– By Jeffrey R. Pratt, Esq. (originally published, July, 1997)

It’s true, the law does work in the real world, and we have proof!

In our January 1995 issue, Laurie S. Poole, Esq. wrote a column about Park Place Estates Homeowners Association, Inc. v. Naber (1994) 29 Cal.App.4th 427, wherein the Court held that the amount a homeowner owes the Association for past due assessments cannot be offset by the homeowner’s claim that the Association owes the homeowner damages for its wrongful acts, such as a breach of the CC&Rs. Although the context of the Park Place case was the ability of an association to collect delinquent assessments through a lawsuit, recently a local Superior Court judge applied this rule to a foreclosure sale for past due assessments.

In that case, a homeowner was facing non-judicial foreclosure for past due assessments. The homeowner filed a lawsuit against the Association claiming that it owed her money for damages for its breach of the CC&Rs. The homeowner sought a preliminary injunction, asking the Court to prevent the sale of her property until such time as her lawsuit was tried and it was determined whether she was entitled to damages from the Association for its alleged wrongful acts (which could then be offset against the amount she owed in past due assessments). The Superior Court refused to prevent the sale and denied her application for a preliminary injunction.

The Court relied upon the Park Place case and held that the public policy behind the Davis-Stirling Common Interest Development Act, which allows for the collection of assessments, required that the Association have the ability to enforce its assessments by foreclosure.

The Supreme Court in Nahrstedt v. Lakeside Village Condo Assn. (1994) 8 Cal.4th 361 and the Appellate Court in Park Place both recognized that an Association’s enforcement of its assessment policies against delinquent homeowners will be upheld where it is consistent with the governing documents and complies with public policy. As the Park Place court stated, public policy includes the “Legislature’s recognition of the importance of assessments to the proper functioning of condominiums in this state.” Accordingly, pursuant to Civil Code section 1367(a), the Association has the authority to assess fees for the maintenance of the complex, which become the debt of the owner at the time they are assessed. Pursuant to Civil Code section 1367(b), the Association is empowered to record a lien against the member’s property for failure to pay the assessments and to foreclose on that lien if the default is not corrected.

Allowing a homeowner to claim a set-off would at least temporarily exempt that homeowner from payment of his or her assessments, and would sanction the exemption of all members with similar claims. This would emasculate the association of the exercise of these reasonable powers that are critical to its survival. This is the essence of the Park Place court’s recognition that “[b]ecause homeowners associations would cease to exist without regular payment of assessment fees, the legislature has created procedures for associations to quickly and efficiently seek relief against a non-paying owner.” That relief is foreclosure.

Although this Superior Court decision is not “binding authority” it is an important decision as it demonstrates application of the Park Place principles to the real world. By refusing to prevent the foreclosure sale for past due assessments, the Court recognized that to allow a claim for set-off would inhibit the Association’s ability to lien and foreclose and would undermine the Association’s ability to exist, because it solely depends on the collection of assessments that members covenant to pay and on the ability to swiftly lien and foreclose when a member defaults.