BILL ANALYSIS
AB 2502
Page 1
Date of Hearing: April 28, 2010
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Norma Torres, Chair
AB 2502 (Brownley) - As Amended: April 27, 2010
SUBJECT : Homeowners' association: delinquencies
SUMMARY : Requires any payment made by an owner of a separate
interest in a common interest development (CID) toward a
delinquent assessment to be applied first to the assessment owed
whether the payment is made to the homeowners association (HOA)
or an agent of the HOA assigned to collect the unpaid debt.
Specifically, this bill :
1)Requires an agent of the HOA assigned to collect the unpaid
debt to provide a receipt of the payment if the owner of the
separate interest requests one.
2)Prohibits an HOA or an agent of an HOA assigned to collect an
unpaid debt from refusing to collect a partial payment of the
debt if the payment complies with the terms of a written
agreement between the HOA and the delinquent owner.
3)Provides an owner of a separate interest may not waive his or
her right to have the payment made toward the delinquent
assessment prior to other fees and charges.
4)Allows an owner of a separate interest and an HOA to amend a
payment plan if they both agree and the plan meets with the
requirement that payments be applied first toward the
delinquent assessment.
5)Requires an owner's approval for the board of directors to
designate a committee to discuss a payment plan with an owner.
6)Provides if an owner does not agree to allow the board to
designate a committee to discuss a payment plan, the board of
directors must meet with the owner at the next regularly
scheduled board meeting.
7)Prohibits the board of directors from authorizing an agent or
representative of the association or a third party agent to
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negotiate a payment plan unless the owner agrees.
8)Provides all payment plans are subject to the approval of the
board of directors in an open meeting of the board.
9)Includes legislative findings.
EXISTING LAW
1)Provides a regular or special assessment and any late charges,
reasonable fees and costs of collection, attorney fees, and
interest are a debt of an owner of a separate interest at the
time the assessment or other sums are levied.
2)Requires an HOA to offer an owner dispute resolution, if the
owner requests, before recording a lien for delinquent
assessment and initiating foreclosure procedures.
3)Requires the board of directors of an HOA to approve recording
a lien on an owner's special interest for delinquent
assessment in an open meeting of the board, by majority vote,
and requires the vote be recorded in the minutes of the
meeting.
4)Requires the board directors of an HOA to meet with an owner
regarding a delinquent payment within 45 days of the owner
making a written request for the meeting (Civil Code Section
1367.1 et.al).
5)Prohibits an HOA from foreclosing on an owner's special
interest unless the amount in delinquent assessments and other
fees is $1,800 or the assessments secured by the lien are more
than 12 months delinquent. (Civil Code Section 1367.4)
FISCAL EFFECT : Unknown
COMMENTS :
Background : There are over 41,000 CIDs in the state that range
in size from three to 27,000 units. CIDs make up over four
million total housing units which represents approximately one
quarter of the state's housing stock. In the 1990s, over 60% of
all residential construction starts in the state were CIDs.
CIDs include condominiums, community apartment projects, and
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housing cooperatives and planned unit developments. They are
characterized by a separate ownership of dwelling space coupled
with an undivided interest in a common property, restricted by
covenants and conditions that limit the use of common area, and
the separate ownership interests and the management of common
property and enforcement of restrictions by an association.
CIDs are governed by the Davis Stirling Act (Civil Code Section
1350 et al.) as well as the governing documents of the
association including the bylaws, declaration, and operating
rules. Except when CIDs are first developed, no state agency
provides ongoing oversight to these communities.
HOAs are run by volunteer board who are elected by the owners
within the CID. In some cases, CIDs have community managers
that run the day-to-day operations required to maintain the
community.
Homeowners in CIDs are contractually obligated to pay
assessments which fund the operation costs, amenities and
maintenance needed to maintain the buildings and infrastructure
of the development. SB 137 (Ducheny), Chapter 452, Statutes of
2005, created a threshold before which a HOA could foreclose on
an owner's home in a CID through non-judicial foreclosure.
Prior to the bill, there was no standard for HOAs to follow
which allowed HOAs to foreclose on homeowners for any amount of
delinquent assessments. SB 137 required the amount of
delinquent assessments to be either $1800 or the any amount if
the assessment is over a year delinquent. HOAs can pursue
delinquent assessments below this amount in small claims court.
SB 137 also provides several other protections to homeowners.
The board of directors must vote in an open meeting to begin
non-judicial foreclosure proceedings and the decision must be
recorded in the minutes. Homeowners must be offered several
opportunities to "meet and confer" with the board of directors
before the board can initiate foreclosure. The homeowner has a
90 day right of redemption after nonjudicial foreclosure.
A homeowner may also request a meeting with an HOA to discuss a
payment plan. The HOA is required to provide the homeowner with
the standards for a payment plan if one exists and must meet
with a homeowner in executive session within 45 days of
receiving a request for a meeting to discuss a payment plan.
A delinquent homeowner is responsible for the regular or special
assessment as well as any late charges reasonable fees and costs
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of collection, attorney fees and interest that may result from a
delinquent payment. Existing law requires that payments made by
the owner must first be applied to the assessments owed, and
only after those are paid off can payments be applied to any of
the other fees described above.
Purpose of the bill : According to the author, "AB 2502 is
intended to ensure that HOAs and their agents comply with
existing state laws governing collection of homeowner
assessments. HOAs routinely hire property managers, law firms
and debt collectors to collect homeowner accounts alleged to be
delinquent. After taking over the account, many HOA debt
collectors try to coerce homeowners into their own payment plans
demanding that they waive their statutory consumer protections
under the Davis Stirling Act. The plans demand specifically
that the waiver of Civil Code Section 1367(a) requiring the
homeowner payment be applied first to the principal. Only after
assessments are paid in full are payments to be allowed to the
debt collectors' profits, interest, late fees and collection
costs."
Arguments in support :
The sponsor of this bill, Center for California Homeowner
Association Law (the Center), states the following in support of
this bill:
"State law lets associations levy assessments to finance
their operations. It also lets HOAs foreclose on the
property if assessments go unpaid. However, laws put into
place in the last 8 years contain many consumer protections
for the homeowner - as well as the association - during the
assessment collection process. These laws - see Civil Code
1367.1 and 1367.4 in particular - contain noticing
requirements, dispute resolution procedures, and
opportunities for homeowners and boards to negotiate
payment plans. The goal of these new laws is to ensure that
associations have the legal tools they need to collect
assessments but also to ensure provide homeowner consumer
protection. However, homeowners are reporting to the
Center that debt collectors hired by associations believe
they do not have to comply with these state statutes. The
typical association hires a debt collector who demands that
both the association and the homeowner sign contracts
containing provisions whose purpose is to circumvent the
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protections Civil Code 1367.1 and 1367.4. The Center has
provided the committee with samples of these contracts.
The contract provision that puts the homeowner at greatest
risk concerns the application of homeowner payments to the
debt. Like some credit card companies, the debt collectors
demand that payments be applied first to their profits and
only second to paying down assessment debt. This demand
violates Civil Code 1367 requiring that payments be applied
to first and only after they are paid in full can the debt
collector collect profits."
Arguments in opposition :
According to the California Association of Community Managers
(CACM):
"Forcing an owner's payment plan to be discussed in open
session, in front of all owners will unfairly impact the
homeowner and could expose the Board to liability. Current
law already allows a homeowner to request discussion of his
or her payment plan on the agenda to be discussed in open
session. However by regulating in this regard, it places
additional burdens on the board and the HOA. For example,
if a board meeting is not scheduled to be held in the very
near future, it will delay review of the request for a
payment plan and assessments will continue to accrue
without a plan in place to help that homeowner deal with
the accruing debt. The paying homeowners are negatively
impacted, as this increases the overall delinquency levels
already being imposed on the remaining homeowners.
Additionally, this provision of the bill exposes the board
to inadvertent liability. Although the owner must request
the payment plan be discussed in open session, we are
concerned about the situation where an owner indeed makes
the request and does not realize the sensitivity of the
information involved. The discussion would need to involve
exposure of intimate financial and other personal details
surrounding the inability to pay. CACM fears the board
could be exposed to liability for discussion in open
session of such private information."
Double referred : The Assembly Committee on Rules referred AB
2502 to the Committee on Housing and Community Development and
Judiciary. If AB 2502 passes this committee, the bill must be
referred to the Committee on Judiciary.
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REGISTERED SUPPORT / OPPOSITION :
Support
Center for California Homeowner Association Law (sponsor)
American Association of Retired Persons
California Alliance for Retired Americans
California Reinvestment Coalition
Center for Responsible Lending
Consumer Federation of California, San Mateo
Consumers Union, San Francisco
Gray Panthers Sacramento
The Public Interest Law Project, Oakland
11 individual letters (Brownville, Loomis, Sacramento, San
Marcos, Santa Monica, and West Covina)
Opposition
California Association of Realtors
California Association of Community Managers
Community Associations Institute
Executive Council of Homeowners
843 letters (attorneys, association managers, board members, and
homeowners)
Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085