BILL NUMBER: SB 561	INTRODUCED
	BILL TEXT


INTRODUCED BY   Senator Corbett

                        FEBRUARY 17, 2011

   An act to amend Sections 1367.1 and 1367.4 of the Civil Code,
relating to common interest developments.


	LEGISLATIVE COUNSEL'S DIGEST


   SB 561, as introduced, Corbett. Common interest developments:
delinquent assessments.
   The Davis-Stirling Common Interest Development Act provides for
the establishment and regulation of common interest developments.
Existing law authorizes an association to levy regular and special
assessments, and, if an assessment is delinquent, authorizes the
association to recover reasonable costs and attorney's fees incurred
in collecting the assessment in accordance with certain requirements.

   This bill would require any 3rd party acting to collect payments
or assessments on behalf of an association to comply with the same
requirements imposed on the association. The bill would specify that
a waiver by an owner of his or her rights and a waiver by an
association of the association's responsibilities under the act is
void as contrary to public policy, and would prohibit a foreclosure
proceeding from being initiated or proceeding if it is based on an
agreement that is void. The bill would prohibit a third party from
acting as a trustee in a foreclosure proceeding. The bill would make
a related statement of legislative intent.
   Vote: majority. Appropriation: no. Fiscal committee: no.
State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  (a) The Legislature finds and declares all of the
following:
   (1) The Davis-Stirling Common Interest Development Act was enacted
to provide protections to homeowners that have purchased residences
in common interest developments.
   (2) There are over 41,000 common interest developments in the
state that range in size from three to 27,000 units. Common interest
developments make up over four million total housing units which
represents approximately 25 percent of the state's housing stock. In
the 1990s, over 60 percent of all residential construction starts in
the state were common interest developments, and the American
Association of Retired Persons estimates there are 11 million
households in the nation in common interest developments.
   (3) The Davis-Stirling Common Interest Development Act establishes
procedures to be followed by homeowners' associations in the
collection of delinquencies of regular and special assessments.
   (4) To collect these delinquencies, many associations contract
with third parties who require the homeowner to enter into payment
plans that prevent the association from accepting any payments from
the homeowner. In turn, the third-party debt collectors contact
homeowners and convince them to waive their rights to the protections
provided by the Davis-Stirling Common Interest Development Act,
including the right to have all payments first applied to the
assessments owed.
   (5) By waiving these rights, many homeowners are coerced into
payment plans that require the payment to be first applied to costs
of collection, attorney's fees, late charges, and interest, all of
which continue to accrue each month, without lowering the underlying
assessment that serves as the basis for computing these charges, and
forcing the homeowner to sink deeper into debt. These payment plans
make it extremely difficult, if not impossible, for a homeowner who
is making partial payments on an outstanding balance to pay off a
delinquent assessment in its entirety within 12 months. After 12
months, state law allows foreclosure on homeowners who have not paid
off delinquent assessments in their entirety.
   (6) As a result, many homeowners are losing their homes in
foreclosure proceedings. A recent study of five Northern California
counties (Alameda, Contra Costa, San Mateo, Santa Clara, and
Sacramento) found that homeowners' associations filed about one of
every eight foreclosures in those counties. The median amount owed in
foreclosures not filed by homeowners' associations was approximately
$190,000. In sharp contrast, the median amount owed in foreclosures
by homeowners' associations was only $2,557, including costs of
collection, such as attorney fees. The underlying debts, not
including collection costs, late fees, and attorney costs, were in
general a small fraction of the underlying debt, sometimes less than
$200. Pursuing a foreclosure in such a situation is not only an
unsound business practice, but also financially and personally
devastating to the homeowner.
   (7) The Legislature has established procedures that are designed
to protect homeowners from losing their homes for such small debts,
including the requirements that any payments by the homeowners be
applied first to any outstanding assessments. When third-party debt
collectors force homeowners to waive these statutory protections,
they destroy the protections put in place to protect homeowners,
contravening legislative intent.
   (8) The Legislature recognizes that while foreclosure is
devastating to any homeowner, it has a doubly devastating impact on
the elderly because it is the rare senior who can reenter the
workforce and make enough money to replace a home lost through
foreclosure. The loss of a home through foreclosure also means the
loss of equity which, once lost, can almost never be recaptured.
   (9) The National Law Center on Homelessness and Poverty has
reported a dramatic increase in the percentage of heavy users of
emergency shelters who are individuals older than 50 years of age,
from 30.6 percent in 2008 to 40.5 percent in 2009.
   (b) It is the intent of the Legislature, by enacting this act, to
clarify and guarantee that the requirements of the Davis-Stirling
Common Interest Development Act, with respect to the collection of
delinquencies, shall apply to the collection of any delinquent
assessments and fees of the homeowners' association, regardless of
whether the homeowners' association collects the delinquent
assessment or assigns the job of collecting delinquent assessments
and fees to a third party. It is also the intent of the Legislature
to clarify that only a homeowners' association, and not a third party
collecting delinquent fees or assessments owed to the homeowners'
association on behalf of the association, may enforce or foreclose a
lien based upon delinquent assessments.
  SEC. 2.  Section 1367.1 of the Civil Code is amended to read:
   1367.1.  (a) A regular or special assessment and any late charges,
reasonable fees and costs of collection, reasonable attorney's fees,
if any, and interest, if any, as determined in accordance with
Section 1366, shall be a debt of the owner of the separate interest
at the time the assessment or other sums are levied. At least 30 days
prior to recording a lien upon the separate interest of the owner of
record to collect a debt that is past due under this subdivision,
the association shall notify the owner of record in writing by
certified mail of the following:
   (1) A general description of the collection and lien enforcement
procedures of the association and the method of calculation of the
amount, a statement that the owner of the separate interest has the
right to inspect the association records, pursuant to Section 8333 of
the Corporations Code, and the following statement in 14-point
boldface type, if printed, or in capital letters, if typed:
"IMPORTANT NOTICE: IF YOUR SEPARATE INTEREST IS PLACED IN FORECLOSURE
BECAUSE YOU ARE BEHIND IN YOUR ASSESSMENTS, IT MAY BE SOLD WITHOUT
COURT ACTION."
   (2) An itemized statement of the charges owed by the owner,
including items on the statement which indicate the amount of any
delinquent assessments, the fees and reasonable costs of collection,
reasonable attorney's fees, any late charges, and interest, if any.
   (3) A statement that the owner shall not be liable to pay the
charges, interest, and costs of collection, if it is determined the
assessment was paid on time to the association.
   (4) The right to request a meeting with the board as provided by
paragraph (3) of subdivision (c).
   (5) The right to dispute the assessment debt by submitting a
written request for dispute resolution to the association pursuant to
the association's "meet and confer" program required in Article 5
(commencing with Section 1363.810) of Chapter 4.
   (6) The right to request alternative dispute resolution with a
neutral third party pursuant to Article 2 (commencing with Section
1369.510) of Chapter 7 before the association may initiate
foreclosure against the owner's separate interest, except that
binding arbitration shall not be available if the association intends
to initiate a judicial foreclosure.
   (b) Any payments made by the owner of a separate interest toward
the debt set forth, as required in subdivision (a), shall first be
applied to the assessments owed, and, only after the assessments owed
are paid in full shall the payments be applied to the fees and costs
of collection, attorney's fees, late charges, or interest. When an
owner makes a payment, the owner may request a receipt and the
association shall provide it. The receipt shall indicate the date of
payment and the person who received it. The association shall provide
a mailing address for overnight payment of assessments.
   (c) (1) (A) Prior to recording a lien for delinquent assessments,
an association shall offer the owner and, if so requested by the
owner, participate in dispute resolution pursuant to the association'
s "meet and confer" program required in Article 5 (commencing with
Section 1363.810) of Chapter 4.
   (B) Prior to initiating a foreclosure for delinquent assessments,
an association shall offer the owner and, if so requested by the
owner, shall participate in dispute resolution pursuant to the
association's "meet and confer" program required in Article 5
(commencing with Section 1363.810) of Chapter 4 or alternative
dispute resolution with a neutral third party pursuant to Article 2
(commencing with Section 1369.510) of Chapter 7. 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.
   (2) For liens recorded on or after January 1, 2006, 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.
   (3) An owner, other than an owner of any interest that is
described in Section 11212 of the Business and Professions Code that
is not otherwise exempt from this section pursuant to subdivision (a)
of Section 11211.7, may submit a written request to meet with the
board to discuss a payment plan for the debt noticed pursuant to
subdivision (a). The association shall provide the owners the
standards for payment plans, if any exist. The board shall meet with
the owner in executive session within 45 days of the postmark of the
request, if the request is mailed within 15 days of the date of the
postmark of the notice, unless there is no regularly scheduled board
meeting within that period, in which case the board may designate a
committee of one or more members to meet with the owner. Payment
plans may incorporate any assessments that accrue during the payment
plan period. Payment plans shall not impede an association's ability
to record a lien on the owner's separate interest to secure payment
of delinquent assessments. Additional late fees shall not accrue
during the payment plan period if the owner is in compliance with the
terms of the payment plan. In the event of a default on any payment
plan, the association may resume its efforts to collect the
delinquent assessments from the time prior to entering into the
payment plan.
   (d) The amount of the assessment, plus any costs of collection,
late charges, and interest assessed in accordance with Section 1366,
shall be a lien on the owner's separate interest in the common
interest development from and after the time the association causes
to be recorded with the county recorder of the county in which the
separate interest is located, a notice of delinquent assessment,
which shall state the amount of the assessment and other sums imposed
in accordance with Section 1366, a legal description of the owner's
separate interest in the common interest development against which
the assessment and other sums are levied, and the name of the record
owner of the separate interest in the common interest development
against which the lien is imposed. The itemized statement of the
charges owed by the owner described in paragraph (2) of subdivision
(a) shall be recorded together with the notice of delinquent
assessment. In order for the lien to be enforced by nonjudicial
foreclosure as provided in subdivision (g), the notice of delinquent
assessment shall state the name and address of the trustee authorized
by the association to enforce the lien by sale. The notice of
delinquent assessment shall be signed by the person designated in the
declaration or by the association for that purpose, or if no one is
designated, by the president of the association. A copy of the
recorded notice of delinquent assessment shall be mailed by certified
mail to every person whose name is shown as an owner of the separate
interest in the association's records, and the notice shall be
mailed no later than 10 calendar days after recordation. Within 21
days of the payment of the sums specified in the notice of delinquent
assessment, the association shall record or cause to be recorded in
the office of the county recorder in which the notice of delinquent
assessment is recorded a lien release or notice of rescission and
provide the owner of the separate interest a copy of the lien release
or notice that the delinquent assessment has been satisfied. A
monetary charge imposed by the association as a means of reimbursing
the association for costs incurred by the association in the repair
of damage to common areas and facilities for which the member or the
member's guests or tenants were responsible may become a lien against
the member's separate interest enforceable by the sale of the
interest under Sections 2924, 2924b, and 2924c, provided the
authority to impose a lien is set forth in the governing documents.
It is the intent of the Legislature not to contravene Section 2792.26
of Title 10 of the California Code of Regulations, as that section
appeared on January 1, 1996, for associations of subdivisions that
are being sold under authority of a subdivision public report,
pursuant to Part 2 (commencing with Section 11000) of Division 4 of
the Business and Professions Code.
   (e) Except as indicated in subdivision (d), a monetary penalty
imposed by the association as a disciplinary measure for failure of a
member to comply with the governing instruments, except for the late
payments, may not be characterized nor treated in the governing
instruments as an assessment that may become a lien against the
member's subdivision separate interest enforceable by the sale of the
interest under Sections 2924, 2924b, and 2924c.
   (f) A lien created pursuant to subdivision (d) shall be prior to
all other liens recorded subsequent to the notice of assessment,
except that the declaration may provide for the subordination thereof
to any other liens and encumbrances.
   (g)  (1)    An association may not voluntarily
assign or pledge the association's right to  collect payments
or assessments, or to  enforce or foreclose a lien to a
third party, except when the assignment or pledge is made to a
financial institution or lender chartered or licensed under federal
or state law, when acting within the scope of that charter or
license, as security for a loan obtained by the association 
; however, the foregoing provision may not restrict the right or
ability of an association to assign any unpaid obligations of a
former member to a third party for purposes of collection. Subject
  .  
   (2) An association shall not voluntarily assign, sell, or pledge
the association's right to collect payment or assessments to a third
party, unless the third party agrees in writing to collect payments
or assessments on behalf of the association in the manner set forth
in this chapter, including, but not limited to, the requirement that
the application of homeowner payments shall first be applied to
outstanding assessments prior to being applied to any other fees or
costs.  
   (3) Any agreement that purports to confer a right on a third party
to collect assessments, fees, or payments, or to enforce or
foreclose a lien in a manner inconsistent with the provisions of this
chapter is void as contrary to public policy. However, this section
does not restrict the right or ability of an association to assign
any unpaid obligations of a former member to a third party for
purposes of collection. 
    (4)     Subject  to the limitations of
this subdivision, after the expiration of 30 days following the
recording of a lien created pursuant to subdivision (d), the lien may
be enforced  by the association or by a financial institution or
lender chartered or licensed under state or federal law  in any
manner permitted by law, including sale by the court, sale by the
trustee designated in the notice of delinquent assessment, or sale by
a trustee substituted pursuant to Section 2934a. Any sale by the
trustee shall be conducted in accordance with Sections 2924, 2924b,
and 2924c applicable to the exercise of powers of sale in mortgages
and deeds of trust. The fees of a trustee may not exceed the amounts
prescribed in Sections 2924c and 2924d, plus the  actual 
cost of service for either of the following: 
   (1) 
    (A)  The notice of default pursuant to subdivision (j)
of Section 1367.1. 
   (2) 
    (B)  The decision of the board to foreclose upon the
separate interest of an owner as described in paragraph (3) of
subdivision (c) of Section 1367.4. 
   (5) A third party that has contracted with an association to
collect assessments, fees, or payments, or to enforce or foreclose a
lien shall not act as trustee in foreclosure proceedings. 
   (h) Nothing in this section or in subdivision (a) of Section 726
of the Code of Civil Procedure prohibits actions against the owner of
a separate interest to recover sums for which a lien is created
pursuant to this section or prohibits an association from taking a
deed in lieu of foreclosure.
   (i) If it is determined that a lien previously recorded against
the separate interest was recorded in error, the party who recorded
the lien shall, within 21 calendar days, record or cause to be
recorded in the office of the county recorder in which the notice of
delinquent assessment is recorded a lien release or notice of
rescission and provide the owner of the separate interest with a
declaration that the lien filing or recording was in error and a copy
of the lien release or notice of rescission.
   (j) In addition to the requirements of Section 2924, a notice of
default shall be served by the association on the owner's legal
representative in accordance with the manner of service of summons in
Article 3 (commencing with Section 415.10) of Chapter 4 of Title 5
of Part 2 of the Code of Civil Procedure. The owner's legal
representative shall be the person whose name is shown as the owner
of a separate interest in the association's records, unless another
person has been previously designated by the owner as his or her
legal representative in writing and mailed to the association in a
manner that indicates that the association has received it.
   (k) Upon receipt of a written request by an owner identifying a
secondary address for purposes of collection notices, the association
shall send additional copies of any notices required by this section
to the secondary address provided. The association shall notify
owners of their right to submit secondary addresses to the
association, at the time the association issues the pro forma
operating budget pursuant to Section 1365. The owner's request shall
be in writing and shall be mailed to the association in a manner that
shall indicate the association has received it. The owner may
identify or change a secondary address at any time, provided that, if
a secondary address is identified or changed during the collection
process, the association shall only be required to send notices to
the indicated secondary address from the point the association
receives the request.
   (l) (1) An association that fails to comply with the procedures
set forth in this section shall, prior to recording a lien,
recommence the required notice process.
   (2) Any costs associated with recommencing the notice process
shall be borne by the association and not by the owner of a separate
interest.
   (m) This section only applies to liens recorded on or after
January 1, 2003.
   (n) This section is subordinate to, and shall be interpreted in
conformity with, Section 1367.4.
  SEC. 3.  Section 1367.4 of the Civil Code is amended to read:
   1367.4.  (a) Notwithstanding any law or any provisions of the
governing documents to the contrary, this section shall apply to
debts for assessments that arise on and after January 1, 2006.
   (b) An association that seeks to collect delinquent regular or
special assessments of an amount less than one thousand eight hundred
dollars ($1,800), not including any accelerated assessments, late
charges, fees and costs of collection, attorney's fees, or interest,
may not collect that debt through judicial or nonjudicial
foreclosure, but may attempt to collect or secure that debt in any of
the following ways:
   (1) By a civil action in small claims court, pursuant to Chapter
5.5 (commencing with Section 116.110) of Title 1 of the Code of Civil
Procedure. An association that chooses to proceed by an action in
small claims court, and prevails, may enforce the judgment as
permitted under Article 8 (commencing with Section 116.810) of Title
1 of the Code of Civil Procedure. The amount that may be recovered in
small claims court to collect upon a debt for delinquent assessments
may not exceed the jurisdictional limits of the small claims court
and shall be the sum of the following:
   (A) The amount owed as of the date of filing the complaint in the
small claims court proceeding.
   (B) In the discretion of the court, an additional amount to that
described in subparagraph (A) equal to the amount owed for the period
from the date the complaint is filed until satisfaction of the
judgment, which total amount may include accruing unpaid assessments
and any reasonable late charges, fees and costs of collection,
attorney's fees, and interest, up to the jurisdictional limits of the
small claims court.
   (2) By recording a lien on the owner's separate interest upon
which the association may not foreclose until the amount of the
delinquent assessments secured by the lien, exclusive of any
accelerated assessments, late charges, fees and costs of collection,
attorney's fees, or interest, equals or exceeds one thousand eight
hundred dollars ($1,800) or the assessments secured by the lien are
more than 12 months delinquent. An association that chooses to record
a lien under these provisions, prior to recording the lien, shall
offer the owner and, if so requested by the owner, participate in
dispute resolution as set forth in Article 5 (commencing with Section
1363.810) of Chapter 4.
   (3) Any other manner provided by law, except for judicial or
nonjudicial foreclosure.
   (c) An association that seeks to collect delinquent regular or
special assessments of an amount of one thousand eight hundred
dollars ($1,800) or more, not including any accelerated assessments,
late charges, fees and costs of collection, attorney's fees, or
interest, or any assessments secured by the lien that are more than
12 months delinquent, may use judicial or nonjudicial foreclosure
subject to the following conditions:
   (1) Prior to initiating a foreclosure on an owner's separate
interest, the association shall offer the owner and, if so requested
by the owner, participate in dispute resolution pursuant to the
association's "meet and confer" program required in Article 5
(commencing with Section 1363.810) of Chapter 4 or alternative
dispute resolution as set forth in Article 2 (commencing with Section
1369.510) of Chapter 7. 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.
   (2) The decision to initiate foreclosure of a lien for delinquent
assessments that has been validly recorded 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 executive session. The board
shall record the vote in the minutes of the next meeting of the
board open to all members. The board shall maintain the
confidentiality of the owner or owners of the separate interest by
identifying the matter in the minutes by the parcel number of the
property, rather than the name of the owner or owners. A board vote
to approve foreclosure of a lien shall take place at least 30 days
prior to any public sale.
   (3) The board shall provide notice by personal service in
accordance with the manner of service of summons in Article 3
(commencing with Section 415.10) of Chapter 4 of Title 5 of Part 2 of
the Code of Civil Procedure to an owner of a separate interest who
occupies the separate interest or to the owner's legal
representative, if the board votes to foreclose upon the separate
interest. The board shall provide written notice to an owner of a
separate interest who does not occupy the separate interest by
first-class mail, postage prepaid, at the most current address shown
on the books of the association. In the absence of written
notification by the owner to the association, the address of the
owner's separate interest may be treated as the owner's mailing
address.
   (4) A nonjudicial foreclosure by an association to collect upon a
debt for delinquent assessments shall be subject to a right of
redemption. The redemption period within which the separate interest
may be redeemed from a foreclosure sale under this paragraph ends 90
days after the sale. In addition to the requirements of Section
2924f, a notice of sale in connection with an association's
foreclosure of a separate interest in a common interest development
shall include a statement that the property is being sold subject to
the right of redemption created in this paragraph.
   (d) The limitation on foreclosure of assessment liens for amounts
under the stated minimum in this section does not apply to
assessments owed by owners of separate interests in timeshare
estates, as defined in subdivision (x) of Section 11112 of the
Business and Professions Code, or to assessments owed by developers.

   (e) Any waiver by a homeowner of his or her rights, and any waiver
by an association of its responsibilities under this chapter is void
as contrary to public policy.  
   (f) Any debt collector, agent, or third party acting to collect
payments or assessments on behalf of an association shall be subject
to all of the provisions of this chapter regarding collecting
delinquent assessments, costs, and fees, including, but not limited
to, the application of payments and the enforcement of liens. 

   (g) A foreclosure proceeding shall not be initiated or proceed
against an owner if it is based on an agreement that is void pursuant
to any provision of this chapter.