BILL ANALYSIS
AB 2502
Page 1
Date of Hearing: May 4, 2010
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 2502 (Brownley) - As Amended: April 27, 2010
As Proposed to Be Amended
SUBJECT : Homeowner Associations: Delinquent assessments
KEY ISSUE : Should the existing law that prescribes the
allocation of delinquent assessment payments by an owner to a
homeowner association also apply to payments made to agents
contracted to collect the debts?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
This bill makes a fairly straight-forward change to the statute
governing the allocation of assessment payments made by a
homeowner in a common interest development (CID). Under
existing law, a homeowner association (HOA) that manages the CID
may impose regular and special assessments to fund various costs
of the CID's maintenance, operation, and amenities. These
assessments become a debt that the owner owes to the HOA.
Existing law requires the owner's assessment payment to be
applied first to assessments owed, and then only after the
assessment is paid in full, shall the payments apply to costs of
collection, including any attorney's fees, late charges, or
interest. According to the author, however, when an HOA turns
over responsibility for collecting this debt to a collection
agency, some of the agencies either ignore the allocation rules
or require owners to sign a contract waiving their right to have
the assessment applied in the statutorily prescribed manner.
This bill would simply provide that the owner's payments would
be applied in the prescribed manner whether the payment is made
to the association or any agent that the association contracts
with for the purpose of collecting the debt. In addition, the
bill would specify that the owner shall not waive his or her
right to have the payments so allocated. In addition to these
two core changes, the bill would make other changes relating to
partial payments, amending payment plans by mutual agreement,
and generally ensuring that agents contracted to collect the
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debt are subject to the same provisions that would apply if the
payment were made to the association. Earlier versions of this
bill addressed other issues, including whether payment plans
should be developed in open or closed meetings and the threshold
for determining when an association could resort to foreclosure
to recover a debt. After extensive discussions with various
stakeholders, the author has decided to focus on the key issue
that apparently prompted the bill: the allocation of assessment
payments when the debt is turned over to a collection agency.
The author's decision, however, has produced the unusual result
that the original sponsor now opposes the bill.
SUMMARY : Specifies that existing provisions of the
Davis-Sterling Act setting forth the order in which an owner's
delinquent assessment payments to a homeowner association (HOA)
shall apply to an agent of the association that is contracted to
collect the debt. Specifically, this bill :
1)Provides that the provisions of existing law that prescribe
the order in which a homeowner's payments to the HOA are to be
allocated (first to assessments and only then to late fees and
costs relating to collection) shall also apply to any agent of
the association that is contracted to collect the debt.
2)Provides that homeowners shall not waive the above allocation
provisions.
3)Requires that the HOA or any agent that collects the debt
shall not refuse to accept partial payments that comply with
the terms of the written agreement between the association and
the owner.
4)Permits an owner and the HOA to mutually agree to amend a
payment plan so long as the plan is in compliance with the
allocation provisions.
5)Specifies that if the HOA contracts with an agent to collect
the payments, the collection agent shall be subject to the
provisions of Civil Code Section 1367.1, which generally sets
forth rules relating to the collection and allocation of
payments, including the prerequisites for recoding a lien for
delinquent assessment and the manner by which an owner may
request to meet with the board to discuss a payment plan.
EXISTING LAW :
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1)Provides, under the Davis-Sterling Act, that association
assessments, late charges, reasonable fees, and any costs of
collection shall be a debt of the owner of a separate interest
in a community interest development to the homeowner
association. Specifies that at least 30 days prior to
recording a lien on a separate interest to collect a debt that
is past due, the association must provide written notice to
the owner that, among other things, describes the rights and
liabilities of the owner and itemizes the charges owed.
(Civil Code Section 1367.1 (a).)
2)Requires that any payment made by the owner of a separate
interest toward the debt described above must be first 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. (Civil Code Section 1367.1 (b).)
3)Requires an association, prior to recording a lien for
delinquent assessments, to offer the owner and, if so
requested by the owner, participate in dispute resolution
procedures, as specified. (Civil Code Section 1367.1 (c) and
Sections 1363.810 through 1363.850.)
4)Provides that the decision to record a lien for delinquent
assessments shall be made only by the association's board of
directors and may not be delegated to an agent of the
association. Specifies that the board shall approve the
decision by a majority vote of the board members at an open
meeting. (Civil Code Section 1367 (c) (2).)
5)Permits an owner to request a meeting with the board to
discuss a payment plan for the owner's debt and requires the
board to meet with the owner in executive session within 45
days of the request. (Civil Code Section 1367 (c) (3).)
6)Prohibits an association from foreclosing on an owner's
separate interest before the amount of delinquent assessment,
not including late charges and fees, as specified, reaches
$1800 or is more than 12 months delinquent. (Civil Code
Section 1367.4.)
COMMENTS : According to the Assembly Committee on Housing &
Community Development, there are over 41,000 community interest
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developments (CIDs) in the state that range from three to 27,000
units. The Davis-Sterling Act generally defines the respective
rights of the owners of separate interests within the CID and
the homeowners' association (HOA) that manages the development.
Under existing law, the HOA may impose regular and special
assessments to fund various costs of the CID's maintenance,
operation, and amenities. These assessments become a debt that
the owner owes to the HOA. Existing law requires the owner's
assessment payment to be applied first to assessments owed, and
then only after the assessment is paid in full, shall the
payments apply to costs of collection, including any attorney's
fees, late charges, or interest. The purpose of this bill is to
ensure that both HOAs, and any agents that the HOA may contract
with to collect an owner's debt, must comply with these
allocation provisions.
The Problem and the Solution : According to the author, when an
HOA turns over responsibility for collecting an owner's
assessment debt to a collection agency, some of these agencies
either ignore the allocation rules or require owners to sign a
contract waiving their right to have the assessment applied in
the statutorily prescribed manner. This bill would provide that
the owner's payments would be applied in the prescribed manner
whether the payment is made to the association or any agent that
the association contracts with for the purpose of collecting the
debt. In addition, the bill would specify that the owner shall
not waive his or her right to have the payments so allocated.
In addition to these two core changes, the bill would make other
changes relating to partial payments, amending payment plans by
mutual agreement, and generally ensuring that agents contracted
to collect debt are subject to the same provisions that would
apply if the payment were made to the association.
Recent Amendments and Narrowing Scope of Bill : As originally
introduced and as amended on April 5, this bill would have
tackled a number of other related issues pertaining to
assessment payments and delinquencies, including the manner by
which an owner could request a meeting with the board of the HOA
to discuss the payment plan and whether that meeting should be
an open or closed meeting of the board. In addition, earlier
versions of the bill sought to change the threshold at which an
HOA could seek foreclosure on the basis of delinquent
assessments. Existing law provides that an HOA may not bring a
foreclosure action until the amount of the assessment debt
reaches $1,800 or is more than 12 months delinquent. An earlier
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version of this bill would have increased these thresholds to
$3,600 and 18 months, respectively. However, after extensive
discussions between various stakeholders, the author has decided
to narrow the bill to the issue of assessment payments and their
allocation.
Proposed Author Amendments : In addition to amendments already
taken, the author wishes to take the following clarifying
amendments in this Committee:
Amendment 1.
On page 3 line 23 strike out "assign the association's" and
insert:
contract with agents
Amendment 2.
On page 3 strike out line 24 and insert:
to collect these delinquencies who, at times, may require
Amendment 3.
On page 3 strike out lines 28 and 29 and insert:
as provided in to Section 1367.1.
Amendment 4.
On page 4 strike out lines 1 through 5 inclusive.
Amendment 5.
On page 5 strike out line 17 and insert:
made to the association or its agent
Amendment 6.
On page 5 strike out line 32 and on line 33 strike out "collect"
and insert:
(2) The association or its agent that collect the
Amendment 7.
AB 2502
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On page 5 line 35 following "agreement" insert:
by and
Amendment 8.
On page 7 strike out lines 7 through 11 inclusive and insert:
scheduled board meeting.
Amendment 9.
On page 9, line 5 strike out "If" and strike out lines 6 through
12 inclusive and insert:
If the association contracts with an agent to collect the
payments made by an owner toward the debt as required in
subdivision (a), the agent shall be subject to the provisions of
this section.
ARGUMENTS IN SUPPORT : According to the author, this bill will
"ensure that homeowner associations (HOAs) and their agents
comply with existing state laws governing the collection of
homeowner assessments." In addition, the author believes that
this bill will establish that "these laws cannot be voided
through private contracts." The author contends that
"compliance with existing laws ensures that assessments are
collected fairly and that homeowners do not lose their homes to
foreclosure through the unscrupulous and predatory business
practices of HOAs and their agents, including but not limited to
debt collections companies."
California Member of Congress, Jackie Speier, also writes in
support of this bill, especially the provisions that would
require agents of the HOA to comply existing assessment
allocation rules. Speier, when she was then Assembly Member
Speier, authored important pieces of legislation that protected
the rights homeowners in community interest developments.
Speier argues that the contracts that require owners to waive
the assessment allocation demonstrate that debt collection
agencies already know that the law should apply to them, which
is why they insist on the waivers in the contract.
The Community Associations Institute (CAI), which opposed the
April 5 version of the bill, now supports the bill as proposed
to be amended. CAI argues that this bill now "properly and
justifiably requires debt collection companies to be bound by
payment plans that the homeowners and homeowner associations
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have entered into. Additionally, the bill permits the owner and
association to amend the payment plan agreement as long as the
amendment does not result in a waiver of allocation payments
pursuant to Civil Code Section 1367.1"
Other letters in support of this bill reflect the more expansive
April 5 version of the bill, but most stress the importance of
the allocation provisions that remain a part of the bill. For
example, an original co-sponsor of the bill, the Center for
California Homeowner Association Law (CCHAL), has informed the
Committee that they now oppose the bill. However, parts of
their letter would appear to support the allocation provisions.
For example, CCHAL writes that the Center is receiving
increasing reports "that debt collectors hired by associations
believe that they do not have to comply with these statutes
[i.e. the order of payment allocation]." CCHAL claims that debt
collection agencies are forcing owners to sign contracts
requiring owners to waive the allocation provisions. Indeed,
CCHAL has submitted to the Committee copies of such agreements
with the waiver provisions included. The other arguments made
by CCHAL apply primarily to the prior versions of the bill that
they sought, but which have since been removed.
ARGUMENTS IN OPPOSITION : The only letter in opposition that
reached this Committee by the time of this writing came from a
former co-sponsor, the California Alliance for Retired Americans
(CARA.) CARA, like other supporters, complains that debt
collectors hired by the associations "are not complying with
state laws governing assessment collection. Of primary concern
is the fact that debt collectors and third parties are forcing
seniors to sign contracts letting the debt collector use
homeowner payments to collect his profits instead of paying down
assessments." CARA claims that the April 5 bill "addressed a
number of these issues." CARA claims that the April 27 version
of the bill - and apparently the bill as proposed to be amended
- will actually weaken consumer protections and do more harm
than good by putting "the homeowner in the position of
negotiating a payment plan - not with the board - but with the
debt collector. One of the main purposes of the bill as
introduced was to create transparency; the amendments do the
opposite." [Note: It is not entirely clear to the Committee how
the April 27 amendments force an owner to negotiate with the
debt collector instead of the association board; however, the
criticism that the amended bill no longer creates the desired
"transparency" apparently refers to the deleted provision of the
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bill that required the board to vote on payment plans in open
meeting.] CARA also claims that the bill as amended refers only
to "agents of the association" instead of "third parties,"
thereby creating some confusion as to whether credit collection
agencies or even an association must comply with the law.
[Note: It is the Committee's understanding that the term
"agent" was used because it had a broader meaning and made it
clearer that the collection agency acted on behalf of the
association. Moreover, the April 27 amendment is not vague
about what "agent" is subject to the allocation provision. It
applies specifically to "an association or an agent of the
association assigned to collect the debt." This would seem to
clearly cover both the association and the credit collection
agency.]
Although CCHAL, a co-sponsor along with CARA, has informed the
Committee that it now opposes the bill, the Committee had not
received a letter in time to be included in this analysis.
REGISTERED SUPPORT / OPPOSITION :
Support
California Alliance for Retired Americans (former co-sponsor)
(to April 5 version only)
Center for California Homeowner Association Law (former
co-sponsor) (to April 5 version only)
Community Associations Institute
Opposition
California Alliance for Retired Americans
Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334