BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 2273
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          Date of Hearing:   May 8, 2012

                           ASSEMBLY COMMITTEE ON JUDICIARY
                                  Mike Feuer, Chair
                  AB 2273 (Wieckowski) - As Amended:  April 26, 2012

                              As Proposed to Be Amended
           
          SUBJECT  :  COMMON INTEREST DEVELOPMENTS: REQUIRED DOCUMENTS

           KEY ISSUE  :  IN ORDER TO ENSURE THAT A HOMEOWNERS' ASSOCIATION 
          KNOWS WHO THE NEW OWNER IS WHEN A UNIT IN A COMMON INTEREST 
          DEVELOPMENT IS FORECLOSED UPON, SHOULD THE MORTGAGEE OR TRUSTEE 
          BE REQUIRED TO MAIL A COPY OF THE DEED WITHIN 15 BUSINESS DAYS 
          OF THE SALE AND RECORD THE DEED NO LATER THAN 30 DAYS AFTER THE 
          DATE OF SALE?

           FISCAL EFFECT  :   As currently in print this bill is keyed 
          non-fiscal.

                                      SYNOPSIS
          
          This bill seeks to assist homeowners' associations with problems 
          they reportedly face in collecting unpaid assessments upon a 
          separate interest in a CID that has recently changed ownership 
          through foreclosure.  As proposed to be amended, the bill simply 
          requires the mortgagee or trustee to mail to the HOA a copy of 
          any trustee's deed upon sale of the separate interest, and to do 
          so within 15 business days following the date of the trustee's 
          sale.  The bill also requires, in any case, the sale to be 
          recorded no later than 30 days after the date of the sale in the 
          recorder's office of the county where the property is located.  
          The bill is sponsored and supported by the California Conference 
          of Bar Associations and homeowner's associations, whose 
          individual members have provided the Committee with hundreds of 
          letters of support.  It is believed but not known for certain at 
          the time of this analysis that the proposed amendments, taken 
          together, substantially address concerns raised by the bankers, 
          trustees, and title companies and are sufficient to remove their 
          opposition to the bill.  If that is the case, then the bill 
          would have no other known opposition.

           SUMMARY  :  Streamlines the process for the mortgagee or trustee 
          for a separate interest in a CID to provide information about 
          the new owner to the HOA necessary for the purpose of invoicing 








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          HOA assessments.  Specifically,  this bill  :   

          1)Requires the sale of a property in a CID, executed under the 
            power of sale contained in a deed of trust or mortgage, to be 
            recorded within 30 days after the date of the sale in the 
            recorder's office of the county where the property is located, 
            except that failure to comply shall not affect the validity of 
            a sale in favor of a bona fide purchaser.

          2)Requires a mortgagee, trustee, or other person authorized to 
            record a notice of default regarding a separate interest in a 
            CID to mail to the association a copy of any trustee's deed 
            upon sale of the separate interest, and to do so within 15 
            business days following the date of the trustee's sale, 
            provided that the HOA has filed a proper request, as 
            specified, with the county recorder.

           EXISTING LAW  :  

          1)Pursuant to the Davis-Stirling Common Interest Development 
            Act, defines and regulates common interest developments 
            (CIDs), including the ability of the association to levy 
            regular and special assessments sufficient to perform its 
            obligations.  (Civil Code Section 1350 et seq.  All further 
            references are to this code unless otherwise stated.)

          2)Authorizes an HOA to record a lien on an owner's separate 
            interest in the CID for any delinquent assessments owed by the 
            owner, including delinquent assessment, any costs of 
            collection, late charges, and interest.  Provides that amount 
            is a lien on the owner's interest in the common interest 
            development from the time the association records a notice of 
            delinquent assessment with the county recorder.  (Section 
            1367.)

          3)Allows an HOA to record a request that a mortgagee, trustee, 
            or other person authorized to record a notice of default 
            regarding any separate interest governed by the HOA, mail to 
            the association a copy of any trustee's deed upon sale 
            concerning the separate interest.  (Section 2924b, subd.(f).)

          4)Requires the above request to include a legal description or 
            the assessor's parcel number of the separate interests, the 
            name and address of the association, and a statement that it 
            is a homeowners' association.  Further provides that 








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            subsequent requests of a HOA shall supersede prior requests, 
            and a request shall be recorded before the filing of a notice 
            of default.  (Section 2924b, subd.(f).)

          5)Requires the mortgagee or trustee to mail the requested 
            information to the HOA within 15 business days following the 
            date the trustee's deed is recorded.  (Section 2924b, 
            subd.(f).)

           COMMENTS  :  This bill seeks to assist homeowners associations 
          with problems they reportedly face in collecting unpaid 
          assessments upon a separate interest in a CID that has recently 
          changed ownership through foreclosure.  As proposed to be 
          amended, the bill simply requires the mortgagee or trustee to 
          mail to the HOA a copy of any trustee's deed upon sale of the 
          separate interest, and to do so within 15 business days 
          following the date of the trustee's sale.  The bill also 
          requires, in any case, the sale to be recorded no later than 30 
          days after the date of the sale in the recorder's office of the 
          county where the property is located.
           
          Stated Need for the Bill  .  The bill is co-sponsored by the 
          California Conference of Bar Associations (CCBA) and the 
          Community Associations Institute (CAI), a group representing 
          HOAs.  According to CCBA, "even prior to the current housing 
          crisis, it has been a struggle for homeowners associations in 
          CIDs to keep track of new owners within the development.  All 
          too often, in the current market, a beneficiary under a deed of 
          trust will acquire title to a separate interest through 
          foreclosure, or under a deed in lieu, and will provide no notice 
          to the HOA whose interest is of record that the beneficiary has 
          acquired title.  Following foreclosure the acquiring beneficiary 
          may fail to maintain the property or comply with the HOA's 
          Covenants, Conditions, and Restrictions (CC&Rs)."  

          According to CAI, homeowner associations are funded solely 
          through the assessments paid by owners in the CID, and it is 
          unfair for lenders who own units through foreclosure to avoid 
          their fair share of HOA assessments when common benefits from 
          maintenance and upkeep continue to flow to the foreclosed 
          separate interests even while unpaid.  Foreclosing lenders are 
          not required to record a trustee deed when taking a property 
          back as a credit bidder, which contributes to the difficulty the 
          HOA faces in determining who to hold responsible for the 
          assessments.  According to a February 2012 survey of 125 of its 








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          member HOAs, CAI reports that 73% of delayed foreclosure 
          recordations were delayed more than 60 days, and that 76% of the 
          time, it takes over 60 days before the foreclosing party starts 
          paying any assessments.  When a foreclosing lender fails to 
          record a deed after the sale, the HOA does not know from whom to 
          collect assessments.  As a result, in its survey CAI reports 
          that its member HOAs have been forced to increase the 
          assessments on existing homeowners to cover the loss 63% of the 
          time, as well as to defer maintenance expenses 55% of the time.

           As proposed to be amended, the bill seeks to speed up the time 
          frame for identifying the new owner to the HOA.   Under existing 
          law, provided that the HOA has filed a proper request with the 
          county recorder, as specified, the mortgagee or trustee is 
          required to mail the requested information (i.e. a copy of the 
          trustee's deed) to the HOA within 15 business days following the 
          date the trustee's deed is recorded.  As proposed to be amended, 
          this bill instead requires the same mailing of the requested 
          information to occur within 15 business days following the date 
          of the trustee's sale itself-an earlier point in time that is no 
          longer conditioned upon recordation of the deed.  

          This proposed amendment seeks to streamline the existing process 
          for the mortgagee or trustee to provide this information in a 
          timely manner to the HOA, a process which was established with 
          the participation of HOAs, banks, and other stakeholders through 
          discussions over SB 1511 (Ducheny) of 2008.  Since SB 1511 
          became law, HOAs have reported continued difficulties in 
          obtaining the information they need to invoice the new owner its 
          fair share of assessments, and this proposed amendment is 
          intended to address the negative impact to HOAs that reportedly 
          arises from excessive delays in recording the deed.

          As proposed to be amended, the bill also requires in every case 
          the sale to be recorded no later than 30 days after the date of 
          the sale, but without liability for any liens for unpaid 
          assessments on the foreclosed property.  This is intended to 
          ensure that the HOA may obtain that information about the new 
          owner from the record of the deed no later than 30 days after 
          the sale, even in cases where the 15-day requirement was not 
          complied with.  This amendment proposed by the author is 
          intended to address concerns about potential unintended 
          consequences arising from holding the foreclosing lender 
          responsible for any lien for assessments unpaid by the 
          foreclosed former owner of the CID separate interest.








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          It is believed but not known for certain at the time of this 
          analysis that the proposed amendments, taken together, 
          substantially address the concerns raised by the bankers, 
          trustees, and title companies and are sufficient to remove their 
          opposition to the bill.
           
           Previous Legislation  :  SB 1511 (Ducheny), Ch. 527, Stats. 2008, 
          requires a mortgagee, trustee, or other person authorized to 
          record a notice of default regarding a separate interest in a 
          CID to mail to the association a copy of any trustee's deed upon 
          sale of the separate interest, and to do so within 15 business 
          days following the date of the trustee's sale, provided that the 
          HOA has filed a proper request, as specified, with the county 
          recorder.

           ARGUMENTS IN SUPPORT  :  The Congress of California Seniors (CCS) 
          supports the bill, writing that it "supports efforts to protect 
          senior members of HOAs from the negative effects that follow 
          property title changes within the HOA that are not recorded in a 
          timely manner."  CCS further contends that "the results of 
          lenders' failure to record or provide notice of the sale 
          transfer are: (1) HOA assessments are not paid; (2) HOA 
          maintenance is crippled; (3) Remaining homeowners are forced to 
          pay higher assessments to make up for the lenders' unpaid fair 
          share portion, thus jeopardizing their own personal finances; 
          (4) Entire neighborhoods can turn into blight; and (5) County 
          assessors are (unable) to bill for property tax, depriving 
          municipalities of much needed revenue."

           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          Community Associations Institute (co-sponsor)
          Conference of California Bar Associations (co-sponsor)
          Associa Equity Management
          Congress of California Seniors
          Executive Council of Homeowners (ECHO)
          Southwest California Legislative Council

          Hundreds of letters from HOA boards of directors and individual 
          members of HOAs across California

           Opposition (to the previous version of the bill)








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          California Bankers Association
          California Land Title Association
          California Mortgage Bankers Association
          United Trustees Association
           

          Analysis Prepared by  :    Anthony Lew / JUD. / (916) 319-2334