New Anti-Foreclosure Bill On The March Again

SB 137 -- Senator Ducheny


An Opinion By Jan Bergemann

Published June 30, 2005


The so-called Anti-Foreclosure Bill, vetoed in 2004 by Governor Schwarzenegger, is again on the march through the CA legislature.  With great bi-partisan support, CA legislators seem to be determined to finally stop the ludicrous lien and foreclosure actions for small amounts of unpaid dues or late fees as we have seen it happen so often.  Legislators in California have finally realized what this often-abused power does to homeowners and condo owners.

Legislators have finally figured out what the opposition to this bill is all about -- a greedy industry concerned about their own income, not the welfare of the associations, as they always claim. This bill is not about protecting deadbeats -- as the service providers always claim -- but about protecting owners against abusive boards and the attorneys and management companies that make the big profit out of the misery of often helpless owners, especially retirees and minority groups, who don't have the financial means to fight for their rights.


Just see the opposition already lined up. The same service providers we see all over the nation opposing consumer-friendly association reform. 


But see as well the arguments in favor -- the voice of reason in support!

Exactly what we said in spring when supporting Senator Siplin's anti-foreclosure bill SB 2632. WE SHALL RETURN!


It is just a “Power Play” where the powerful can take advantage of our citizens!

It's a shame that our society in Florida still allows this abuse to take place on a daily basis!  Senator Gary Siplin (D-19) filed the bill last year, but found very little support from his colleagues.  It seems here in Florida progress always takes a little longer.  Definitely one thing Florida is famous for -- besides election shenanigans!


Can a Governor -- already under heavy fire even by his own party followers -- again dare to oppose the will of the CA legislature?  Will he veto the bill that seems to be ending up on his table in the near future again -- waiting for his signature?


We'll see how it plays out in California!

Two CID bills were voted out by the California Assembly Housing and Community Development committee this morning [June 29]: SB 137/Ducheny and SB 61/Battin.

     In its current form, the Ducheny bill :

(1) establishes a $2500 threshold below which foreclosure cannot be used. The $2500 cannot include any collection costs -- only assessments
(2) the HOA can foreclose if the assesssment debt exceeds $2500, but the HOA must follow strict guidelines
(3) the minimum bid at foreclosure will no longer with the amount owed the HOA and its debt collector, but will be 65% of the value of a new appraisal, less senior liens
(4) the homeowner can redeem/buy back the property within 90 days without going to court.

     The Governor's office has proposed four amendments to the bill, which were not taken in committee this morning, but which are now being negotiated by Senator Ducheny in exchange for Schwarzenegger's signature on the bill. 

     At the top of the list is the threshold figure.  It may be reduced to $1500 and a second time threshold also be established, i.e. if the debt is EITHER $1500 or more OR delinquent two years older or more, then the HOA can use foreclosure.

     The bill applies both to judicial and to nonjudicial foreclosure.  It is linked to

AB 619, which provides some additional consumer protection to the homeowner, e.g. the HOA is required to enter into a payment plan for delinquent assessments if the owner requests it.  AB 619 was voted out of Senate Judiciary yesterday and now goes to the Senate floor.

     The next legislative stop for SB 61 and SB 137 is the Assembly floor. 
The California Alliance for Retired Americans (CARA) is the sponsor of Ducheny's foreclosure bill.

     The Battin bill, SB 61, is an election reform bill requiring that (1) all ballots be secret (2) that a neutral third party have custody of the ballots and count them at a properly-noticed board meeting (3) homeowners have the right to challenge election results in California lower courts (4) no person other than the elections inspector shall have access to the ballots during the balloting period. 

     SB 61 is linked to AB 1098 (Jones), further reforming CID elections.  It states that any homeowner can nominate himself/herself to the board and requires that if boards use association media to promote a candidate or a board position on a ballot measure, that they must provide equal media access to all candidates or to opponents of a ballot measure.  "Media" is broadly defined.

     AB 1098 is now headed for the Senate floor vote.

Date of Hearing: June 29, 2005
Gene Mullin, Chair
SB 137 (Ducheny) - As Amended: June 27, 2005

SUBJECT : Common interest developments: assessments
SUMMARY : Changes the procedure for collecting delinquent assessments in common interest developments (CID). 
Specifically, this bill : 

1)Provides that, after January 1, 2006, foreclosure is not permitted as a remedy when a homeowners association (HOA) seeks to collect delinquent assessments of less than $2,500. 

2)Allows a HOA to seek sums less than $2,500 in small claims court and to record a lien on the owner's separate interest.

3)Allows the court in small claims to award the total amount of accrued unpaid assessments, late charges and fees, cost of collection attorneys' fees, and interest up to the jurisdictional limit of the small claims court. 

4)Provides that, after January 1, 2006, an association may foreclose upon a lien for delinquent assessments of $2,500 or more. However, any foreclosure is subject to the following new prerequisites: 

a) The association recorded the lien only upon a majority vote of the board of directors in an open meeting;

b) The association must vote to foreclose on a lien at least 30 days prior to a public sale; 

c) The association initiate the foreclosure upon a majority vote of the board in an executive session, where the board maintained the confidentiality of the owner; 

d) The association has sent all correspondence, billings, and legal notices related to delinquencies to the owner's primary and secondary address, where one has been provided; and

e) The association has provided notice by personal service to the owner or his/her legal representative of the decision to foreclose.

1)Provides that the minimum bid for any foreclosure sale to collect a debt for delinquent assessment is at least 65% of the appraised value of the separate interest, excluding any 
senior liens. Requires the appraisal value to be based on an exterior-only appraisal conducted by the Office of Real Estate Appraisers.

2)Grants owners a right to redeem their separate interest from a foreclosure sale within 90 days of that sale. 

3)Permits a management company representative or bookkeeper to appear on behalf of a CID association in small claims court. 

4)Requires an association to notify an owner, prior to recording a lien for a delinquent assessment, that the owner has a right to engage in the dispute resolution procedures discussed in Civil Code Section 1363.810 - 1363.510. Provides the member would only need to request the procedure in order to use it. 

5)Provides binding arbitration will not be available if the association intends to pursue judicial foreclosure. 

6)Requires that where it is determined in dispute resolution or alternative dispute resolution (ADR) that the association recorded a lien in error, that an association promptly reverse all additional charges and pay all costs related to the dispute resolution or ADR. 


1)Defines and regulates CIDs and authorizes the association that manages the development to levy assessments to fulfill its obligations. (Civil Code Section 1351 et seq.)

2)Provides that a regular or special assessment of the association, late charges, reasonable costs of collection, and interest, as specified, are a debt of the owner of the separate interest at the time the assessment or other sums are levied, and are a lien on the owner's separate interest when the association records a specified document and follows a specified process. 
(Civil Code Section 1351)

3)Requires a CID association to distribute a specified notice to each member of the association regarding assessments, foreclosure and non-judicial foreclosure, payment plans, and meetings to discuss payment plans. (Civil Code Section 1365)

4)Permits a homeowners' association to place a lien on a separate interest for any delinquent assessments, late charges, reasonable costs of collection and interest and that the lien may be enforced after 30 days notice by any lawful means including the use of non-judicial foreclosure. (Civil Code Section 1367 and 1367.1)

5)Recognizes that homeowner associations, as quasi-governmental entities that owe fiduciary duties to their members, are required to adhere to due process and equal protection obligations. (See Cohen v. Kite Hill Community Assn., 142 Cal.App.3d 642, 650-651 (1983) and authorities there cited.)

6)Requires that a decision regarding a proposed change to a homeowner's separate interest property be made in good faith, pursuant to a fair and reasonable procedure. 
[See Ironwood Owners Ass'n IX v. Solomon, 178 Cal. App. 3d 766, 772 (1986)]



Background : 

There are over 36,000 CIDs in the state which make up over three million total housing units. CIDs, which represent approximately one quarter of the state's housing stock, include condominiums, community apartment projects, and housing cooperatives and planned unit developments. They are characterized by a separate ownership of dwelling space coupled with an undivided interest in a common property, restricted by covenants and conditions that limit the use of common area and the separate ownership interests and the management of common property and enforcement of restrictions by a community association. CIDs must adhere to the Davis Stirling Common Interest Development Act as well as the governing documents of the association including the bylaws, declaration, and operating rules. CID's are governed by elected volunteer directors who serve on the HOAs board of directors. 

The HOA is authorized to collect assessments from homeowners in CIDs to pay for both general operating expenses and capital repairs. If homeowners do not pay their assessments, the 
association is authorized by statute to collect the delinquent assessments from the homeowner, a process that may ultimately result in attaching a lien to the homeowner's property and 
nonjudicial foreclosure. 

Need for the bill : 

According to the author, this bill seeks to protect homeowners from losing their property and equity over small amounts of delinquent assessments. Specifically the measure seeks to reform the process and methods by which HOAs may collect delinquent assessments, most notably by prohibiting the remedy of foreclosure for amounts less than $2,500 and imposing certain requirements for amounts of $2,500 or greater. Recent news reports have highlighted several instances in which associations have used the extreme hammer of non-judicial foreclosure for 
homeowners who have not paid small amounts of overdue assessments. 

In addition to requiring delinquent assessments to reach a threshold of $2,500 before a HOA can pursue nonjudicial foreclosure, the bill would add several protections to the process of foreclosure. The board of directors of the HOA would be required to vote to initiate a lien in an open meeting and to initiate foreclosure in executive session. The association would be required to notice the homeowner or when provided the homeowner's legal representative of the decision by the association to foreclose. 

An example of non-judicial foreclosure :
A case of non-judicial foreclosure that received a great deal of media coverage occurred when Tom and Anita Radcliff lost their home for $120 in delinquent assessments. According to media reports, the Radcliffs received a bill for $120 but did not pay it quickly enough claiming sickness and distraction. Deadlines passed and the bill swelled with collection fees eventually reaching $1,952. The Radcliffs' home was foreclosed upon by the HOA. The property had been appraised at $285,000 but was sold at auction for just $70,000.

This Bill Differs From Similar Legislation That The Governor Vetoed Last Year : 

In the Governor's veto message last year of AB 2598 (Steinberg), the Governor supported its intent to protect homeowners from being foreclosed upon for small sums of delinquent assessments but stated the bill was "overly broad and could negatively impact all homeowners living in CIDs." This bill is distinct from AB 2598 in several ways. Specifically, its terms have been altered to provide that dispute resolution and ADR procedures are made available in keeping with the terms of AB 1836 (Harman), Chapter 754, Statutes of 2004. Nor does it contain any of AB 2598's provisions which required documents to be made available to CID members. 

Arguments in support : 

California Alliance of Retired Americans (CARA), the sponsor of this legislation, argues SB 137 protects the most valuable asset that seniors own, their homes and the equity they have built up in their homes. The current process allows a home to be foreclosed upon for small amounts and does not offer due process protections for the homeowner. Although homeowners receive the 
excess funds at a foreclosure sale, because the minimum bid is the amount owed the HOA and other fees, the home can be sold for a fraction of its value. According to CARA, they have documented instances of seniors losing their homes, because they owe amounts as low as $120. 

Arguments in opposition : 

Although, opponents have suggested that less than 1% of homes that are the subject of delinquent assessments are nonjudcially foreclosed upon they object to SB 137's prohibition on foreclosure for delinquencies under $2,500. The California Association of Community Managers (CACM) contends that the average amount of community association assessments is $152 per 
unit, per month. They complain this bill will permit an owner to refuse to pay his or her assessments for 17 months before he or she would be subject to foreclosure. In cases where assessments were smaller, they worry an owner might not be subject to foreclosure for several years. Opponents contend this will give irresponsible homeowners an incentive to stop paying their dues altogether, while responsible homeowners will have to subsidize them by paying higher dues. Opponents argue that associations operate on zero-based budgets and must therefore generate enough revenue every assessment period to provide the services the association has contracted to provide to the community.

Supporters respond, however, that this claim is disingenuous that the bill will not prevent associations from recovering delinquent assessments worth less than $2,500. Associations simply will not have the enforcement tool of both judicial and non-judicial foreclosure at their disposal for those smaller delinquencies. The primary enforcement tool available for debts 
under $2,500 will instead be the filing of a small claims court action. Small claims courts are designed to provide a speedy, inexpensive and informal method for settling small claims, 
without needing a lawyer or an understanding of complicated legal processes. Filing fees are significantly reduced and attorneys are not permitted to appear on behalf of either party. 
Evidentiary requirements are also much less stringent, and the court is permitted to consult witnesses informally and otherwise investigate the controversy. 

CACM contends that this bill will increase litigation, both by encouraging additional small claims court actions and by subjecting associations to potential suit for breach of contract when budget shortfalls resulting from the bill preventing associations from providing needed services. CACM also argues that establishment of a minimum bid of 65% for non-judicial foreclosure sales could limit the pool of third party bidders.

The California Association of Realtors (CAR) argues the requirement that a minimum bid for sale must be at least 65% of the appraised value would have a chilling effect on the market. CAR asserts buyers would be required to have a significant down payment and fewer homeowners would qualify for homes causing CID property values to fall. Opponents suggest bidders at a nonjudicial foreclosure sale do not bid at 65% of the value which increases the change that the sale will not gain the association the assessments it is legitimately trying to 
recover. Opponents also are concerned about the requirement that an exterior only appraisal will result in a lower appraisal. 

Existing law permits a homeowners' association to place a lien on a separate interest for any delinquent assessments, late charges, reasonable costs of collection and interest. A home that is fully paid off and may be valued at several hundred thousand dollars would auction for the amount to repay the association and any fees. At the foreclosure auction, the homeowner receives any excess of the winning bid over the amount owed. However, since the minimum bid for purchase is the amount of assessments and other fees owed, the home is usually sold for a small fraction of its actual value. The homeowner may lose his or her home and receive no substantial amount of money. 

State and Consumer Services Agency, neutral if amended 

On June 21, the author received a letter from the State and Consumer Services Agency, communicating the amendments they would request in order to take a neutral position on the bill. 
The amendments included the following:

1)Lowering the threshold required for a HOA to foreclose to $1,000 or when delinquent assessments were three years past due;

2)Requiring a favorable ruling in small claims court for the association to record a lien on the member's property; 

3)Requiring the homeowner pay 50% of the assessment in order to participate in the alternative dispute resolution process; and 

4)Requiring Department of Consumer Affairs (DCA) and Department of Real Estate (DRE), when funds are available, to establish an on-line education course for CID board members. 

The author's office has indicated, a plan to adopt all but one of these amendments and is working to address the last remaining issue of the Governor's Office concerning setting the threshold and establishing a maximum time period before which a HOA can foreclose. 

Staff Comments : 

On-line Education for CID board members:
The committee may wish to consider the policy implications of requiring DCA and DRE to provide on-line education to CID board members. On-line education has its limitations in that it 
requires that a homeowner have access and familiarity in using the Internet in order to benefit from the education. Additionally, there is a documented digital divide for senior and low-income individuals in our country that either do not have computers in their home or do not use them. CIDs not only represent a fourth of the state's housing and growing, but also typically are a more affordable source of housing to seniors. 

In addition an on-line education course for CID board of directors does not offer an outlet to individual homeowner who may need clarification on their responsibilities as homeowners or have disputes with their association. The only recourse available to homeowners to enforce the laws governing CIDs is litigation. 

AB 770 (Mullin), which this committee heard in April and is currently held in the Assembly Committee on Business and Professions pending review of the Joint Committee on Boards, Commissions and Consumer Protection, would create the Office of the CID Ombudsperson to provide education and advice to CID homeowners and members of the board of directors and collect data on the type and frequency of disputes between homeowners and board of directors. The committee may wish to consider if the existence of a CID Ombudsperson would be beneficial when disputes arise between a homeowner and a board of directors regarding the payment of assessments. The Ombudsperson would also provide a benefit to the Legislature and CID homeowners and boards by collecting data about the frequency of foreclosure in CIDs and recommendations for additional reform to CID laws. 

Related Pending Legislation:
AB 619 (Leslie), currently awaiting consideration in the Senate Judiciary Committee, among other things strengthens notice requirements and the manner in which the CID association must serve any notice of delinquency upon an owner. 

Prior Related Legislation :
AB 2598 (Steinberg): discussed above.

AB1836 (Harman), Chapter 754, Statutes of 2004, requires CID associations to participate in fair, reasonable, and expeditious dispute resolution procedures as requested. It also establishes criteria for use of ADR procedures between CID associations and owners.
Double-Referred : The Assembly Committee on Rules referred SB137 to Judiciary and Housing and Community Development Committee. The bill passed the Assembly Committee on Judiciary on June 21, 2005 by a vote of 6 to 2. 

California Alliance of Retired Americans (CARA) 

California Association of Realtors (CAR)
California Association of Community Managers (CACM)
California Land Title Association
Community Associations Institute 
First American Corporation 
Northwood Pointe Maintenance Association, Irvine
United Trustees Association 

Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085