California Condoguru ENewsletter

AN HOA "FORECLOSURE RECOVERY BILL" OF SORTS IS ENACTED BILL NUMBER:SB 1511 Ducheney CHAPTER 527 Foreclosure/Sale Notice Bill

This is a critical bill (and now new law) sponsored by the Community Associations Institute California Legislative Action Committee (CAI-CLAC) in an attempt to save California HOAs from the tremendous assessment losses suffered because of HOA lender foreclosures. It started out as a "super lien" proposal that would have guaranteed HOAs some recovery from lenders after foreclosure (involving payment of 6 months of delinquent assessments which is only a portion of the common loss which is usually more like at least 18-24 months of unpaid assessments but which is more than nothing).

This "super lien" exists in some other states but is an unpopular (to Banks and Lenders) subject and a real uphill political battle in California, as has proved to be the case the 3 times it has been raised in the legislature in recent years. So, rather than scrap a good effort, and in order to salvage what protection could be salvaged, the bill was modified to provide some relief at least by requiring that the trustees and persons generally charged with providing notice of default and sale, be required to take it one step further and provide notice to an HOA when a trustee's deed is recorded. This new law allows an HOA to record a document with the local county recorder's office which is actually a request that any person authorized to record a notice of default mail to the association a copy of any trustee's deed upon sale within 15 business days following the date the trustee's deed is recorded. The recorded request for notice would not expire and would list the legal descriptions (APN numbers) of all of the properties in the HOA. If the HOA address changes, a new request would have to be recorded.

Once recorded, it would provide public notice that would obligate the person authorized to record a notice of default to send the HOA a copy of any Trustees' Deed within 15 days of recording it. The following form is adapted and modified using the existing form which appears (but which does not work for this situation). It should work for HOAs. (If anyone encounters a problem and lets me know, I will write about how to resolve it on my blog.)

***

REQUEST FOR NOTICE UNDER CIVIL CODE SECTION 2924B

By _________________ Homeowners Association (use legal name)

In accordance with Section 2924b(f) of the California Civil Code, request is hereby made that a copy of any Trustees' Deed or other Deed resulting from the sale under the a deed of trust or mortgage recorded against any of the properties described by the Parcel/APN numbers listed on Exhibit A, which is attached hereto and incorporated herein, be mailed to ____[HOA NAME]______, which is a common interest development homeowners association and is subject to Civil Code Section 1351, at: _________[ADDRESS], within 15 days of recording said Trustee's Deed or other form of Deed upon sale.

NOTICE: It is understood that a copy of said deed will be sent only to the address contained in this recorded request, which is for the Homeowners Association making the request, and that if the address changes, a new request must be recorded.

Signature __________________________________________
Printed Name: ______________________________
Title: ______________________________________
Authorized by and on Behalf of [Proper Legal HOA NAME]

[SIGNATURE MUST BE NOTARIZED]

[Exhibit identifying the parcel numbers or legal descriptions of the property must be affixed.]

***

Logistically and logically, the above-suggested form should work if recorded, to trigger the requested notice to the Association, and should be accepted as a recordable document. Practically speaking, I cannot predict exactly what recorders will do with these forms (accept them I hope) and what trustee's will do with these notices (send the deeds out as instructed, I hope). However, sometimes when a new law is implemented, there are glitches and no one can guarantee at this point how smoothly the transition into this new law is going to go. The forms may be accepted now, or the recorder's offices may be instructed not to accept them until after January 1, 2009, when the new law becomes effective.

The point is though, that once a request for notice is recorded under the statute, it will show up on a proper title search and that is what a trustee or other person responsible to provide notice of default and notice of sale needs to do in order to capture the information they need to fulfill their legal notice requirements for a non-judicial foreclosure sale.

The following is what was added to existing law for HOAs:

"(f) With respect to separate interests governed by an association, as defined in subdivision (a) of Section 1351, the association may cause to be filed in the office of the recorder in the county in which the separate interests are situated a request that a mortgagee, trustee, or other person authorized to record a notice of default regarding any of those separate interests mail to the association a copy of any trustee's deed upon sale concerning a separate interest. The request shall include a legal description or the assessor's parcel number of the separate interests. A request recorded pursuant to this subdivision shall include the name and address of the association and a statement that it is a homeowners' association. Subsequent requests of an association shall supersede prior requests. A request pursuant to this subdivision shall be recorded before the filing of a notice of default. The mortgagee, trustee, or other authorized person shall mail the requested information to the association within 15 business days following the date the trustee's deed is recorded. Failure to mail the request, pursuant to this subdivision, shall not affect the title to real property.

I have captured some of the key terms in bold. The request must be recorded, a copy of any Trustee's Deed Upon Sale must be sent to the HOA within 15 days after recording, the request for notice must have been recorded before the Notice of Default on the property (this is the natural starting point when the Trustee does a title search by the way), and if the Trustee fails to send this notice, it does not "unravel" the sale of the property or affect the title passed by the sale. One problem this statute will not solve is any delay in going through with the sale of and recording the Trustee's Deeds. There are some legal limits and ramifications for postponing sales and some legal obligations to record the deeds; however, it is rumored that some lenders are stalling the actual sales and the recording of these deeds in order to delay some of the legal obligations that attach for them once title transfers to them. The new SB1137 (Perata) might be just another example of an obligation that might be avoided as it requires lenders to maintain properties they own or suffer the possibility of hefty municipal fines. If an HOA can find out who the owner is the HOA can pursue that owner to fulfill obligations on the property.

The new law is not a super lien, but it certainly should help ...

Questions about this bill and other HOA dilemmas can be sent through Califcondoguru@aol.com which, if generic enough to help more than one particular party or situation, may end up being answered on Beth's Blog! Be sure to check it out... Also note that the recent edition of THE CALIFORNIA HOMEOWNERS ASSOCIATION LEGAL DIGEST (a subscription newsletter) that just went out provides a legislative update and a lot more information on this new law. So be sure to visit the Publications page and the Webstore to see all the new publications that are available and in the works.

My best to you!

Beth