Negative press fuels foreclosure bills

The view of a Community Association Institute Director

Legislative Update

By Andrew Krakowski - Director of CAI's Department of Government and Public Affair

Article Courtesy of CEO Insights
Posted June 24, 2004

In Arizona, the governor signed into law House Bill 2402, which excludes fees, monetary penalties, interest, and most late charges from liens that can be foreclosed. This essentially gives delinquent owners an interest-free loan until the matter of past-due assessments is settled. The bill’s author sought unsuccessfully to delay the ability to foreclose until three years have passed from the date a lien is filed, and to require the sale price of a foreclosed unit to be for “fair market value.”

In California, after a torrent of media coverage about a home that was foreclosed on for a little more than $100 in late assessments, several legislators have introduced new bills regarding foreclosure and community association governance.

In May, the California Senate unanimously passed Senate Bill 1682, which requires most associations to go to small-claims court or put a lien on the property if the delinquency is less than $2,500. The bill applies only to homeowner associations with more than 25 homes and is just one of several proposals under consideration as homeowners and association boards struggle over reforming the rules of foreclosure. The state Assembly will vote soon on a similar bill that would limit the amount of yearly assessments that an association can authorize without a vote of residents. Another pending bill promises to provide potential new homeowners with more information about assessments and potential increases in dues to bolster reserve funds.

This will likely bring the issue into focus for legislators in other states who are unfamiliar with community associations. CAI members must continue to educate legislators that foreclosure is a necessary tool to protect the majority of homeowners who pay their assessments on time and should not be required to subsidize those who refuse to pay their share.

Managers should never assume that a foreclosure will not be picked up by the press. Even a legitimate foreclosure could be perceived as abusive, and the resulting press could spark a legislative initiative to reform or ban outright the use of foreclosure. Always use foreclosure sparingly, and not in a manner that could be perceived as abusive.