NEW HOPE FOR HOMEOWNERS THREATENED WITH FORECLOSURE BY HOA’S

Homeowner’s Associations, created by deed provisions to serve homeowners in condominium developments, are often at odds with individual owners of units.  Sometimes these conflicts escalate to the point where the HOA actually forecloses on a homeowner’s interest in the unit, resulting in a total loss to the homeowner.  The Davis-Stirling Common Interest Development Act, codified in Civil Code Sections 1350-1376, gives an HOA the authority to levy assessments, which become an involuntary lien against the homeowner’s interest when the HOA records a “Notice of Delinquent Assessment” (Civil Code 1367).  Section 1367(e) gives the HOA the right to enforce that lien in any manner permitted by law, including foreclosure.  Thus, if the homeowner does not pay a delinquent assessment, his or her interest may be sold at either a judicial or non-judicial foreclosure sale, resulting in the possibility of the HOA becoming the owner of the unit and evicting the homeowner from their own home. 

I recently came in to represent an elderly couple in such a case after a default judgment for judicial foreclosure.  Thankfully, the legislature inserted stringent notice provisions in Civil Code 1367.1 by amendment in 2002 and 1367.4 by amendment in 2005, so I looked to them to ascertain whether there was compliance.  The provisions require that, thirty days prior to recording a lien on the separate interest of any owner, the HOA must give notice by certified mail of its lien collection procedures, the method and calculation of the assessment amount, a statement that the owner has the right to inspect the HOA’s records, and a specific warning that their interest may be sold without court action if the lien is placed in foreclosure (1367.1(a)(1).  They also require an itemized statement of the assessments, late charges, collection and attorney’s fees, a statement that the owner shall not be liable to pay the interest, charges, and costs of collection if it is determined that the assessment was paid on time, the right to request a meeting with the HOA board, the right to dispute the assessment by submitting a written request to the HOA for dispute resolution pursuant to its required “meet and confer” program, and the right to request alternative dispute resolution with a neutral third party (1367.1(a)(2-6).  The decision to record the lien must be made by the HOA board by a majority vote (1367.1(c)(1)(B), and the notice of delinquent assessment must be recorded and a copy of the recorded notice served on the homeowner by certified mail.  Section 1367.4 requires the HOA, prior to the use of foreclosure, to collect an assessment over $1800, to offer the “meet and confer,” to make the decision to foreclose by a majority vote of the full HOA board, to provide notice of that decision to the owner by personal service, “in accordance with the manner of service of a summons (CCP sections 415.10, et. seq.), and to allow the homeowner a redemption period in cases of non-judicial foreclosure (Civil Code section 1367.4).

Prior to the case of Diamond v. Superior Court, _____ Cal. App. 4th _____ (2013), decided by the Sixth District Court of Appeal on June 18, 2013, courts were refusing to overturn foreclosures if the HOA could demonstrate “substantial compliance” with the statute.  The Diamond case held that the notice requirements of sections 1367.1 and 1367.4 must be strictly construed, “pursuant to the plain language of the statutes and their legislative history” and set aside the foreclosure sale in that case for the HOA’s failure to send the homeowner a copy of the recorded notice of delinquent assessment and failing to give the required pre-lien notice of a right to demand alternative dispute resolution.

In my case, the homeowner came to me on the verge of a judicial foreclosure in an attempt to stop the sale and force the HOA back to the bargaining table.  The HOA in that case had not yet personally served the homeowner with a copy of the board’s decision to foreclose on their home, and claimed that the statute did not specify when it should be served.  Presumably, they could serve it any time before the foreclosure sale.  However, the reason for personal service in accordance with CCP section 415.10 is to give notice of a legal process in order to comply with the principles of due process.  As stated by the Diamond court, “We find an expression of the Legislature’s intent regarding the public purpose of the sections 1367.1 and 1367.4 and the statutory notice requirements in the legislative history. Section 1367.1 was added to the Civil Code in 2002 (Stats. 2002, ch. 1111, § 8) and amended in 2005, when section 1367.4 was added (Stats. 2005, ch. 452, § 5). In 2005, the Senate Judiciary Committee’s bill analysis stated: “This bill protects owners’ equity in their homes when they fail to pay relatively small assessments to their common interest development associations.” (Sen. Com. on Judiciary, Analysis of Sen. Bill No. 137 (2005-2006 Reg. Sess.) as amended Sept. 1, 2005, p. 1.)”

     The fourteenth amendment to the United States Constitution provides that “no state shall deprive any person of life, liberty or property without due process of law.”  The legislative history of the amendment creating section 1367.4, plainly requires the HOA board to provide notice of its decision to foreclose as a condition of foreclosure, which is a taking of property authorized by the state.  Notice is a concept of due process, and to require that notice to be given by personal service, as opposed to the other methods of service specified in the Code of Civil Procedure, the legislature plainly prescribed the highest form of notice.  The purpose of such service statutes is to assure that due process is satisfied.  See American Express Centurion Bank v. Zara, 199 Cal. App 4th 383 (2011).  Clearly, since the statute specifies personal service of the board’s decision as a precondition of foreclosure, that service must occur before the commencement of foreclosure proceedings, to allow the homeowner notice and the opportunity to defend against them.

Kenneth Eade is an international attorney and the best-selling author of “Bless the Bees: The Pending Extinction of our Pollinators and What You Can Do to Stop It.”

     

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