BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2015-2016 Regular Session
SB 918 (Vidak)
Version: April 7, 2016
Hearing Date: May 3, 2016
Fiscal: No
Urgency: No
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SUBJECT
Common Interest Developments
DESCRIPTION
Existing law requires a homeowner association in a residential
common interest development to personally serve the owner of a
separate interest with a notice when the association votes to
foreclose on an individual's separate interest, and requires
similar personal service of a Notice of Default when initiating
the non-judicial foreclosure process.
This bill would, instead, allow the owner of a separate interest
to be served by mailing these notices when the notices cannot be
personally served after reasonable diligence, as specified.
This bill would require an association and its agents to jointly
subscribe a statement of compliance with the personal service
requirement, and record that statement with the county recorder
where the subject property is located, prior to serving notices
by mailing. This bill would also require the owner of a
separate interest and a homeowner association to annually verify
the mailing address or addresses to which notices from the
association are to be delivered.
(This analysis reflects author's amendments to be offered in
Committee.)
BACKGROUND
In California, residential common interest developments (CIDs)
are governed by the Davis-Stirling Common Interest Development
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Act (Davis-Stirling Act). Owners of separate property in CIDs
have an undivided interest in the common property of the
development and are subject to the CID's covenants, conditions,
and restrictions. Residential CIDs are also governed by a
homeowners association, which is run by volunteer directors that
may or may not have prior experience managing an association.
The Court of Appeal, Fourth Appellate District, previously
observed that:
[t]he homeowners associations function almost "as a second
municipal government, regulating many aspects of [the
homeowners'] daily lives."
"[U]pon analysis of the association's functions, one clearly
sees the association as a quasi-government entity
paralleling in almost every case the powers, duties, and
responsibilities of a municipal government. As a
'mini-government,' the association provides to its members,
in almost every case, utility services, road maintenance,
street and common area lighting, and refuse removal. In
many cases, it also provides security services and various
forms of communication within the community. There is,
moreover, a clear analogy to the municipal police and public
safety functions. . . ." In short, homeowners associations,
via their enforcement of the CC&R's, provide many beneficial
and desirable services that permit a common interest
development to flourish. (Villa Milano Homeowners Ass'n v.
Il Davorge (2000) 84 Cal.App.4th 819, 836 [citations
omitted].)
The Davis-Stirling Act permits an association to foreclose upon
a separate interest in a CID in certain circumstances if the
owner fails to pay his or her assessments to the association.
Foreclosures in California are generally non-judicial, meaning
that they are accomplished without court involvement. Following
a decision by the homeowner association to foreclose, the
association records a Notice of Default, which generally occurs
after three or more months of delinquency. The foreclosing
entity must then generally wait at least three months before
noticing the sale of the property, which must be posted,
published, and filed with the county recorder.
Under existing law, an association must personally serve
required notices during the non-judicial foreclosure process.
This bill would modify that requirement by allowing the
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association to mail required notices to an owner's last known
address if personal service cannot be effected after reasonable
diligence. This bill would require an association and its
agents to jointly subscribe a statement of compliance with the
personal service requirement, and record that statement with the
county recorder. This bill would also require the owner of a
separate interest and a homeowner association to annually verify
the mailing address or addresses to which notices from the
association are to be delivered.
CHANGES TO EXISTING LAW
Existing law , the Davis-Stirling Common Interest Development
Act, defines and regulates residential common interest
developments (CIDs), including the ability of the association to
levy regular and special assessments sufficient to perform its
obligations. (Civ. Code Sec. 4000 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. Code Sec. 5650.)
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 inspect the
association's records, and the right to dispute the debt, as
specified. (Civ. Code Sec. 5660.)
Existing law requires an association's decision to record a lien
for delinquent assessments to be made only by the board of
directors, approved by a majority vote of the directors in an
open meeting, with the vote recorded in the minutes of that
meeting. (Civ. Code Sec. 5673.)
Existing law authorizes an association to record a lien against
an owner's separate interest in the amount of any delinquent
assessment, plus any costs of collection, late charges, and
interest assessed, as specified. Existing law requires a copy
of a recorded notice of delinquent assessment to be mailed by
certified mail to the owner of the separate interest no later
than 10 calendar days after recordation. (Civ. Code Sec. 5675.)
Existing law authorizes an association that seeks to collect
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delinquent assessments of an amount of $1,800, or more, or
assessments that are delinquent by more than 12 months and
secured by a lien, to use judicial or non-judicial foreclosure,
subject to specified requirements. (Civ. Code Sec. 5720.)
Existing law requires a decision to initiate foreclosure to be
made only by the board of directors of the association, and, if
the board votes to foreclose on the separate interest, requires
the board to provide notice by personal service in accordance
with the manner of service of summons. (Civ. Code Sec. 5705.)
Existing law similarly requires any Notice of Default (the first
step in the nonjudicial foreclosure process) to be served by the
association on the owner's legal representative in accordance
with the manner of the service of summons. (Civ. Code Sec.
5710.)
This bill requires that an owner of a separate interest to, on
an annual basis, provide written notice to the association of
all of the following:
the mailing address or addresses to which notices from the
association are to be delivered;
an alternate or secondary address where notices from the
association are to be delivered;
the name and address of an owner's legal representative, if
any, including any person with power of attorney or other
person who can be contacted in the event of the owner's
extended absence from the separate interest; and
whether the separate interest is owner-occupied, is rented
out, if the parcel is developed but vacant, or if the parcel
is undeveloped land.
This bill requires an association to solicit these annual
disclosures of each owner and enter the data into its books and
records at least 30 days prior to making its own required annual
disclosures to members. This bill specifies that if an owner
fails to provide the information specified in the above
provision, the property address shall be deemed to be the
mailing address to which notices are to be delivered.
This bill provides that to effect personal service of the board
of director's vote and of its intention to enforce a lien for
nonpayment of assessment, the association and its agent shall
rely on the data provided annually by the owner of a separate
interest pursuant to the above provisions.
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This bill specifies that if the association or its agents have
attempted personal service, in accordance with the specified
manner of service of summons, three or more times, including at
least one attempt after 6:00 p.m. and one attempt on a weekend
or legal holiday, on an owner who occupies the separate
interest, then both the association and its agents shall jointly
subscribe a statement of compliance with the personal service
requirement.
This bill specifies that this statement of compliance shall be
recorded with the county recorder where the subject property is
located, and that the statement shall include all of the
following data:
the physical address of subject property;
the names of owners of the separate interest as they appear on
the deed of title;
the addresses where official notices are to be sent as shown
on the association's membership books;
the names and titles of documents to be delivered including
the board's vote as it will appear in the association minutes
and a copy of the statement of compliance;
the names of, and contact information for, the persons
attempting service; and
the dates and times of attempted service.
This bill specifies that 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, and
in the absence of contrary written notification by the owner to
the association, the address of the owner's separate interest
shall be deemed to be the owner's mailing address.
COMMENT
1.Stated need for the bill
According to the author:
Although associations have other remedies for collection of
delinquent assessments, such as judicial foreclosures in
superior courts, and court actions to collect assessments
(small claims, limited jurisdiction or general jurisdiction,
depending upon the amount of the delinquency), existing law is
silent on non-judicial foreclosure remedies available to
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associations if they are unable to effect personal service of
required documents on unit owners. In a typical civil action,
if service cannot be effected on a defendant after the
exercise of reasonable diligence, a plaintiff may obtain from
a judge an order to publish a summons in a newspaper of
general jurisdiction. In the Davis-Stirling non-judicial
foreclosure context, however, there is no "case" on which to
request an order to publish the notice of default. The
primary purpose of SB 918 is to provide a remedy in the
non-judicial foreclosure context to associations which are
unable to effect personal service on unit owners after the
exercise of reasonable diligence. In discussions with
advocates for unit owners within common interest developments,
it also became clear that current law lacks provisions clearly
requiring unit owners to advise associations of mailing
addresses to receive required documents, and that other rights
and responsibilities as between owners and associations should
be clarified.
2.Personal service of notices
This bill would create an exception to the requirement that
specified foreclosure and pre-foreclosure notices must be
personally served in common interest developments. Those
personal service requirements were enacted by SB 137 (Ducheny,
Ch. 452, Stats. 2005), which sought to address concerns that
homeowner associations were foreclosing on homes for delinquent
assessments that were very small in comparison to the debts that
would justify foreclosure in other instances, often with
inadequate notice.
The two service requirements modified by this bill are as
follows: First, existing law requires notice by personal
service if an association votes to foreclose on an owner's
separate interest. Second, existing law requires a notice of
default (the first step in the nonjudicial foreclosure process)
to be served by the association on the owner's legal
representative. Both of those notices must be served in
accordance with the manner for service of summons in a civil
lawsuit as specified in Section 415.10 of the Code of Civil
Procedure.
Describing the difficulties that arise when a homeowner cannot
be personally served, the sponsor, United Trustees Association,
asserts:
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The ultimate remedy for the enforcement of delinquent
assessments is non-judicial foreclosure of the unit owner's
interest. Unlike traditional mortgages, the law presently
requires personal service on unit owners of two different
documents relating to foreclosure: the notice of intention to
foreclose adopted by CID boards, and the notice of default to
actually begin the foreclosure process.
What present law lacks, however, is any remedy if personal
service cannot be effected on the unit owner. The owner may
have died, moved to an undisclosed location, been on an
extended vacation, or simply be evading service of process.
When this occurs in a traditional legal case, the law provides
a remedy. Here, however, there is no "case," so the remedy
provided by the law is unavailable.
SB 918 addresses the problem in a balanced and fair way, by
creating a new requirement on associations to annually solicit
an actual address for unit owners to receive critical
documents, and a requirement on unit owners to annually
provide such an address. The bill also permits the
recordation of a notice of compliance with the personal
service requirement showing that service had been attempted at
least three different times, on different days, on weekends
and weekdays, and at different times.
It is important that all reasonable efforts be undertaken to
insure that unit owners are aware of the gravity of the
situation when CID assessments are not paid. To this end,
current law goes even further than the law relating to unpaid
mortgage obligations. But when, after due diligence, personal
service cannot be effected on owners, it is also important
that the law provide a remedy. SB 918 corrects this defect in
the law.
To address the problem of being unable to effect personal
service in these circumstances, this bill would authorize an
association and its agents to jointly subscribe a statement of
compliance indicating their efforts to comply with personal
service requirements, and to record that statement of compliance
with the county recorder for the county within which the subject
property is located.
Congresswoman Jackie Speier, in opposition, contends that this
bill "would undermine the current requirement in law that a
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resident who occupies his/her unit be personally served with the
notice of foreclosure," stating that "[i]f this provision were
enacted into law it would be a serious threat to the property
interest of homeowners throughout California." Congresswoman
Speier writes:
In 1996, I authored AB 1317, a bill to clarify many of the
procedures in the act of foreclosure. Around 1995, then-Sea
Ranch homeowner Patrick Mahaffay fell behind in his $80 per
month dues to the homeowners association. While he made a few
payments to the association, he still owed $567 when his home
was foreclosed upon by Sea Ranch and sold for $2,403. The
home's value was $300,000 to $350,000 at the time of its sale.
Mahaffay was not personally served with the notice of
foreclosure . . . the association likely had the notice of
intent to foreclose taped to his front door. Sea Ranch is
notoriously windy and taping a notice to the door of a home
likely resulted in the notice blowing away.
I am always amazed when a change to existing law would
re-create the very problem that the current law was designed
to end. SB 918 would now change a clear statute - which was
not created by AB 1317 but which is certainly in the spirit of
my legislation - by dumbing down the personal service
requirement set forth in Civil Code Section 5705(d). Whereas
the current requirement is to personally serve a homeowner who
resides at an address, the proposed new requirement would be
to make three attempts to do so. I want to make clear: It
apparently took only one botched attempt to deny Patrick
Mahaffay his $300,000 home in pursuit of a $567 debt.
Personal service means personal service. Anything less is
open to gross abuse.
Considering the serious concerns that led to the enactment of
the existing personal service requirement, from a policy
standpoint, it appears appropriate to continue to ensure that
homeowners do receive personal service of these notices whenever
possible. Alternatively, that service requirement should
arguably not be abused so as to allow a homeowner to avoid
foreclosure indefinitely by continuing to evade attempts at
personal service.
This bill would authorize a form of "substitute service" for
owners of separate interests who, after reasonable diligence as
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specified, cannot be personally served with notices from the
association. In order to take advantage of this substitute
service, the association or its agents would have to attempt
personal service three or more times, including at least one
attempt after 6:00 p.m. and one attempt on a weekend or legal
holiday, on an owner who occupies the separate interest. Should
personal service prove ineffective, the association and its
agents would then have to jointly subscribe a statement of
compliance with the personal service requirement, detailing when
service was attempted and by who, which would be recorded
against the subject property by the county recorder.
It should be noted that the proposed method of substitute
service lacks certain requirements that the Legislature has
required in other substitute service provisions that are not
subject to judicial oversight. Should the Committee wish to
bolster the proposed substitute service process, it may consider
requiring that relevant notices be posted on the subject
property, that notice be published for certain durations at
certain intervals in newspapers of general circulation, or that
notice by mail be attempted using address data from the County
Assessor's records concerning the subject property.
Alternately, the Committee may wish to consider adding a minimum
default period beyond that in existing law which must be
satisfied before substitute service may be used, similar to the
5-year default period in existing law for property that is tax
defaulted.
It should also be noted that when associations and trustees are
unable to effect personal service in the course of the
non-judicial foreclosure process, those entities could elect to
pursue judicial foreclosure and petition a judge for an order
authorizing substitute service under Code of Civil Procedure
Section 415.50.
3.Annual verification of addresses
This bill would additionally require both owners of separate
interests and associations to annually verify the mailing
address to which official notices and communications from the
association are to be sent. According to the author, "[i]n
discussions with advocates for unit owners within common
interest developments, it [has become] clear that current law
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lacks provisions clearly requiring unit owners to advise
associations of mailing addresses to receive required
documents." Having a procedure to annually verify the mailing
address of owners of separate interests could help reduce some
of the difficulties past owners have experienced with regard to
receiving critical notices from a homeowner association,
including notices regarding delinquent assessments. However,
according to the Sun City Palm Desert Community Association,
writing in opposition, this verification tool "would add a
costly component to an already mandatory list of requirements"
for associations to follow.
4.Author's amendments
The author offers the following amendments to narrow the scope
of the bill to only those provisions addressing: (1) the duty of
an owner of a separate interest and of a homeowner association
to annually verify the mailing address or addresses to which
notices from the association are to be delivered; and (2) the
preparation and recording of a statement of due diligence
regarding attempts to affect personal service of notices from
the association.
Amendments :
Commencing with page 2, strike sections 2 through 6
Commencing with page 7, strike sections 8 through 10
Support : None Known
Opposition : Center for California Homeowner Association Law;
Community Associations Institute; Congresswoman Jackie Speier;
Sun City Palm Desert Community Association
HISTORY
Source : United Trustee Association
Related Pending Legislation : None Known
Prior Legislation :
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SB 290 (Vidak, 2015) would have allowed the board of directors
of an association formed under the Davis-Stirling Common
Interest Development Act to provide notice by personal service
or by substitute service 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. This bill died in the Senate Judiciary
Committee.
SB 1026 (Vidak, 2014) would have permitted associations subject
to the Commercial and Industrial Common Interest Development Act
and the Davis-Stirling Common Interest Development Act to serve
an owner with a Notice of Default, the first step in the
non-judicial foreclosure process, for failure to pay required
assessments through posting, mailing, and publishing the
notices, as specified, when those notices cannot be personally
served after reasonable diligence, as specified. This bill died
in the Senate Judiciary Committee.
SB 1244 (Harman, 2012) would have allowed an owner in a common
interest development to be served certain notices in the
non-judicial foreclosure process by both posting and mailing the
notices, as specified, when those notices cannot be personally
served after reasonable diligence. This bill died in the Senate
Judiciary Committee.
SB 137 (Ducheny, Ch. 452, Stats. 2005), among other things,
permits an association of a common interest development seeking
to collect delinquent regular or special assessments of $1,800
or more, or any assessments that are more than 12 months
delinquent, to use foreclosure subject to specified conditions.
These conditions include requiring the board of directors of an
association to make the decision to foreclose upon an assessment
lien at an executive meeting of the board, by a majority vote,
at least 30 days prior to any public sale, to record the results
of the vote, and to provide notice of the decision to foreclose.
AB 1317 (Speier, Ch. 1101, Stats. 1996) imposed specified
requirements with respect to the collection of debts based on
assessments of owners by a common interest development, and
removed a requirement that an association, prior to a
sale by a trustee, make at least one bona fide attempt to serve
the owner with a notice of sale by trustee.
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