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A Letter
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California Legislator Gives Rights and Money of Homeowners to Collection Lawyers
AB2289 Makes it Legal for Lawyers Lock Homeowners Out Of Their Homes and Collect Unlimited Lawyers and Managers Fees, Costs and Charges
May 17, 2002
By
AHRC News Services
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Sacramento, California, - To: Journalists
Subject: AB 2289 - Author Assembly Member Christine Kehoe
Dear Journalists:
Per our telephone conversations, here is AHRC's analysis of AB 2289 by San Diego legislator Christine Kehoe. The positive and negative features of the bill are shown in color.
The bill adds new sections to the law in favor of the collection lawyers and managers and clarifies other sections in their favor:
1. Civil Code 1361.5 allows association boards to deny access to a homeowner to his property
2. Civil Code 1365.3 Renotification can also mean more fees and costs that the homeowner will be charged
3. Civil Code 1367 In the past, there was a gray area in the law whether certain late charges and other fees (in addition to attorney fees) were included in costs. This new section now explicitly includes them.
This bill started out as a simple, good bill. It required a minimum of $5000 in delinquent assessments and fees before an association could start a non-judicial foreclosure. But the CAI lobbyists quickly moved in and gunned it down because it threatened their very lucrative practice of dunning homeowners. In its place, Assembly member Christine Kehoe has substituted a bill that contains one minor consumer protection feature. This largely meaningless morsel masks the more serious piling on of additional fees and costs for homeowners in favor of CAI lawyers and mangers.
She should either drop this bill completely or restore the $5,000 minimum for non-judicial foreclosure and take out these giveaways to the lawyers. As it stands, this bill gives much more power and money to the association and their lawyers.
If you publish an article on this issue, would you please send us a copy.
Thanks for your time.
The Staff
American Homeowners Resource Center
Attachment:
Letter To State of Calfornia Legislators - Assembly & Senate Members & Bill Analysts - April 29, 2002
Re: AB 2289 Analysis & Request for Amendment From Homeowners
1. BACKGROUND: Mortgage lenders and homeowner associations have the power in California to use non-judicial foreclosure for the nonpayment of a mortgage and homeowner association assessments respectively. The similarities end there.
a. Mortgage lenders, even though they have invested hundreds of thousands of dollars in a house, use non-judicial foreclosure only as a tool of last resort. They attempt, where possible, to work with a homeowner through a payment plan in order to avoid foreclosure. Even though homeowner associations have invested zero, foreclosure is generally the first and only tool that homeowner associations use, and they do not typically work with homeowners. The homeowner association rule is "Either pay or you are out".
b. This difference in approach is initially puzzling because the monies owed to mortgage lenders is usually in the thousands, while the amounts to homeowner associations are normally no more than in the hundreds. The difference is explained by the fact that a very profitable industry has grown up in homeowner associations. This industry is that of the CAI lawyers (Community Associations Institute) – a private trade group of lawyers and other association vendors.
c. These lawyers get substantial monies from handling foreclosures in homeowner associations. But this is just the tip of the iceberg. They make even more money from the demand letters that they send to homeowners. Homeowners, frightened by the threat of foreclosure, and aware of the staggering cost of fighting the attorney fees, often pay the exorbitant fees demanded by the lawyers, rather than try to fight them. While it is hard to gain precise data on the amounts collected by lawyers from these demand letters, the size of the tip of the iceberg gives some indication of the size of the underlying iceberg. Sentinel Fair Housing documented 884 foreclosure actions in 2001 in just 5 Bay area counties. Huntington Beach posts between 10 and 20 homeowner association foreclosures every day. One CAI foreclosure lawyer, Larry Rothman, boasted that he filed 250 homeowner association foreclosures a month in the 600 homeowner associations he handled.
d. Transactions between mortgage lenders and borrowers are generally conducted as arms length business transactions. In homeowner associations, board members are often ill educated, and sometimes let personal animosities towards members dictate their treatment of homeowners.
2. APPLICATION: In light of the above brief summary, does AB 2289 correct these abuses?
a. The positive features of the bill are:
i. More precise and detailed notice provisions to homeowners who are delinquent in their assessments. However, more notification means more lawyer and manager bills that the homeowner has to pay.
ii. The right to a meeting with the board regarding the alleged delinquent assessments prior to the filing of a lien.
b. The negative features of the bill are its deletions and omissions.
i. The original version of the bill contained as its central provision that homeowner associations could not foreclose on a home unless the delinquent assessments and associated fees exceeded $5,000. This provision was mysteriously deleted from the second and subsequent versions of the bill. This is probably explained by the appearance of CAI and ECHO (Executive Council of Homeowners Organization) as opponents of the bill.
ii. AB 2289 contains no penalties against homeowner associations and their boards for improperly attempting to foreclose on a member’s home. The bill is completely one-sided in this regard – putting all the penalties on the homeowner.
iii. The CAI attorneys and manager make sure that provisions for "attorney fees" and other fees and costs were added at every step of the way, plus interest of 12% a year which they get under existing law.
iv. The new law is being written to give boards the power to deny a homeowner access to his own home - a power that not even the government has without due process.
v. Renotification process will add more fees and costs from lawyers and managers that the homeowner will have to pay
3. EVALUATION: AB 2289 is seriously defective for at least the following reasons.
a. The deletion of the $5,000 minimum for non-judicial foreclosure means that CAI lawyers will continue their shakedown racket. They will continue to send demand letters to homeowners, and threaten foreclosure unless the total amount is paid in full. Many homeowners will continue to pay even though they believe that the amount is unjustified. AB 2289 does not address this serious issue.
b. As the public policy of the state favors homeownership over homelessness, the $5,000 minimum would give some assurance that shakedown abuses are not occurring. For amounts less than $5,000, a homeowner association could utilize the quick and efficient Small Claims Court avenue. An independent, impartial judge could then determine whether the assessments were really delinquent. A judgment could then be enforced against wages and personal assets other than a person’s home.
c. One likely result of the deletion of the $5,000 minimum is that the courts will be further clogged by lawsuits from those homeowners who choose to fight the claim of delinquent assessments. This is economically inefficient for courts, the homeowner and homeowner associations, but very lucrative for CAI lawyers.
d. The requirement that a board grant a member a hearing on a disputed assessment is likely to be of little practical use. As the board has already taken a previous stand on the issue, any hearing is probably going to be perfunctory in nature.
e. Adding new law ,Civil Code section Section 1361.5, to give board members power to deny a homeowners access their home without due process. is very dangerous for the homeowner.
4. RECOMMENDATIONS:
AB2289 should eliminate non-judicial foreclosure for the nonpayment of delinquent assessments.
Given the significant corruption that exists in homeowner associations and the very real danger that personal bias and animosity dictates decisions instead of objective standards of due process, an outside impartial decision maker is imperative. As over 6 million Californians now live in homeowner associations, there is a pressing need for the immediate implementation of such a provision.
At minimun , AB 2289 should restore the $5,000 minimum before foreclosure can be undertaken.
Respectfully submittted,
Elizabeth McMahon
Director -American Homeowners Resource Center
American Homeowners Resource Center (AHRC) is grassroots coalition of homeowners working to protect the American home. They have been analysing and providing imput on legislation for 12 years. Members of the coalition include people in in all professions and walks of life.
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