t's 2014! Egads, remember in 1985 when the "Back to the Future" movie featured the year 2013 as the future! FYI, I have not been sitting on my hands, and at the risk of bombarding you will too much information, I will give fair warning: I have recently attended both state and national conferences and meetings on hot topics and laws and am armed with good information to pass along. I have also developed suggestions for dealing with current issues. So today, you are receiving information on a very recent (about two weeks ago) appellate decision that may affect your collection practices. After reading it, consult with your legal counsel to see if your collections policies need revising. And following ...
The New Davis Stirling Act. Next week you will receive a summary E-Newsletter on how to cope with the newly reorganized Davis Stirling Act. Don't dive in and start cutting and pasting your documents to change statute numbers before reading that one. Also, the new 2014 Davis Stirling Act in Plain English book is available here on the Webstore.
Elections. The following week you will receive an E-Newsletter on Elections in California. If your elections are in March you should be sending out the Candidate solicitations right now!! If you don't already have election rules you should be getting them right now! Before any important elections. Read that E-News for the latest important tips and for what recent cases are requiring.
Small Association Compliance Manual: I am working on the Small Association Compliance Manual. The two part article written for the ECHO Journal last fall was just the tip of the iceberg for small associations. I will give you a taste in a newsletter in February, assuming I can get it finished!
Resources: I will do my best this year, as always, to keep you informed and offer whatever help I can to keep you out of trouble, whether you are an HOA, a manager, or an owner who lives in an HOA. So here goes, the first in the barrage of information. Of course you can shut me out if you want to by clicking "unsubscribe." But I truly hope you find these messages helpful.
The Push Pull of HOA Collections. As if California HOAs are not dealing with enough with the relocated and revised Davis Stirling Act, there is a very new Court of Appeals opinion rendered just a few weeks ago that requires an HOA to accept partial payments and in certain cases forego foreclosure in a delinquent assessment situation, even when the partial payments do not pay off the balances due. Few other than educated and experienced practitioners fully understand the negative impact on collections of HOA delinquencies in California, and the ultimate fallout. Right or wrong, it's another strike against the HOAs. Lots of people are affected. While owners might think it is beneficial to them; it really only benefits those in delinquency, and like a lot of legislation, leaves more of the burden on the owners that do pay what is owed. Why? Because there is a cost that has to flow to someone and the honest owners always seem to end up at the bottom of the food chain. That said, it is better to accept what is and deal with it than to whine too much about the way someone things it should have been. Unless this case is appealed, we will all have to live with it.
In early January of this year, the Appellate Division of the Superior County of Orange in Huntington Continental Town House Association v. The JM Trust dated January 1, 2005, et al. turned on its head the idea that an HOA doesn't have to accept partial payments from an owner when threatened with foreclosure.
To explain in brief, the owner made assessment payments regularly for several years and then missed a payment. The court says the missed April 2009 payment "commenc[ed] a long string of delinquencies. On October of 2010 the HOA provided notice the delinquency had reached $3864.96 and received no response to the letter so a lien was recorded. A few weeks later the Board passed a resolution to foreclose. In March of 2011 (6 months later) the HOA's attorneys sent another letter about foreclosure and then filed a judicial foreclosure action in April. Thereafter there were a series of payments, a payment plan offered but not signed, further attempts to make partial payments and rejected payments. As to one attempted payment submitted in January of 2012 of $3500 the opinion says the President of the HOA told the owner that he would have the lawyer apply the $3500 to the debt, but the attorney didn't do so, returning the $3500 check at the end of January. The court says this payment would have brought the delinquencies within the 12 month window preventing foreclosure found in Civil Code Section 1367.4, but left outstanding debt. (Note that the Davis Stirling Act has been moved and the new section numbers are 5705-5720.)
So now - the public judgments and assumptions will fly. There are those that will assume the "big bad" HOA got what it deserved, and those that see how the court is further weakening the position of HOA in assessment collections. And it's not really a full victory for anyone.
I did collections for HOAs as part of my law practice for several years early in my career so I have considerable experience in all of the things that tend to happen. I have heard all of the excuses and also all of the pleas that owners tend to make based on their own circumstances. I have proposed payment plans and seen many owners follow through, and also seen many "games" played to delay the inevitable (paying the debt). In the early 90s I was walking down the hall in the office of the firm I worked at and saw a young woman with 4 small children trailing after her. They were all holding hands and the mother was carrying a check. I stepped back behind a partition and watched her hand the check to my secretary and get a receipt for it. After they filed out, I saw it was a partial payment on a payment plan. I recognized the name on it and realized that this was the daughter of a friend of mine. Our sons had played football together all through middle school and high school and I knew she had two other grown children, one daughter with a different last name. I also knew that my friend's daughter's husband had been laid off and that they were struggling. I didn't think the daughter knew me; at least I hoped she had not put 2 and 2 together. That was the day I decided I would stop doing collections, and that was the day I decided to leave the firm, and go on my own, so I could choose what I wanted to do. I didn't have the "stomach" to continue doing collections, and the firm I was in didn't have the "compassion" -it was about dollars for them. I am not implying that the people who have stepped up to offer HOAs affordable collections services are wrong in any way. It just wasn't for me. I trained someone very honest in the area of collections and sent them out to do good work, and they are good at it and have formed a successful business. Collecting "with heart" can work, when owners are sincere and follow through; but in this area, especially in the past hard years of economic stressors, I believe that attitudes have changed. There is more resistance, cynicism, and grief over collections than ever before. The more complicated it becomes, the higher the cost to everyone.
HOA Struggles: Because of my extensive experience, I know what kinds of things happen. I see the struggles of HOAs to make ends meet, especially hard hit during the past 5-6 years as the economic crunch turned into a vice for many. We are talking crisis level! I also know there are owners who sincerely accept their responsibilities and do everything they can to clear the debt which came about through no fault other than difficult times. I've counseled HOAs to give "passes" to people saddled with a terminal disease who agree to a lien, which, though it relieves them, allows the assessment debt to accrue, only to have heirs complain about the accrual of the debt on the property. I know of the cross purpose struggles and the "jump to judgment mentality" and the complications both sides experience.It's hard to find a winner here.
Owner Struggles: Since I added owner consultations to my practice several years ago, I have counseled owners who sincerely want to work out a reasonable way to clear the debt but have reached a brick wall because no one will talk to them. Yes, the problem started with them, but once the snowball started to roll down the hill, there seemed no way to stop it. I turn down clients who want to fight the association just because they don't want to pay - they are angry about losing their homes, about the economy - and decide the HOA is the enemy for coming after them. Some invested over their heads and want to dump the debt dragging them down. I have been approached by people who would rather pay a lawyer to fight the HOA than pay the debt. These people don't find solace with me. I have counseled owners who plan to walk away from their property because their financial advisor suggested it to at least stay and pay the association's assessments, because it is cheaper than rent elsewhere and then getting hit with a lawsuit to pay the accrued debt of assessments and collection costs. People don't know they can't "walk away" from HOA assessments like they can a bank loan. Some get a sorry surprise when the HOA catches up with them.
Knowledge and good advice can help owners and HOAs at the same time - but owners are hard pressed to find someone o be offering correct advice about this personal obligation. Some (owners that is) are resisting to the point of driving up the costs of collection, and someone has to pay those!
Collection Agent Struggles: Collection agents for HOAs can get a bad "rap" too. There are some good and some not as good as is the case in every commercial enterprise. Some run a more "personalized" ship where owners can actually reach a person and talk to them about resolving their assessment debts. Others are less inclined and seem to focus more on profits than people. The companies that do collections on a "no cost" basis have taken big hits over the last 5-6 years because it is harder than ever to collect. Truth be told, you really cannot squeeze blood out of a turnip. And with banks delaying foreclosures, the debt of the owner is stretched out for extra months or years (although they have often fled and don't know it). And so these companies incur extra costs, it takes longer to catch up with the delinquent owners, and consequently HOAs have to wait longer for payments or get less money in the end, and they are mad too. It's easy to focus the wrath on the "big bad collectors", but the truth is that many HOAs could not survive without the assistance of trained vendors who are familiar with the many detailed compliance aspects of the California Codes related to collections.
In the Huntington Continental Townhouse Association case, it's easy for outsiders to criticize the "big bad" board, or the collections expert since the President apparently told the delinquent owner he could get their $3500 check cashed to pay down the debt. The board is caught between a rock and a hard place because while a "no cost" contract means there is "no out of pocket cost" to the association, that usually applies only if the collection company can collect its costs from the delinquent owner. And now the court has made that harder.
Partial Payments from the HOA's Perspective: There are folks out there that will take advantage of this new case to catch up the assessment debt within $1800 or a year in delinquency to stop the foreclosure. Who wants to pay the collection costs? No one, so there is often resistance. But for the HOA it is a cost that, unless recovered, punishes the other owners. And what happens when small claims court judges are harsh on the HOAs and carry disdain for "collections" agents and deny these costs (yes, this happens). These collection companies are providing a necessary service to HOAs; they have employees and bills to pay, just like any other business. Without HOA collections agents, HOAs in California would fail simply because volunteer directors simply do not have the sophisticated knowledge it takes to follow complicated detail-driven statutes that require multiple notices and complicated legal documents.And many don't have the stomach to pursue their neighbors for debts, kind of like me.
Partial Payments from the Owner's Perspective: Some owners do take advantage of the laws to stifle the HOA's ability to collect delinquencies, but there are certainly those who just want to have a reasonable proposal to catch up the debt. Sometimes folks are hit with extremely high collection costs and they cannot understand why, and so they resist paying them, refusing to acknowledge any responsibility in ignoring the many warning letters. Some try to get the debt paid down by throwing money at it sporadically and find more collection costs have accrued that put them back where they were before they made the payment, and so they don't feel like they are gaining any ground. Most do not realize that if they approved and signed a payment plan, the late fees would stop and so would the higher collection costs that attend the legal filings. And granted, there are cases where the accounting for the debt becomes so confused the parties either start arguing or stop talking and neither resolves the problem which it seems an element of this case.
Partial Payments from the Collection Agent's Perspective: If all payments received are applied to assessments the question arises as to how and when the party that does the work to collect will get paid. The collections company has bills and employees to pay and they cannot exist if they have to wait until all owners pay all assessments and then fight paying the collection costs. Someone has to consider their plight. Someone has to pay their costs. It has to be the owner, the association, or no one. It's not fair when the party doing the work is not paid for their services. On the other hand, HOAs are often unpleasantly surprised when they learn the contract allows the collection agent to take all money paid by the owner to cover costs -or a very large percentage - before the HOA gets paid. This isn't always the case but when it is, both the owner and the HOA end up mad at the collections agency. With this Huntington case, it seems that there was some confusion and refusals that make it look like someone did something wrong when the truth is everyone probably thought they were doing everything right.
Were It a Perfect World: In a perfect world, every owner would pay, and if not, every HOA would be able to call them up or invite them to a meeting and everyone would agree to a payment plan that would work, or if the matter had to be sent to a knowledgeable collections agent, the agent would be able to get the owner into a payment plan that would be honored so foreclosure never happened, or the banks would foreclose in a timely manner when owners "walked away" so as to minimize the remaining HOA assessment debt - something that would help HOAs on a widespread basis.
What to do in an Imperfect World: It's not a perfect world, and so now HOAs need a new solution to deal with this case. It may not be foreclosure; it may mean more individual lawsuits. One can only hope that adjusting your collections policies, and when not already occurring starting at the earliest date possible to get more clear and pointed with the warnings will help, and that getting agreement to payment plans earlier when owners can feasibly catch up might help. One can hope that proceeding in small claims if owners are playing the game to keep the assessment debt under the 12 month or $1800 ceiling will work. Here's hoping that the HOA and agent that is helping them collect can show a pattern if someone is purposefully "hovering" under the legal "ceiling", that a judge in small claims would recognize this and more readily give judgment in favor of the HOA.
I can hear the naysayers now - "Yes, but we get don't want to go to small claims court." Or "We don't trust it." Or "We have lost there before." There are some things to pay attention to. Some HOAs send their collections agents alone and I have heard that some Judges don't like that. Keeping good records and having directors willing to go there will, I believe, might help resolve some of the issues raised by this case, because small claims judges like sincere parties with a direct interest in the situation. If you take this appellate court case decision as an excuse to become more "aggressive" and it shows, I believe that judges will respond negatively, and legislators may jump in again and impose even more restrictions. If you believe paying a lawyer to sue in Superior Court is the only way, make sure that you have offered reasonable payment plans and found a way to accept and apply payments in some reasonable way before spending the money. And always weight the question of whether "throwing good money after bad" is the right solution, because that can be more painful than simply losing on the cost recovery end of things. All I can say is it's not a perfect world, but the more educated your decisions, and the more justified and above-board your actions, the more likely you are to get full recovery and/or the support of the court in the effort of collecting a bona fide debt.
And if you want much more help, there are several assessment primers available here on the website
on the publications page.
THE PASSION TEST - A lot of people have inquired about the link I provided in the newsletter about "The Passion Test". Here is the correct link (my apologies), where you can go to take the test to determine your own "passion profile": http://www.thepassiontest.com/af.htm?w=tpt&p=bagrimm. And of course, if you are interested at all in working with me to help light your own fire and figure out how to live your own passions and love your life, just let me know.
Lots of resources are available including articles, blogs, E-news archives, Primers and Guides, and other publication like books, on all subjects on this website.
Check out the newly opened link to the 2014 Davis Stirling Act on the main page!
If you need help with Resolutions to bring your governing documents and policies into the New Year seamlessly and inexpensively, contact me! at the website or at the email address: firstname.lastname@example.org .
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I am an attorney who serves homeowner associations and homeowners alike (not inthe same association of course). I am a frequent contributor to the Echo Journal
and other similar publications in the State of California and also contribute articles
on a national level. There are several publications written in plain English onmy website written specifically to help people who need information about California
law as it relates to homeowner associations. There is a wealth of information here on
the website. I like to do service and have been lucky enough to be named Author of the Year
by CAI after my first book, and was named 2011 Volunteer of the Year by the Executive
Council of Homeowners.
Check out the Main and Resource Pages at www.californiacondoguru.com
Check out the popular book called "THE CONDO OWNER'S ANSWER BOOK" and both blogs developed, one for everyone and one especially for homeowner questions: www.Condolawguru.com
Check out the webstore for helpful and affordable publications on various topics, including 3 books, 28 primers and 2 guides. Most popular subjects are THE DAVIS STIRLING ACT IN PLAIN ENGLISH (book), ENFORCEMENT, BOARD BASICS, ARCHITECTURAL AND LEASE LIMITATIONS series (primers) and the RECALL and INSPECTORS OF ELECTION guides.
I have a private law practice in Pleasant Hill, but serve homeowners association and homeowners throughout the State of California. My practice is in large part now web based and telephone consultations are available. I have clients all over the state and am a real "road warrior".
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