Q&A

HOA rejects late payments, opts to foreclose; is that legal?

Via @latimes: Foreclosure looms, yet HOA won't provide an accurate accounting of the amount due. What to do?

Question: I owe $1,600 in past due homeowner association assessments, but I made payments that haven't been applied to my account. Through the management company and association attorney, the board placed a lien on my home to foreclose. The attorney says I owe $10,500 and returns my checks, saying he "will not accept a partial payment." Despite repeated requests, management won't provide my payment history and an accurate line-by-line accounting of what I owe. When the board ordered management to provide each owner's payment history with monthly statements, the company owner threatened to sue. Their signed contract says management "owns" the right to provide titleholder "payment history statements and accountings for a fee." The board signed that contract making owners hostage to management fees for crucial things like owner payment history. Meanwhile I'm facing foreclosure, and no one will talk to me or accept my payments. Do I have any rights?

Answer: Your rights are tied up in a maze of crossover laws subject to interpretation by California courts, coupled with your board's ability to unilaterally contract them away by signing a management contract — costly enforcement measures for owners to overcome.

Whether it's the association, its attorney or management company attempting to collect a debt, all must comply with the Fair Debt Collection Practices Act and the California Rosenthal Fair Debt Collection Practices Act.

In a recent case, Huntington Continental Town House Assn. vs. Joseph Miner, board directors passed a resolution authorizing a lawsuit to foreclose on a delinquent assessment lien of $6,418. Its attorneys notified the owner of the association's intent to initiate foreclosure proceedings, stating the total amount due included "attorney fees, costs, release of lien fee, and 'file set up' fees." The owner tendered payments omitting those ancillary fees, but his checks were systematically returned because the attorneys claimed they were "unable to accept partial payments."

The owner was repeatedly unsuccessful in obtaining a "line-item accounting" from the association. Even frustrated justices were forced to create their own line-by-line accounting by using court exhibits. At trial, Huntington Continental's counsel conceded that had the titleholder's "payment been applied to the account, the remaining balance would have been $760 and change."

After reviewing their own spreadsheet, justices commented that once the owner tendered a payment of only past due association assessments, he was no longer within the statutory parameters allowing the association to foreclose. Justices chastised the association and its attorneys for violating the common interest development act. "Had the association accepted the owners' final tender, the owners' assessment arrearages would have been brought current and stopped the clock on the 12-month window for foreclosure," they said. The law "compels a homeowners association to accept and apply partial payments that reduce delinquent assessments owed," justices said.

The Legislature intended to protect homeowners from being foreclosed upon for small sums of delinquent assessments. Under Civil Code section 5720, an association may not foreclose its lien until the delinquent assessment amount equals or exceeds $1,800, or assessments secured by the lien are more than 12 months delinquent. Only delinquent assessments may be foreclosed upon. Accelerated assessments, late charges, fees, costs of collection, attorney's fees, file set up fees and interest cannot be included in the lien used to foreclose.

The court stated that Civil Code section 5650 "does not state an association has the discretion to decline to follow the procedure set forth in the statute," continuing, "under the statutory language of Civil Code section 5655(a,) if an owner of a separate interest makes any payment, the association cannot reject it, but is required to ('shall') apply that payment to the debt in the statutory order of allocation. Quite simply, an association does not have the discretion to refuse to follow the statute's mandate."

Concluding: An association must accept a partial payment made by an owner of a separate interest in a common interest development toward a debt described in Civil Code section 5650, and must apply that payment first to assessments owed. That requirement continues after recordation of a lien pursuant to Civil Code sections 5673 and 5675.

In a January 2014 appellate decision, justices noted: "The association conceded it had failed to apply a $500 payment that [its attorney] accepted. Although the association deducted the $500 payment from the total damages sought at trial, it did not adjust its interest accrued calculations for the unapplied payment, causing the damages awarded to be excessive and not supported by the evidence." This resulted in the court's ruling that "the weight of the evidence did not support a damages award."

With properties at risk, owners should not have to wait for a lawsuit before obtaining a line-by-line accounting of their payment history. No third-party management company should ever have the ability to control titleholder payment history statements, and no board should have authority to contract those rights away.

Zachary Levine, partner at Wolk & Levine, a business and intellectual property law firm, co-wrote this column. 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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