner set forth in Section 2924b, to all record owners of the owner's interest in the common interest development no later than 10 calendar days after recordation. Upon payment of the sums specified in the notice of delinquent assessment, the association shall cause to be recorded a further notice stating the satisfaction and release of the lien thereof. A monetary penalty imposed by the association as a means of reimbursing the association for costs incurred by the association in the repair of damage to common areas and facilities for which the member or the member's guests or tenants were responsible may become a lien against the member's separate interest enforceable by the sale of the interest under Sections 2924, 2924b, and 2924c, provided the authority to impose a lien is set forth in the governing documents. It is the intent of the Legislature not to contravene Section 2792.26 of Title 10 of the California Code of Regulations, as that section appeared on January 1, 1996, for associations of subdivisions that are being sold under authority of a subdivision public report, pursuant to Part 2 (commencing with Section 11000) of Division 4 of the Business and Professions Code.
(c) Except as indicated in subdivision (b), a monetary penalty imposed by the association as a disciplinary measure for failure of a member to comply with the governing instruments, except for the late payments, may not be characterized nor treated in the governing instruments as an assessment which may become a lien against the member's subdivision interest enforceable by the sale of the interest under Sections 2924, 2924b, and 2924c.
(d) A lien created pursuant to subdivision (b) shall be prior to all other liens recorded subsequent to the notice of assessment, except that the declaration may provide for the subordination thereof to any other liens and encumbrances.
(e) After the expiration of 30 days following the recording of a lien created pursuant to subdivision (b), the lien may be enforced in any manner permitted by law, including sale by the court, sale by the trustee designated in the notice of delinquent assessment, or sale by a trustee substituted pursuant to Section 2934a. Any sale by the trustee shall be conducted in accordance with the provisions of Sections 2924, 2924b, and 2924c applicable to the exercise of powers of sale in mortgages and deeds of trusts.
(f) Nothing in this section or in subdivision (a) of Section 726 of the Code of Civil Procedure prohibits actions against the owner of a separate interest to recover sums for which a lien is created pursuant to this section or prohibits an association from taking a deed in lieu of foreclosure.
(g) This section only applies to liens recorded on or after January 1, 1986 and prior to January 1, 2003.
1367.1.
(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
Section 1366, shall be a debt of the owner of the separate interest
at the time the assessment or other sums are levied. At 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 this subdivision,
the association shall notify the owner of record in writing by
certified mail of the following:
(1) A general description of the collection and lien enforcement procedures of the association and the method of calculation of the amount, a statement that the owner of the separate interest has the right to inspect the association records, pursuant to Section 8333 of the Corporations Code, and the following statement in 14-point boldface type, if printed, or in capital letters, if typed: "IMPORTANT NOTICE: IF YOUR SEPARATE INTEREST IS PLACED IN FORECLOSURE BECAUSE YOU ARE BEHIND IN YOUR ASSESSMENTS, IT MAY BE SOLD WITHOUT COURT ACTION."
(2) An itemized statement of the charges owed by the owner, including items on the statement which indicate the amount of any delinquent assessments, the fees and reasonable costs of collection, reasonable attorney's fees, any late charges, and interest, if any.
(3) A statement that the owner 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.
(4) The right to request a meeting with the board as provided by paragraph (3) of subdivision (c).
(5) 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 Article 5 (commencing with Section 1363.810) of Chapter 4.
(6) The right to request alternative dispute resolution with a neutral third party pursuant to Article 2 (commencing with Section 1369.510) of Chapter 7 before the association may initiate foreclosure against the owner's separate interest, except that binding arbitration shall not be available if the association intends to initiate a judicial foreclosure.
(b) Any payments made by the owner of a separate interest toward the debt set forth, as required in subdivision (a), shall first be applied to the assessments owed, and, only after the assessments owed are paid in full shall the payments be applied to the fees and costs of collection, attorney's fees, late charges, or interest. When an owner makes a payment, the owner may request a receipt and the association shall provide it. The receipt shall indicate the date of payment and the person who received it. The association shall provide a mailing address for overnight payment of assessments.
(c)
(1)(A) Prior to recording a lien for delinquent assessments, an association shall offer the owner and, if so requested by the owner, participate in dispute resolution pursuant to the association' s "meet and confer" program required in Article 5 (commencing with Section 1363.810) of Chapter 4.
(B) Prior to initiating a foreclosure for delinquent assessments, an association shall offer the owner and, if so requested by the owner, shall participate in dispute resolution pursuant to the association's "meet and confer" program required in Article 5 (commencing with Section 1363.810) of Chapter 4 or alternative dispute resolution with a neutral third party pursuant to Article 2 (commencing with Section 1369.510) of Chapter 7. The decision to pursue dispute resolution or a particular type of alternative dispute resolution shall be the choice of the owner, except that binding arbitration shall not be available if the association intends to initiate a judicial foreclosure.
(2) For liens recorded on or after January 1, 2006, the decision to record a lien for delinquent assessments shall be made only by the board of directors of the association and may not be delegated to an agent of the association. The board shall approve the decision by a majority vote of the board members in an open meeting. The board shall record the vote in the minutes of that meeting.
(3) An owner, other than an owner of any interest that is described in Section 11212 of the Business and Professions Code that is not otherwise exempt from this section pursuant to subdivision (a) of Section 11211.7, may submit a written request to meet with the board to discuss a payment plan for the debt noticed pursuant to subdivision (a). The association shall provide the owners the standards for payment plans, if any exist. The board shall meet with the owner in executive session within 45 days of the postmark of the request, if the request is mailed within 15 days of the date of the postmark of the notice, unless there is no regularly scheduled board meeting within that period, in which case the board may designate a committee of one or more members to meet with the owner. Payment plans may incorporate any assessments that accrue during the payment plan period. Payment plans shall not impede an association's ability to record a lien on the owner's separate interest to secure payment of delinquent assessments. Additional late fees shall not accrue during the payment plan period if the owner is in compliance with the terms of the payment plan. In the event of a default on any payment plan, the association may resume its efforts to collect the delinquent assessments from the time prior to entering into the payment plan.
(d) 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 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 Section 1366, 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. The itemized statement of the charges owed by the owner described in paragraph (2) of subdivision (a) shall be recorded together with the notice of delinquent assessment. In order for the lien to be enforced by nonjudicial foreclosure as provided in subdivision (g), the notice of delinquent assessment shall state the name and address of the trustee authorized by the association to enforce the lien by sale. The notice of delinquent assessment shall be signed by the person designated in the declaration or by the association for that purpose, or if no one is designated, by the president of the association. A copy of the recorded notice of delinquent assessment shall be mailed by certified mail to every person whose name is shown as an owner of the separate interest in the association's records, and the notice shall be mailed no later than 10 calendar days after recordation. Within 21 days of the payment of the sums specified in the notice of delinquent assessment, the association shall record or cause to be recorded in the office of the county recorder in which the notice of delinquent assessment is recorded a lien release or notice of rescission and provide the owner of the separate interest a copy of the lien release or notice that the delinquent assessment has been satisfied. A monetary charge imposed by the association as a means of reimbursing the association for costs incurred by the association in the repair of damage to common areas and facilities for which the member or the member's guests or tenants were responsible may become a lien against the member's separate interest enforceable by the sale of the interest under Sections 2924, 2924b, and 2924c, provided the authority to impose a lien is set forth in the governing documents. It is the intent of the Legislature not to contravene Section 2792.26 of Title 10 of the California Code of Regulations, as that section appeared on January 1, 1996, for associations of subdivisions that are being sold under authority of a subdivision public report, pursuant to Part 2 (commencing with Section 11000) of Division 4 of the Business and Professions Code.
(e) Except as indicated in subdivision (d), a monetary penalty imposed by the association as a disciplinary measure for failure of a member to comply with the governing instruments, except for the late payments, may not be characterized nor treated in the governing instruments as an assessment that may become a lien against the member's subdivision separate interest enforceable by the sale of the interest under Sections 2924, 2924b, and 2924c.
(f) A lien created pursuant to subdivision (d) shall be prior to all other liens recorded subsequent to the notice of assessment, except that the declaration may provide for the subordination thereof to any other liens and encumbrances.
(g) An association may not voluntarily assign or pledge the association's right to collect payments or assessments, or to enforce or foreclose a lien to a third party, except when the assignment or pledge is made to a financial institution or lender chartered or licensed under federal or state law, when acting within the scope of that charter or license, as security for a loan obtained by the association; however, the foregoing provision may not restrict the right or ability of an association to assign any unpaid obligations of a former member to a third party for purposes of collection. Subject to the limitations of this subdivision, after the expiration of 30 days following the recording of a lien created pursuant to subdivision (d), the lien may be enforced in any manner permitted by law, including sale by the court, sale by the trustee designated in the notice of delinquent assessment, or sale by a trustee substituted pursuant to Section 2934a. Any sale by the trustee shall be conducted in accordance with Sections 2924, 2924b, and 2924c applicable to the exercise of powers of sale in mortgages and deeds of trust. The fees of a trustee may not exceed the amounts prescribed in Sections 2924c and 2924d, plus the cost of service for either of the following:
(1) The notice of default pursuant to subdivision (j) of Section 1367.1.
(2) The decision of the board to foreclose upon the separate interest of an owner as described in paragraph (3) of subdivision (c) of Section 1367.4.
(h) Nothing in this section or in subdivision (a) of Section 726 of the Code of Civil Procedure prohibits actions against the owner of a separate interest to recover sums for which a lien is created pursuant to this section or prohibits an association from taking a deed in lieu of foreclosure.
(i) If it is determined that a lien previously recorded against the separate interest was recorded in error, the party who recorded the lien shall, within 21 calendar days, record or cause to be recorded in the office of the county recorder in which the notice of delinquent assessment is recorded a lien release or notice of rescission and provide the owner of the separate interest with a declaration that the lien filing or recording was in error and a copy of the lien release or notice of rescission.
(j) In addition to the requirements of Section 2924, a notice of default shall be served by the association on the owner's legal representative 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. The owner's legal representative shall be the person whose name is shown as the owner of a separate interest in the association's records, unless another person has been previously designated by the owner as his or her legal representative in writing and mailed to the association in a manner that indicates that the association has received it.
(k) Upon receipt of a written request by an owner identifying a secondary address for purposes of collection notices, the association shall send additional copies of any notices required by this section to the secondary address provided. The association shall notify owners of their right to submit secondary addresses to the association, at the time the association issues the pro forma operating budget pursuant to Section 1365. The owner's request shall be in writing and shall be mailed to the association in a manner that shall indicate the association has received it. The owner may identify or change a secondary address at any time, provided that, if a secondary address is identified or changed during the collection process, the association shall only be required to send notices to the indicated secondary address from the point the association receives the request.
(l)
(1) An association that fails to comply with the procedures set forth in this section shall, prior to recording a lien, recommence the required notice process.
(2) Any costs associated with recommencing the notice process shall be borne by the association and not by the owner of a separate interest.
(m) This section only applies to liens recorded on or after January 1, 2003.
(n) This section is subordinate to, and shall be interpreted in conformity with, Section 1367.4.
1367.4.
(a) Notwithstanding any law or any provisions of the
governing documents to the contrary, this section shall apply to
debts for assessments that arise on and after January 1, 2006.
(b) 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:
(1) By a civil action in small claims court, pursuant to Chapter 5.5 (commencing with Section 116.110) of Title 1 of the Code of Civil Procedure. An association that chooses to proceed by an action in small claims court, and prevails, may enforce the judgment as permitted under Article 8 (commencing with Section 116.810) of Title 1 of the Code of Civil Procedure. The amount that may be recovered in small claims court to collect upon a debt for delinquent assessments may not exceed the jurisdictional limits of the small claims court and shall be the sum of the following:
(A) The amount owed as of the date of filing the complaint in the small claims court proceeding.
(B) In the discretion of the court, an additional amount to that described in subparagraph (A) equal to the amount owed for the period from the date the complaint is filed until satisfaction of the judgment, which total amount may include accruing unpaid assessments and any reasonable late charges, fees and costs of collection, attorney's fees, and interest, up to the jurisdictional limits of the small claims court.
(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. An association that chooses to record a lien under these provisions, prior to recording the lien, shall offer the owner and, if so requested by the owner, participate in dispute resolution as set forth in Article 5 (commencing with Section 1363.810) of Chapter 4.
(3) Any other manner provided by law, except for judicial or nonjudicial foreclosure.
(c) An association that seeks to collect delinquent regular or special assessments of an amount of one thousand eight hundred dollars ($1,800) or more, not including any accelerated assessments, late charges, fees and costs of collection, attorney's fees, or interest, or any assessments secured by the lien that are more than 12 months delinquent, may use judicial or nonjudicial foreclosure subject to the following conditions:
(1) Prior to initiating a foreclosure on an owner's separate interest, the association shall offer the owner and, if so requested by the owner, participate in dispute resolution pursuant to the association's "meet and confer" program required in Article 5 (commencing with Section 1363.810) of Chapter 4 or alternative dispute resolution as set forth in Article 2 (commencing with Section 1369.510) of Chapter 7. The decision to pursue dispute resolution or a particular type of alternative dispute resolution shall be the choice of the owner, except that binding arbitration shall not be available if the association intends to initiate a judicial foreclosure.
(2) The decision to initiate foreclosure of a lien for delinquent assessments that has been validly recorded shall be made only by the board of directors of the association and may not be delegated to an agent of the association. The board shall approve the decision by a majority vote of the board members in an executive session. The board shall record the vote in the minutes of the next meeting of the board open to all members. The board shall maintain the confidentiality of the owner or owners of the separate interest by identifying the matter in the minutes by the parcel number of the property, rather than the name of the owner or owners. A board vote to approve foreclosure of a lien shall take place at least 30 days prior to any public sale.
(3) The board shall provide notice by personal service 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 to an owner of a separate interest who occupies the separate interest or to the owner's legal representative, if the board votes to foreclose upon the separate interest. The board shall provide written notice to an owner of a separate interest who does not occupy the separate interest by first-class mail, postage prepaid, at the most current address shown on the books of the association. In the absence of written notification by the owner to the association, the address of the owner's separate interest may be treated as the owner's mailing address.
(4) A nonjudicial foreclosure by an association to collect upon a debt for delinquent assessments shall be subject to a right of redemption. The redemption period within which the separate interest may be redeemed from a foreclosure sale under this paragraph ends 90 days after the sale. In addition to the requirements of Section 2924f, a notice of sale in connection with an association's foreclosure of a separate interest in a common interest development shall include a statement that the property is being sold subject to the right of redemption created in this paragraph.
(d) The limitation on foreclosure of assessment liens for amounts under the stated minimum in this section does not apply to assessments owed by owners of separate interests in timeshare estates, as defined in subdivision (x) of Section 11112 of the Business and Professions Code, or to assessments owed by developers.
1367.5.
If it is determined through dispute resolution pursuant to
the association's "meet and confer" program required in Article 5
(commencing with Section 1363.810) of Chapter 4 or alternative
dispute resolution with a neutral third party pursuant to Article 2
(commencing with Section 1369.510) of Chapter 7 that an association
has recorded a lien for a delinquent assessment in error, the
association shall promptly reverse all late charges, fees, interest,
attorney's fees, costs of collection, costs imposed for the notice
prescribed in subdivision (a) of Section 1367.1, and costs of
recordation and release of the lien authorized under subdivision (b)
of Section 1367.4, and pay all costs related to the dispute
resolution or alternative dispute resolution.
As of May 1, 2007
Comments
maybe not comment but question if there is a loan on property obviously in this economy more than property is worth what happens with the mortgage company involved
Who is responsible for paying default HOA after the foreclosure auction?
It is important to understand that most HOA's do not have a pre-lien like the property taxes. When a homeowner falls behind on their HOA dues then the HOA would file a lien against the property. This is usually after a Deed of Trust since at the time of the loan the homeowner was current on their HOA dues. If a property goes to trustee sale the HOA lien is typically wiped out since it is a junior lien. This means that the bank or the 3 party investor is not responsible for payment of the back HOA dues they are only responsible for the dues from the date that they took ownership (and potentially any transfer fees). The HOA can go after the previous owner for collection of back dues but locating them and trying to collect from someone that has just lost their home can be futile since most do not have the funds to pay.
Although the lender or the investor is not "obligated" to pay we have seen several cases where a clever HOA has held up the resale on various technicalities until someone involved in the resale transaction has agreed to pay.
The bank is going to auction my home in 2 days and is not agreeing to postpone any further for any negotiation. My HOA is in default at least 1 year since the foreclosure and has stopped sending me monthly statements (is silent?). How can I get the HOA to as you said hold up the resale on various technicalities until the investor or buyer agree to pay??? I don't understand why HOA is not trying to INCLUDE / recover its default dues with this auction? I'm not familiar with the process.. but having to lose my home and my downpayment, I really wish to be able to not carry HOA's burden too.. what am I to do??
In a foreclosure scenario where the HOA fees were kept current but there were penalties assessed for non compliance issues can the HOA pursue the former owner for those "penalties" after the foreclosure is final?
Does Civil code 1367 or 1368 ACTUALLY mention that the Lien is wiped out? I am unable to find a line in there to quote against a particularly stuborn HOA. Thanks!
There is no language within 1367 and 1368 that expressly provides that an HOA lien subsequent to a Deed of Trust is junior and will be wiped out by a foreclosure sale on the Deed of Trust, per se. But Section 1367.1 (f) is the next best thing as it provides that an HOA lien is prior only to liens that are recorded after the HOA’s notice is recorded.
The priority of HOA lien in relation to other liens on the same property is governed by the conventional lien priority rule of Civil Code Section 2897, namely, that it is determined by the time of its creation. Section 2897 states: "Other things being equal, different liens upon the same property have priority according to the time of their creation...." In addition, Section 2898(a) provides: "A mortgage or deed of trust given for the price of real property, at the time of its conveyance, has priority over all other liens created against the purchaser, subject to the operation of the recording laws."
You may want to point out to the HOA that while it's assessment lien was wiped out. The HOA still has recourse against the prior owner. So all may not be lost.
Catey, you should also be aware that following a foreclosure, a subsequent purchaser cannot be subject to personal liability for any HOA assessments that came due before they acquired title to the property. (Civil Code § 1466.) However, there likely is liability for all HOA assessments that become due after the date the property was acquired at sale. (Civil Code § 1367(a) and Civil Code § 1367.1(a).)
Question: What is the effect of a bankruptcy on an HOA lien which has attached subsequent to mortgage liens on the property, the amount of which exceeds the property's value?
That would all be addressed in the bankruptcy and whether or not the property went to trustee sale. Are you looking to purchase this property at trustee sale or are you the homeowner filing bankruptcy?
What happens with the first mortgage if I bought the property at the Trustee's Sale which was initiated by the HOA? In other words proceeds from the sale will go to HOA to bring it current but what happens with the first mortgage that previous owner had on the property? Am I liable as the new owner? I didn't sign the Note, nor Deed of Trust...
In most cases the HOA lien is junior to any Deeds of Trust. There are very few, if any, HOA's that are pre-liens that would be superior to a Deed of Trust. If you purchased the property from the HOA look at the date of the HOA lien. If this is the case then the property is still encumbered by the existing deeds of trust and these loans will need to be paid.
What happens in the following foreclosure example:
* Condo owner has a 1st mortgage of $350,000 and is current on their payments.
* Homeowner is behind in their HOA dues and refuses to pay claiming they do not have the money.
* Amount has been overdue for 24 months and the amount is $12,000
* HOA has filed a lien and done all of the paperwork to foreclose.
* HOA executes a non-judicial foreclosure for the $12,000 unpaid debt.
* The HOA takes title to the property.
* Time has expired for the Condo owner to re-claim their property from foreclosure by the HOA. The Condo owner has moved out of the property.
What happens to the 1st mortgage holder?
How do they get their money which was secured by the 1st mortgage?
Can the HOA sell the property for any price?
Who has a claim on the proceeds which exceed the $12,000 debt?
Based on what you have stated the HOA now owns the property. Provided this was a typical HOA the Deed of Trust is still attached to the property. If the HOA wanted to sell the property the loans would need to be paid off. If they do not make arrangements with the lender for payment or payoff then the lender can start the foreclosure process. If the lender forecloses then the HOA would be wiped out.
My condo is gonna be auctioned in 2 days. How can I ask the HOA to try to REDEE, / INCLUDE the defualted HOA amounts in this auction too (make arrangments with investor or as you mentioned through technicality until it is agreed to be paid in resale??? I am already loosing my home and downpayment.. what can I do? (HOA has been silence over last several months about the default.. even has stopped sending me monthly statments?? I'm worried it's right gonna come out after the auction and after me)? any advise?
If the lender is foreclosing then the junior liens (which may be your HOA) are wiped out. This does not mean that they cannot come after you for payment. There is no way to "include" the back HOA dues in a trustee sale if it is in fact the lender that is foreclosing and not the HOA.
In the state of California, what liability does a buyer in a short sale have regarding HOA fees, assessments, interest, fines, etc. I have heard that the buyer is not liable for any fees, fines, etc. other than the actual delinquent monthly assessments if they choose to go through with the sale. Thank you.
In a short sale the title company is issuing a clear title policy so all assessments and taxes and liens must be cleared just like a traditional sale. Typically the past due HOA dues are included in the costs on the net sheet and deducted from the amount that will be paid to the lender. Essentially the lender in a short sale is taking whatever is left after the taxes, closing costs, back dues are paid. Remember that everything is subject to negotiation in a short sale.
When a buyer closes on a short sale they get a title policy just like a traditional sale and are insured against any loans or liens from the previous owner.
We have an owner in our associate that is 4 years past due on HOA dues, $24,000. What is the best way for us to collect, judicial foreclosure? The owner is trying to re-rent the property. As you can imagine this is very frustrating!
You would first need to file a lien against his property. Since most HOA's are not a pre-lien this would be the first step. Then you would file a Notice of Default and start the foreclosure process. Most HOA's consult with an attorney to make sure everything is properly filed and in compliance with the articles of the association. It is possible for you to foreclosure on this property but you would be taking ownership based on the position of your lien which would be based on the filing date.
So, if the HOA can't take ownership of the property, what exactly does a 'foreclosure' mean then?
Also, in the case an HOA DOES take ownership of the property, what liability would the HOA have with the mortgage holder if the there is negative equity or if the HOA neglected to make mortgage payments? Theoretically, the HOA would be able to generate cash through renting the property. The same way that mortgage companies can’t go after rental income earned on delinquent homeowners, is it safe to say that the same goes with HOAs?
Since the foreclosure process for banks is so lengthy, why not just rent the property and then let the bank foreclose whenever they are legally allowed.
The HOA could absolutely take ownership of a property through the non-judicial foreclosure process. They would first need to file a lien for the past due assessments and then foreclose on that lien position by filing a Notice of Default and a corresponding Notice of Trustee Sale. They would then own the property (provided that a 3rd party investor did not purchase at trustee sale) based on their lien position which would typically be behind any Deeds of Trust. At that point they could payoff the loans, rent or sell the property. If they are not making the mortgage payments then it would be a matter of time before the lender would foreclose and wipe out their ownership interest. It would be wise for a HOA to consult with an attorney before proceeding with a foreclosure on a member of their association. Keep in mind that the HOA could end up like so many owners of investment property where they rent out a property and a Notice of Default is filed and the renter stops paying rent. The non judicial foreclosure process in CA can take as little as 111 days from the filing of the Notice of Default to the Trustee Sale.
I am a new Board member in an HOA where the past Board has filed a Lien against an owner for about $6K in dues arrears. The case was recently turned over to a Collection Agency and an attorney as I understand it. The property manager has said this will now "probably result in a non-judicial foreclosure". Does that mean the HOA will then own the property and become liable for making mortgage payments etc? I can't imagine this is a good idea since the HOA could not support that added cash flow burden for any length of time, and selling the property in this awful market would take time. AND it will be the first foreclosure in our complex , which I can only imagine will damage ALL of our property values enormously!!? This seems a no win situation?? Is there any positive way out of this?
Filing the Notice of Default may put the added pressure on the homeowner to do something. The best case scenario would be for the homeowner to sell/short sale since typically the HOA dues are paid. If the lenders foreclose they typically do not pay in arrearages on HOA dues. Should you foreclose you would not typically make the payments you would sell the property. In this market that would typically mean a short sale so it is doubtful that you would get any proceeds from the sale.
The times when a foreclosure benefits the HOA (when the property is over encumbered) is if the owner or the renter in the unit is creating a nuisance for the other owners. This allows the HOA to evict the occupants and hopefully restore the quiet enjoyment of the community.
There are many variables that the Board will want to review before making a decision. This includes the open loans and liens on the property, current foreclosure activity (their loans may already be in foreclosure) and the market value of the property in it's current condition.
Post new comment