State Senate Passes Bill to Restrict Foreclosures

A bill that would greatly restrict the use of home foreclosures to collect late homeowner association assessments passed the state Senate without opposition Tuesday, representing a major initial victory for homeowner activists in more than 36,000 privately governed California neighborhoods.

The Senate voted 34 to 0 to end a widespread practice of allowing homeowner associations to foreclose on homes when owners get slightly behind on assessments. The practice has provoked growing opposition in California and nationally.

The new bill requires that for amounts less than $2,500, most associations must take the matter to small claims court or put a lien on the property.

Homeowner associations, run by volunteer boards and assisted by collection attorneys, agencies and trustees, can now auction off homes for any amount of late payments, a practice forbidden in traditional neighborhoods governed by city halls or county courthouses.

Lawmakers introduced the bill after a retired Calaveras County couple lost their home last year over a $120 late payment.

“That’s such an extreme example of how the law can lead to a loss of equity that we’ve got to find a new way to address it,” said the bill’s author, Sen. Denise Ducheny (D-San Diego).

The Senate vote sets the stage for a legislative showdown with national implications as homeowners try to curb the foreclosure power of private associations that govern one-fourth of California’s residences and 60% of its new housing. Nationally, one in five Americans lives in a development governed by a homeowner association. There are 260,000 associations, many of them holding the power to take homes of residents who fall behind on assessments.

Previous attempts in California, Arizona and other states to ban most home foreclosures have been blocked by political groups representing association boards, property managers and attorneys.

Without the ability to foreclose, associations would have difficulty getting payment for late fees, said Sandra Bonato, legislative chair for the Executive Council of Homeowners, which represents associations in Northern California. “To take away all our remedies is very, very worrisome,” she said.

Ducheny’s bill, which applies only to associations with more than 25 homes, must clear the full Legislature by Aug. 31 and be signed by Gov. Arnold Schwarzenegger by Sept. 30 to become law.