Editorial Courtesy of The Sacramento Bee

By Marjorie Murray -- Special To The Bee
Published Friday, August 19, 2005

Sen. Denise Ducheny's legislation would lay out a set of legal tools that HOAs, collection agencies, management companies and law firms could use to collect the dues assessed the 8 million California homeowners living in common interest developments such as condominiums. The tools would include going to small claims court, securing the debt with a lien or invoking dispute resolution. SB 137 is linked to AB 619, which would let homeowners pay a late bill in installments. Current law lets HOAs - without giving a reason - reject a homeowner's petition to pay arrearages on a monthly schedule.

Gov. Arnold Schwarzenegger vetoed AB 2598, last year's attempt to curb HOA foreclosure abuse. But his veto message made plain he thinks this issue needs to be resolved. Ducheny and the California Alliance for Retired Americans, sponsor of SB 137, have been working with the governor's office to do just that.

Ducheny's bill would allow foreclosure, but the HOA must first meet one of two thresholds: Recent amendments to the bill require that the assessment debt must be a minimum of $1,500 or that the debt must be more than two years old. The $1,500 would exclude collection costs. Right now, an HOA can start the lien/foreclosure process the first day that the payment is late, no matter how small the amount. The new thresholds were negotiated with the governor's office.

In addition, the legislation would protect homeowner equity by setting a foreclosure auction's minimum bid at 65 percent of the home's appraised value, minus other liens that take a higher priority. Currently, the minimum bid is the amount owed the association and its debt collector. SB 137 would let the owner redeem the property after foreclosure instead of having to sue to reclaim it.

Why are these changes needed? Because current law is unfair to all homeowners in common interest developments, but especially to seniors who cannot easily return to work to make enough money to buy another home.

Here's a real life example. According to news reports, Thomas and Anita Radcliff of Calaveras County, both in their 60s, owed $120 in January 2003 for their yearly HOA assessment. Because of her husband's health issues, it was June before Anita Radcliff sent in a check for $156, thinking that was all she owed. But the bill was for $157.50, including late fees and collection costs. The collection agency said it received the check by June 23, but said additional fees raised the debt to $403.80. The check was returned. The house was sold at auction in December 2003. Minimum bid? It was $2,047.40, the amount owed the HOA, plus collection and late fees. It sold for $70,000. It was appraised in May 2003 at $274,000. The Radcliffs sued to reclaim their home. Their situation still isn't resolved.

The Radcliff case is not unique. At last year's California Senate hearings on association foreclosures, Sentinel Fair Housing/Oakland testified on its research findings: In the space of 12 months, HOAs in five counties - including Sacramento - recorded 699 notices of default on association homes. About 70 of the homes were scheduled for the auction block.

The Legislature has known about foreclosure abuse since 1994, when Patrick Mahaffay's $300,000 Sea Ranch home was sold for $2,403, because he owed $567 in assessments. He eventually regained title to his home.

If anything is overdue, it's legislation to stop this kind of abuse.

About the writer:

• Marjorie Murray is chief legislative advocate on homeowner association issues for the California Alliance for Retired Americans. Reach her at [email protected].