BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 561|
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THIRD READING
Bill No: SB 561
Author: Corbett (D)
Amended: 4/12/11
Vote: 21
SENATE JUDICIARY COMMITTEE : 4-1, 4/5/11
AYES: Evans, Blakeslee, Corbett, Leno
NOES: Harman
SUBJECT : Common interest developments: delinquent
assessments
SOURCE : California Alliance for Retired Americans
Center for California Homeowner Association Law
DIGEST : This bill amends the Davis-Stirling Common
Interest Development Act to clarify that a debt collector
shall be subject to specified provisions of the Act
regarding application of payments, and states that any
waiver by a homeowner of his/her rights is void as contrary
to public policy.
This bill provides that an association shall not assign or
pledge its right to collect payment or assessments, as
specified. This bill prohibits a third party that has
contracted to collect those assessments, fees, or payments
from acting as a trustee in foreclosure proceedings.
ANALYSIS : Existing law, the Davis-Stirling Common
Interest Development Act, defines and regulates common
interest developments (CIDs), including the ability of the
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association to levy regular and special assessments
sufficient to perform its obligations. (Civil Code İCIV]
Section 1350 et seq.)
Existing law provides that an assessment, and any late
charges, reasonable fees and costs of collection,
reasonable attorney's fees, if any, and interest, shall be
a debt of the owner of the separate interest. (CIV Section
1367.1)
Existing law requires an association to send the owner of
record a notice by certified mail at least 30 days prior to
recording a lien to collect the debt. That notice must
include a general description of the collection and lien
enforcement procedures, an itemized statement of charges,
the right to meet with the board, and to dispute the debt,
as specified. (CIV Section 1367.1(a))
Existing law requires any payments made by the owner toward
the debt to first be applied toward assessments owed, and,
only after the assessments owed are paid in full, may the
payments be applied to the fees and costs of collection,
attorney's fees, late charges or interest. (CIV Section
1367.1(b))
Existing law permits an owner to submit a written request
to meet with the board to discuss a payment plan for debt,
and requires the board to meet with the owner within 45
days of the postmark, as specified. (CIV Section
1367.1(c)(3))
Existing law prohibits an association from voluntarily
assigning or pledging its right to collect payments or
assessments, as specified, but does not restrict the right
of ability of an association to assign any unpaid
obligations of a former member to a third party for
purposes of collection. (CIV Section 1367.1(g))
Existing law authorizes an association that seeks to
collect delinquent assessments of an amount of $1,800, or
more, or secured by a lien that are more than 12 months
delinquent, to use judicial or non-judicial foreclosure,
subject to specified requirements. (CIV Section
1367.4(a),(c))
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This bill prohibits an association from voluntarily
assigning or pledging its right to enforce or foreclose a
lien to a third party, except a financial institution or
lender, as specified.
This bill prohibits an association from voluntarily
assigning or pledging its right to collect payment or
assessments to a third party. An association may contract
with a third party to collect delinquent payments or
assessments only if the third party agrees in writing to
collect payments or assessments on behalf of the
association in the manner set forth in the chapter, as
specified.
This bill states that 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 the chapter is void as
contrary to public policy. This bill provides that the
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.
This bill prohibits a third party that has contracted with
an association to collect assessments, fees, or payments,
or to enforce or foreclose a lien from acting as a trustee
in foreclosure proceedings.
This bill additionally states that any waiver by a
homeowner of his/her rights, and any waiver by an
association of its responsibilities under the chapter is
void as contrary to public policy.
This bill subjects any debt collector, agent, or third
party acting to collect payments or assessments on behalf
of an association to all of the provisions of the chapter
regarding collecting delinquent assessments, costs, and
fees, as specified.
This bill prohibits a foreclosure proceeding from being
initiated against an owner if it is based on an agreement
that is void pursuant to any provision of the chapter.
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This bill includes substantial findings and declarations
about homeowners being coerced into payment plans, the
resulting loss of homes in foreclosure proceedings, and the
devastating impact that foreclosures have on the elderly.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 4/12/11)
California Alliance for Retired Americans (co-source)
Center for California Homeowner Association Law (co-source)
AARP
California Advocates for Nursing Home Reform
Congresswoman Jackie Speier
Consumer Attorneys of California
Older Women's League of California
Sacramento Chapter, Older Women's League
OPPOSITION : (Verified 4/12/11)
California Association of Community Managers
Community Associations Institute
Executive Council of Homeowners
ARGUMENTS IN SUPPORT : According to the author:
"Homeowners Associations (HOAs) have been contracting
with professional debt collectors to collect delinquent
homeowner assessments and fees. The companies, often
associated with law firms, convince the homeowners to
sign repayment contracts that explicitly waive the
homeowner's rights under the Davis-Stirling Common
Interest Development Act (Civ. Code Sec. 1530, et seq.).
"Current law does not clearly require a debt collector to
follow the Davis-Stirling Common Interest Development Act
when collecting a delinquent assessment on behalf of an
HOA. Debt collectors exploit the lack of clarity and
convince homeowners to sign agreements waiving their
rights under the Davis-Stirling Common Interest
Development Act. As a result, the homeowner's payments
are not used to pay down the outstanding assessment.
Instead, payments go first towards fees and costs, and
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only towards assessments after those other balances are
paid in full.
"Often, a balance is left on the delinquent assessment
after a period of 12 months, which triggers the HOA's
right to foreclose on the homeowner's property. These
foreclosures are often based upon delinquencies in
amounts that are extremely small. In some cases, the
debt collector even acts as trustee in the foreclosure
proceeding."
The author further notes that this bill would address the
above issue by "allowİing] HOAs to contract with debt
collectors to recover outstanding assessments and fees only
if the contracts require debt collectors to follow the
provisions of the Davis-Stirling Common Interest
Development Act. It also specifies that a contract waiving
either a HOA's responsibilities, or a homeowner's rights
under the Act is void as a matter of public policy."
ARGUMENTS IN OPPOSITION : Community Associations
Institute (CAI) generally contends that this bill restrains
HOA's from "entering into a binding and legal agreement to
collect delinquent debt from a homeowner, barİ] a third
party from comprehensively and legally managing the
collection of the debt including acting as a trustee in a
foreclosure sale and, would bind the homeowner association
to pay all fees and costs associated with debt owed to the
association should the homeowner fail to pay." The basis
for most of CAI's concerns is that the association would
end up paying the costs of debt collection, and that the
bill would create a "massive disincentive to retain a third
party debt collector."
The California Association of Community Managers
additionally contends that this bill results in increased
assessments "to absorb the additional expenses not paid by
the delinquent owner," and discourages payment plans
because associations may not be inclined to enter into
payment plans in the first place. Despite those
contentions, it should be noted that those unpaid expenses
remain a debt of the property owner (similar to unsecured
credit card debt) and are still required to be repaid.
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The California Association of Collectors, also in
opposition, argues that "İt]his bill would make it
impossible for the collection agency to get paid, limit
association resources and result in needless foreclosures."
RJG:mw 4/12/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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