Bill to ban foreclosures for small sums in homeowner associations

passes final committee test


Article Courtesy of the Associated Press

Published June 30, 2004


A bill banning foreclosures in California's 36,000 homeowners associations for unpaid assessments under $2,500 has passed its final committee test.

The Senate Judiciary Committee approved the legislation 5-0 Tuesday, ending six months of committee hearings on bills with national implications for private neighborhoods that are home to 8 million Californians and one in six U.S. residents. Assembly and Senate floor votes are expected in August when the Legislature returns from its summer recess.

The vote provided more momentum to curb association foreclosure powers for small sums in California and reduce influence of attorneys and collection agencies. Homeowner activists and senior citizens groups maintain the foreclosure process is easily abused, while most major associations defend it as a necessary tool to collect assessments and maintain an association's financial stability.

"I urge you to be very, very cautious about doing anything that discourages people from paying assessments," said Michael Belote, lobbyist for the California Trustees Association, a group representing firms that handle home foreclosure sales.

"Our position has always been that homeowners associations need legal tools to collect assessments, but foreclosure should not be the first tool out of the kit," said Marjorie Murray, lobbyist for the bill's sponsor, the Congress of California Seniors.

Assessments that average between $100 and $200 monthly are a private neighborhood's equivalent of property taxes, paying for lawn care, security guards, tree trimming, pool maintenance and street repairs. But lawmakers want associations to collect unpaid assessments by posting liens a legal right to collect when the house sells or take the delinquent homeowner to small claims court.

While unpaid sums over $2,500 could still be collected by judicial or nonjudicial foreclosure, strict new limits could discourage late charges and attorneys fees. New rules would also make bids for foreclosed homes be at least 90 percent of appraised value and give residents 90 days to buy their homes back after the sale.

If California lawmakers approve the proposal before Aug. 31 and Gov. Arnold Schwarzenegger signs it by Sept. 30, homeowner activists will have succeeded where similar legislative campaigns recently failed in Arizona, Texas and Florida. Opposition in all three states blocked efforts to ban foreclosure for unpaid assessments, though Arizona and Florida recently banned foreclosure for fines levied by associations.

California's legislation, co-authored by Assemblyman Darrell Steinberg, D-Sacramento and Sen. Denise Ducheny, D-San Diego, would drastically overhaul a foreclosure procedure largely set in motion a 1985 law that substantially increased penalties, fees and late charges added to late assessments. Though the added fees increased association leverage over homeowners to pay their bills, critics say unpaid assessments are often dwarfed by attorneys fees and allowed a string of high-profile home foreclosures over small sums.

Most recently, a Calaveras County homeowners association sold the $285,000 home of retirees Tom and Anita Radcliff for $70,000 over a $120 late payment that quickly bloomed to $1,952 with penalties, fees and late charges.

But lobbyists for homeowners associations have called the case an exception, and say fewer than 1 percent of foreclosures end with a lost home.

"We've been unfairly compared to Goliaths out there, after the individual and senior homes," said Skip Daum, lobbyist for the Community Associations Institute, a Virginia-based group that advises homeowner associations.

In related action, the committee also passed 4-0 a bill by Assemblyman John Laird, D-Santa Cruz, giving potential buyers of homes in association-governed neighborhoods a clearer picture of what they're getting into financially. The bill makes associations spell out more clearly the monthly dues, expected increases and amounts that dues must rise in coming years to properly maintain the neighborhood.