Article Courtesy of the
Los Angeles Times
Published June 7, 2004
by a flurry of horror stories, state lawmakers are rushing to resolve a
long-standing complaint about homeowners associations: the power that they
have to seize properties without going to court.
By law, associations are entitled to foreclose on the homes of members who
fail to pay their dues. Though most residents pay their bills before their
houses are actually sold, thousands have lost their homes, sometimes over
disputes involving a few hundred dollars.
"It's legalized extortion," said Marjorie Murray, a state advocate
for senior citizens, many of whom live in condominiums and private communities
run by associations. "Why should homeowners associations have such a
Some homeowners association leaders say they need so-called nonjudiciary
foreclosure powers, which allow them to take property without seeking a
judge's approval, to keep neighborhoods looking tidy and to protect property
values. Without such powers, associations would have little ability to require
homeowners to pay assessments that cover the costs of such projects as new
roofing in a condominium complex or landscaping services and street
maintenance in a gated subdivision.
"Unless and until these debts are collected, the remaining homeowners
must make up the difference, and that is unfair to them all," said Skip
Daum, a lobbyist for the Community Associations Institute, a trade group whose
members include homeowners association boards, community managers and lawyers.
But the Assembly and the Senate, responding to recent high-profile cases, are
considering two bills this year that would limit homeowners associations'
nonjudiciary foreclosure powers.
"One of the doctrines of our laws is that the penalty or remedy should
fit the violation," said Assemblyman Darrell Steinberg (D-Sacramento),
whose bill banning nonjudiciary foreclosure passed the Assembly at the end of
May. "And taking someone's home obviously should be the last
The controversy over nonjudiciary foreclosure stretches beyond California as
legislators from Arizona and Texas, among others, have attempted — with
mixed results — to limit the power of homeowners associations. Still,
associations in many states can simply auction a property after deeming a bill
overdue and filing notices with the county.
An estimated 8 million Californians — about one-fourth of the state's
population — live in communities governed by homeowners associations. About
2,500 residential developments governed by associations are built in the state
each year, the California Research Bureau says. And 40% of new single-family
homes sold are in homeowners associations, the Public Policy Institute of
As they grow in numbers, homeowners associations — a form of private
government whose elected board members enforce community rules and levy
assessments — have come under criticism, even ridicule, over seemingly
trivial regulations, including what lawn ornaments residents are allowed to
have or what color they can paint a front porch.
But the ability to take someone's home is such an extraordinary power that its
use should be limited, even banned, critics of the practice say. Some
associations are too quick to resort to foreclosures, sometimes over
relatively small amounts, the critics say. And because the associations have
little interest besides recovering the dues they are owed, homes are sometimes
sold for pennies on the dollar, leading to huge losses for individual
In Tom and Anita Radcliff's case, their association sold their home in less
than a year over what began as a $120 bill.
Citing financial and health problems, the couple didn't pay the annual dues.
Their Copperopolis, Calif., home, which was appraised at $277,432 and had a
$30,000 lien on it, was auctioned for $70,000 in December.
The sale left the retired couple with about $68,000 after subtracting the
unpaid assessment and collection fees — and without their house.
"It just didn't occur to me that someone would foreclose over $120,"
said Anita Radcliff, 64. "It was outside the realm of my reality."
Mike Woodbury, an attorney for their homeowners association, Copper Cove at
the Lake Tulloch Owners Assn., said the couple were given warnings and
opportunities to avoid the sale. "It is the obligation of the homeowner
to pay the assessments," he said.
The couple filed a lawsuit in March, alleging among other things that the
foreclosure was an abuse of collection laws. They are being allowed to stay in
the home until the lawsuit is resolved.
Melissa Colburn of Chula Vista, Calif., sued her homeowners association after
it sold her $230,000 two-bedroom townhome for $5,150.
Colburn, an expert on hazardous materials, said she wasn't receiving her
homeowners association bills because of a mail mix-up. She got an eviction
notice in late 2002 from the man who bought her home, Carlos Sosa.
"I thought it was a joke," she said. "I almost threw the piece
of paper away."
Colburn, 35, settled her lawsuit and reclaimed her townhome at the Villas at
Eastlake Shores Owners Assn. But in the process of building her case, Colburn
found that her association's law firm, Peters & Freedman, had acted as a
trustee in other foreclosures in which Sosa had bought properties.
In one case, Sosa paid $2,515 for a house in Escondido and, in another, $2,987
for a condominium in Bonita, according to property records in Colburn's
Colburn accused the law firm and Sosa of colluding to sell foreclosed homes at
rock-bottom prices. Sosa and David Peters, of Peters & Freedman, denied
the charges in court filings.
Sosa did not return calls, and Peters declined to comment specifically on the
case, citing the settlement's confidentiality agreement.
"Foreclosure is a small part of our business," said Peters, whose
firm represents nearly 600 associations in Southern California. "It is
certainly not a profitable part of our business."
But it would have been a potential windfall for Sosa, who stood to make as
much as 20 times his investment. Colburn said her townhome had nearly $100,000
in equity after subtracting the $130,000 in mortgage still owed to her bank.
Experts say such profits are possible in part because auctions held by
homeowners associations are not widely advertised, and associations are
typically interested only in recovering the dues and collection fees they are
owed. By law, the bids start at the amount owed, and any anything above that
goes to the original homeowner. The buyer assumes some prior liens, such as
California homeowners associations can auction a property in as little as six
months — far more quickly than county tax collectors, for example, who must
give homeowners five years to pay. Their power is similar to that of a
mortgage bank, which technically owns a home until its loan is paid and can
auction a property without a judge's review if the borrower defaults.
Actual sales of homes are rare. About 1% of all foreclosure actions begun by
homeowners associations end with the home being sold, according to the
Community Associations Institute, which conducted a survey in 2002. Most
homeowners faced with the prospect of losing their home at auction pay their
debts, the trade group maintains.
But based on the institute's numbers and estimates of the number of California
homes that are governed by homeowners associations, that 1% represents several
thousand foreclosed homes in recent years.
Hundreds of thousands of others are threatened with the action every year. And
because there is no judge reviewing the process, the critics say, those who
believe they are being wrongfully targeted have little choice but to pay their
associations or file costly lawsuits.
Lawmakers would like to curb the trend and offer some protection for
A bill introduced by Sen. Denise Ducheny (D-San Diego) would prohibit
homeowners associations from foreclosing for debts of less than $2,500 and
assure that those who are drawn into foreclosure receive at least a portion of
their equity: up to $50,000 for a single adult, $75,000 for a family and
$150,000 for senior citizens.
The Senate passed the bill unanimously last month. Ducheny's bill is likely to
be combined into a compromise bill with Steinberg's Assembly bill, which
passed 69 to 10 and seeks to ban the practice altogether. A final version
should reach the governor's desk later this year.
"There is an increasing share of our population who" live in places
with homeowners associations, Ducheny said. "And that raises all sorts of
question about how they are governed which the Legislature has considered [in
the past]…. But nothing is as visceral as someone losing their home."