– By Stephen M. Kirkland, Esq. (originally published in Summer 2002)

As promised, we are providing you an update on the status of Assembly Bill 2289 which seeks to amend various sections of the Davis-Stirling Common Interest Development Act as they relate to collection of assessments. First, the good news: As reported in our last newsletter, the original draft of AB 2289 required a minimum threshold delinquent amount of $5,000.00 before an association could initiate a non-judicial foreclosure action in pursuit of a delinquent homeowner’s dues. Apparently convinced of the absurdity of such a requirement, the Legislature removed that minimum threshold amount from the proposed amendment. Unfortunately, the Bill is otherwise alive and well.

On June 25, 2002, the legislative committee overseeing AB 2289 heard arguments from proponents and opponents of the Bill. Proponents included the Homeowner’s Rights Coalition, the California Association of Realtors, the California Land Title Association, the Congress of California Seniors, the Consumers Union, the Western Center on Law and Poverty, the California Rural Legal Assistance, and the Elder Woman’s League of California. The arguments presented by these various entities (i.e. that homeowner associations prey on minorities, underprivileged and handicapped owners, who do not even know they are delinquent in paying their assessments, or never knew they could be liened and subject to non-judicial foreclosure for their failure to do so), have no basis in fact.

In its current form, the Davis-Stirling Common Interest Development Act requires an association to provide written notice to the delinquent owner by regular and certified mail of the association’s intent to record a delinquent assessment lien, prior to recording a lien against the owner’s property. The vast majority of associations go above and beyond this requirement by providing the owner an additional preliminary notice of the delinquency and the ramifications for non-payment, prior to transmitting the Ointent to lien’ letter. Only after an owner fails to respond to those demands do associations record a lien against the owner’s property, thereby securing the delinquent owner’s debt to the association.

The proponents’ arguments are particularly unfair to the volunteer boards managing and operating common interest developments throughout California. Their arguments mischaracterize these board members as heartless tyrants lying in wait for the first opportunity to throw owners into the street the second they fall behind in their payment of dues. Nothing could be further from the truth. Evidently, the legislative committee has elected to ignore the statistics presented to them by opponents of the Bill indicating less than one percent of non-judicial foreclosure actions initiated by associations actually result in foreclosure of an owner’s property.

In its current form, Assembly Bill 2289 proposes, inter alia, the following amendments:

1. Prohibiting an association from denying an owner physical access to his/her separate interest, except pursuant to an order of the court or an order pursuant to final and binding arbitration.

2. Including meetings with individual members regarding that member’s payment of assessments, under the auspices of the “executive session” provision of the Open Meeting Act, which meeting is not open to the general membership.

3. Requiring associations to include a statement regarding the non-judicial foreclosure process within the group of documents, such as the operating budget, mailed to association members each year.

4. Requiring an association to re-commence the non-judicial foreclosure procedure anew in the event they fail to follow the procedure delineated by statute, and to timely release the invalid lien in that event.

The most burdensome provision of the proposed amendment is the requirement that an association provide an owner with a hearing before the board of directors to discuss the owner’s delinquent account and any payment plan proposed by the owner, thirty (30) days prior to placing a lien on their property. A board of directors would not, however, be required to meet with an owner more than twice in a 2-year period. If the board of directors agrees to the owner’s payment plan, the association may only record a lien against the owner’s separate interest prior to implementation of the plan if authority for recording the lien is present in the plan. The Association would then only be able to enforce the lien if the owner fails to comply with the plan.

Although AB 2289 requires an association to provide a delinquent owner with an opportunity to propose a payment plan, AB 2289 stops short of requiring that the association provide such a plan. Thus, an association might be permitted to adopt a uniform policy denying any proposed payment plans. This defeats the primary purpose of the statutory required hearing with the board of directors under the proposed Bill.

While not guaranteeing the owner a resolution to his or her delinquency, such a statutory required hearing does guarantee associations will have a more difficult task finding volunteers to serve on the board of directors, simply because board members will be required to expend even more of their free time conducting individual, face-to-face meetings with every delinquent owner requesting the same. As such, this provision may do little to assist delinquent owners and may seriously impact an association’s ability to find volunteers prepared to manage its affairs, an already extremely difficult task.

After a motion to pass AB 2289 initially failed, both proponents and opponents disbursed to lobby remaining senators in support of their various positions. In the interim, the overseeing committee proposed a solution whereby an association would be prohibited from recording a lien for thirty (30) days after providing an owner with notice of the delinquency, but if payment was not received, the lien would “relate back” those thirty (30) days, to the date of the “notice of lien” letter. This proposal would preserve the association’s priority in time with respect to encumbering title to the subject property.

While opponents of the Bill approved this compromise, the proponents opposed the proposal arguing the lien would be “of record” for those thirty (30) days, causing escrow closing problems. This protection is, of course, the entire reason associations record liens against the property of delinquent owners. After lobbying, the proposed amendment received the requisite four votes and the Bill passed from committee and will be voted on by the full Legislature. It is believed that the Bill will pass at that stage, and therefore efforts to stop AB 2289 as drafted are focused on the Governor. Once again, we will provide further updates on the status of this Bill in future newsletters.

UPDATE: As of August 27, 2002, the Senate passed the bill by 32 aye votes to 2 no votes.