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
          TH   


                                        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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