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|SENATE RULES COMMITTEE | AB 2598|
|Office of Senate Floor Analyses | |
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THIRD READING
Bill No: AB 2598
Author: Steinberg (D), et al
Amended: 8/23/04 in Senate
Vote: 21
SENATE JUDICIARY COMMITTEE : 5-1, 6/29/04
AYES: Escutia, Cedillo, Ducheny, Kuehl, Sher
NOES: Ackerman
NO VOTE RECORDED: Morrow
ASSEMBLY FLOOR : 69-10, 5/27/04 - See last page for vote
SUBJECT : Common interest developments
SOURCE : Congress of California Seniors
DIGEST : This bill enacts numerous changes to the
Davis-Stirling Act. Most significantly, this bill
prohibits the use of judicial or nonjudicial foreclosure to
collect unpaid assessments under $2,5000 and implements new
procedures to be followed when judicial or nonjudicial
foreclosure is used to collect unpaid homeowner association
assessments $2,500 and over. It changes the minimum bid
price for a separate interest being sold in nonjudicial
foreclosure to 90 percent of the exterior-only appraised
value minus senior liens, and creates a 90-day right of
redemption for a separate interest sold in nonjudicial
foreclosure.
This bill also extends the areas on which a separate
interest owner may display certain noncommercial signs,
CONTINUED
AB 2598
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posters, flags or banners, expands the categories of
association records the members are entitled to inspect and
copy to include contracts to which the association is or
has been a party, and expands the categories of association
records the members are entitled to inspect and copy to
include the records of community service organizations.
Senate floor amendments of 8/23/04:
1. Require that in a foreclosure of a lien for delinquent
assessments, an appraisal of the separate interest would
have to be conducted not less than 30 and not more than
60 days prior to the sale, unless the court orders a
different completion date during a judicial foreclosure.
2. Remove a provision of the bill that would have
prohibited judicial foreclosure to collect fines and
penalties.
3. Remove a provision of the bill that would have allowed
the aggregation of uncollected judgments for delinquent
assessments with other delinquent assessments to
establish whether the $2500 threshold of delinquent
assessments had been met.
4. Specify that if AB 1836 (Harman) is enacted, an
association would not be allowed to record a lien for
delinquent assessments before offering the owner of a
separate interest an internal dispute resolution
process, and would not be allowed to initiate
foreclosure of a lien before offering the owner of a
separate interest an internal dispute resolution process
or an alternative dispute resolution process with a
neutral third party, and the owner of the separate
interest would have sole control over which particular
type of which internal or alternative dispute resolution
is used, but would provide that binding arbitration
would not be available as a method of alternative
dispute resolution if the association intends to
initiate judicial foreclosure.
5. Specify that if AB 1836 (Harman) is enacted, and if it
is determined through internal dispute resolution or
alternative dispute resolution with a neutral third
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party that an association recorded a lien for delinquent
assessments in error, the association would be required
to reverse all late charges, fees, interest, costs of
collection, costs of notices, and costs to record and
release the lien, and would be required to pay the cost
of the dispute resolution process used.
Senate floor amendments of 8/12/04 prevent chaptering out
of substantive amendments to Civil Code Sections 1365.1 and
1367.1 by AB 1836 and AB 2252.
ANALYSIS : Existing law defines and regulates common
interest developments and prohibits the governing documents
of a common interest development from prohibiting the
displaying of certain noncommercial signs, posters, flags,
or banners, in an owner's separate interest, as specified.
This bill would extend the provisions described above to an
owner's exclusive use common area.
Existing law requires that members of a common interest
development association have access to the association
records, including accounting books and membership lists,
as specified.
This bill would provide that, upon a court finding that a
request to copy or inspect was unlawfully denied, a member
is entitled to reasonable attorney's fees and court costs,
and that the court may impose a civil penalty of up to $500
per violation.
Existing law requires the managing association of a common
interest development to make the accounting books and
records and the minutes of proceedings of the association
available for inspection and copying by a member of the
association, or the member's designated representative, as
specified.
This bill would revise the provisions described above to
have them apply to all association records, as defined,
including contracts to which the association is or has been
a party. The bill would also extend these provisions to
community service organizations related to an association.
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Existing law defines and regulates common interest
developments and authorizes the association that manages
the development to levy assessments to fulfill its
obligations. Existing law provides that a regular or
special assessment of the association, late charges,
reasonable costs of collection, and interest, as specified,
are a debt of the owner of the separate interest at the
time the assessment or other sums are levied, and are a
lien on the owner's separate interest when the association
records a specified document and follows a specified
process. Existing law permits the association to enforce
the lien in any manner permitted by law including a sale by
a trustee, also known as nonjudicial foreclosure.
Existing law authorizes an owner of a separate interest in
a common interest development to pay assessments that are
in dispute in full under protest. Existing law, the right
of redemption, permits a judgment debtor, as defined, to
redeem his or her real property, as specified, after
judicial foreclosure only if the decree of foreclosure
finds that a deficiency judgment may be ordered against the
debtor.
This bill would revise and recast the procedures for
collecting delinquent assessments for certain debts that
arise on and after January 1, 2005. The bill would provide
that when an association of a common interest development
seeks to collect a delinquent assessment of less than
$2,500, not including specified late charges and fees, the
association must either file a civil action in small claims
court or record a lien upon which it would be prohibited
from foreclosing. The bill would repeal provisions
authorizing the owner of a separate interest to pay
assessments that are in dispute in full under protest and
requiring the board of directors of an association to
respond to an owner's written dispute of a debt within 15
days.
The bill would permit an association of a common interest
development seeking to collect a delinquent regular or
special assessment of $2,500 or more, not including
specified late charges and fees, to use foreclosure subject
to specified conditions. Among these conditions, the bill
would require the board of directors of an association to
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make the decision to record a lien against a separate
interest or to foreclose upon a lien at an executive
meeting of the board, by a majority vote, and to record the
results of the vote, as specified, and would require the
board to provide notice of the decision to foreclose, as
specified.
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.
The bill would require, if the owner so requests, that the
association permit the owner of the separate interest to
elect dispute resolution or alternative dispute resolution
procedures, under specified circumstances, but only if AB
1836 of the 2003-04 Regular Session is enacted. The
association would be prohibited from recording a lien or
initiating a foreclosure action without participating in
those procedures if so requested by the owner. The bill
would further provide that, notwithstanding any law to the
contrary, a foreclosure by an association to collect upon a
debt for a delinquent assessment, as specified, is subject
to a right of redemption. The bill would provide a
redemption period of 90 days. The bill would establish a
minimum bid of 65 percent of the appraised value, exclusive
of senior liens, as specified, in a judicial or nonjudicial
foreclosure to collect upon a debt for a delinquent
assessment, as specified. The bill would exempt from its
provisions developers and separate interest owners in
time-share projects, as specified.
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.
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
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majority vote of the board members in an open meeting. The
board shall record the vote in the minutes of that meeting.
The bill would also authorize a homeowner's association to
appear and participate in small claims court hearings
through a management company representative or bookkeeper
who appears on behalf of the homeowner's association.
This bill would incorporate additional changes in Sections
1365.1 and 1367.1 of the Civil Code proposed by AB 2252 and
changes consistent with AB 1836 that would become operative
only if either or both of these bills are chaptered and
become effective on or before January 1, 2005.
The bill would further specify that it shall become
operative only if SB 1682 is also enacted.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 8/23/04)
Congress of California Seniors (source)
American Civil Liberties Union
Consumers Union
California Foundation for Independent Living Center
Northern California Council of Churches
American Association of Retired Persons
Church IMPACT
AARP
California Association of Realtors
American Homeowner Resource Center
Western Center for Law and Poverty
California Alliance for Retired American
Grey Panthers
California Rural Legal Assistance Foundation
OPPOSITION : (Verified 8/23/04)
California Association of Community Managers, Inc.
California Trustees Association
Community Associations Institute
First American Title Corporation
Leisure World
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ARGUMENTS IN SUPPORT : In support of the two-tiered
enforcement structure, proponents state:
While homeowners associations must have the ability to
collect assessments owed to them, they have a variety
of collections tools at their disposal. The loss of
one's home and the loss of equity is a[n] extremely
high price to pay for missing payments to the
homeowners association. Foreclosure is an
inappropriate tool to use for collecting [a] small
amount of delinquent assessments.
The Congress of California Seniors stated that the proper
legal environment for collecting small debts is in small
claims court and that foreclosure should only be used in
extraordinary cases. In support of AB 2598, Congress of
California Seniors states that the range of collection
tools that associations can use, including small claims
court and nonforecloseable liens, laid out in the bill is
the right approach.
Consumer's Union supports the bill and states the
protections the bill affords are important and necessary to
protect homeowners living in common interest developments
who face the possibility of having their homes sold out
from under them for pennies on the dollar, losing their
homes and all of their equity in the process.
ARGUMENTS IN OPPOSITION : There is significant opposition
to this bill on almost every element of it. Of most
significant concern are two points raised by the Executive
Council of Homeowners (ECHO) concerning the alternative
dispute resolution requirements and the nonforecloseable
lien.
With regard to the bill requiring participation in
alternative dispute resolution at a homeowner's request
prior to recording a lien, ECHO states:
No other creditor of which we are aware is subjected
to ADR as a prerequisite to its ability to secure the
collection of its debt. This process could take as
long as 120 days during which time the owner's
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separate interest could be transferred, financed or
refinanced, and the owner's estate could easily become
subject to a federal bankruptcy petition preventing
the HOA from pursuing thereafter an in rem action or
claim. Inserting ADR as a prerequisite to recording a
lien unjustly delays and may prevent a HOA's ability
to secure the payment of an assessment debt ?
With regard to the bill allowing only a small claims action
or a nonforecloseable lien for debts under $2,500, ECHO
states that an unenforceable lien is of no value, will not
be recognized by the market (meaning escrow holders will
disregard the lien upon the instruction of the principals,
and title insurers will insure over or around it, because
of its unenforceability) and only will result in a cloud on
title.
Community Associations Institute (CAI) opposes the
requirement that debts of less than $2,500 be pursued in
small claims court or recorded in a nonforecloseable lien,
and contends small claims court is an inadequate venue for
such disputes because small claims courts "simply aren't
set up to handle cases where the alleged debt must be
substantiated" by extensive documentation. CAI asserts
that judges "will, in almost every case either summarily
find for the HOA because they probably have the numbers
right, or they will use less than thorough investigation."
CAI and ECHO also argue that limiting a homeowners'
association's remedy for debts under $2,500 to an
unenforceable lien or small claims judgment would force the
association to carry the debt for extended periods of time,
which many cannot do, and converting small claims judgments
to actual collection requires more time and additional
proceedings and costs, which many associations cannot
afford.
ASSEMBLY FLOOR :
AYES: Bates, Benoit, Berg, Bermudez, Bogh, Calderon,
Campbell, Canciamilla, Chan, Chavez, Chu, Cogdill, Cohn,
Corbett, Correa, Cox, Daucher, Diaz, Dutra, Dutton,
Dymally, Firebaugh, Frommer, Garcia, Goldberg, Hancock,
Jerome Horton, Shirley Horton, Jackson, Keene, Kehoe,
Koretz, Laird, Leno, Leslie, Levine, Lieber, Liu,
AB 2598
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Longville, Lowenthal, Maddox, Maldonado, Matthews,
McCarthy, Montanez, Mountjoy, Mullin, Nakanishi, Nakano,
Nation, Negrete McLeod, Oropeza, Parra, Pavley, Reyes,
Richman, Ridley-Thomas, Salinas, Samuelian, Simitian,
Spitzer, Steinberg, Vargas, Wesson, Wiggins, Wolk,
Wyland, Yee, Nunez
NOES: Aghazarian, Harman, Haynes, Houston, La Malfa, Maze,
Pacheco, Plescia, Runner, Strickland
NO VOTE RECORDED: La Suer
RJG:DLW:sl 8/23/04 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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