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Condo owner's heirs caught off guard by foreclosure

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Question: Last year a reclusive relative, who owned and lived in a condominium, died. Still grieving over his death, the family tried to get organized in dealing with his belongings and the life he left behind. It was overwhelming, but his mortgage was paid off decades ago so our family assumed we didn't have to worry about the condominium because the bank couldn't take it. We learned too late, the reason he wasn't receiving any mail was someone with an illegible signature had put in a forwarding order sending his mail into the ether.

The homeowner association foreclosed on the condo. It proved it had the right to do so. We have another family member on a fixed income who lives in a townhome and we want to prevent this from happening to them. What should we do?

Answer: Homeowner associations are a serious business, and their power and authority should not be underestimated. Whether your common-interest development is comprised of single-family homes, townhomes, condominium units or co-operatives, owners whose properties are in such developments might have a little more asset protection if those properties are mortgaged. In the event of an imminent foreclosure, the association would have to serve notice to the titleholder, mortgagee and all lien holders. In a common-interest development, "free and clear" property, which is a property that is mortgage-free and lien-free, could be vulnerable to a variety of mechanisms or machinations available to a homeowner association board of directors that could subject that owner's assets to great risk.

Business and Professions Code section 11018.1(c) explains that "your ownership in this development and your rights and remedies as a member of its association will be controlled by governing instruments [and] the provisions of these documents are intended to be, and in most cases are, enforceable in a court of law.... In order to provide funds for operation and maintenance of the common facilities, the association will levy assessments against your lot or unit. If you are delinquent in the payment of assessments, the association may enforce payment through court proceedings or your lot or unit may be liened and sold through the exercise of a power of sale."

Under Civil Code section 1367.4(c), the association seeking to collect delinquent regular or special assessments of $1,800 or more may use judicial or nonjudicial foreclosure as its remedy. (The $1,800 in delinquent assessments can't include any accelerated assessments, late charges, fees and costs of collection, attorney's fees, interest or any assessments that are more than 12 months delinquent.) Civil Code section 1367.4(c)(1) to (4) sets forth guidelines that boards must follow to foreclose.

Pursuant to Civil Code section 1367.4(c)(3), if the board votes to foreclose on an owner's property interest, it shall provide notice by personal service in accordance with Code of Civil Procedure section 415.10 to the owner of a separate interest or to the owner's legal representative. The board shall provide written notice to the titleholder who does not occupy the property by first-class mail, postage prepaid, at the most current address shown on the association's books. In the absence of written notification by the owner to the association, the address of the titleholder's property in that common-interest development may be treated as the owner's mailing address.

If someone owns assets worth $150,000 or more in his or her name alone, the estate will go into probate. The probate process ensures all creditors are notified of the death, all debts are resolved in a timely way and the estate is distributed to the beneficiaries named in the will or in accordance with the laws covering asset distribution when someone dies without a will. Establishing a trust and funding title to real property into the trust would avoid probate and could assist with the orderly payment of debts and distribution of assets in accordance with the trustor's wishes.

A good way to protect an estate from probate is to have a comprehensive estate plan in place that would include such documents as a revocable trust, a will and property powers of attorney. In all these documents, you name the individuals or institutions who are to manage your assets for you if you cannot do so because of incapacity or death.

In every trust, there are three important roles:

The trustor. Also known as the settlor or grantor, this is the person who sets up the trust and funds assets into the trust.

The trustees, or managers of the assets in the trust. The trustor is generally the primary trustee of a revocable trust and names other individuals or institutions to manage the assets if the primary trustee is incapacitated or dies.

The beneficiaries. The trustor is generally the primary beneficiary of a revocable trust, but has named who is to receive the assets of the trust after the trustor's death.

As trustor of your own trust, you should set forth all of your assets and any ongoing debt associated with those assets, such as recurring payments for homeowner association dues, insurance, taxes and special assessments, on a separate document referenced in your trust. That way, your successor trustees would easily know what assets and liabilities you have and would know what to look for before it is too late.

Whether an estate goes through probate or is structured to avoid probate, there are many important steps that must be taken to wind up a decedent's affairs. When there is a death in the family, make sure you seek timely legal advice to avoid assets being foreclosed upon or otherwise lost.

This column was co-written by Joel J. Loquvam, an attorney who specializes in estate planning, probate and trust administration. Vanitzian is an arbitrator and mediator. Send questions to Donie Vanitzian JD, P.O. Box 10490, Marina del Rey, CA 90295 or noexit@mindspring.com.

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