Assessment Collections


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April 22, 2010 slideshow prepared by Sandra Gottlieb, Esq. and Tracy R. Neal, Esq. of Association Lien Services regarding collecting delinquent assessments for homeowner associations in California.

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Assessment Collections

  1. 1. COLLECTING DELINQUENT ASSESSMENTS 310-207-2027 / Sandra L. Gottlieb, Esq. Swedelson & Gottlieb Association Lien Services Tracy R. Neal, Esq. Association Lien Services
  2. 2. Pre-Lien Letter <ul><li>Management prepares and mails a 30-day statutory pre-lien letter via certified mail to the owner(s) of record. </li></ul><ul><li>A delinquent homeowner has 30 days to respond. </li></ul>
  3. 3. Lien <ul><li>If no response from the homeowner after pre-lien letter, then management prepares and records a lien. </li></ul><ul><li>Since the lien secures the association’s interest (secured creditor), a lien should be recorded even if an owner is on a payment plan. </li></ul><ul><li>California Civil Code §1367.1(c)(2) requires that a majority of the board of directors must vote to record a lien at an open meeting (not executive session). The decision must be recorded in the meeting minutes. </li></ul><ul><li>A letter with lien is mailed to the homeowner within 10 days of recording the lien. </li></ul><ul><li>Homeowner has 30 days to respond. </li></ul>
  4. 4. Turning a Matter Over to ALS Pre-Lien Letter Lien Judicial Foreclosure Nonjudicial Foreclosure If no response (either payment in full, dispute, IDR/ADR request, or payment plan request) from the homeowner after a lien is recorded, then management will turn the delinquent account over to Association Lien Services. Upon receipt of the account, ALS will review the recorded lien for accuracy, run a title search, check for senior NODs/NOTS, check for bankruptcies Referral to bankruptcy attorney or recommend small claims for money judgment
  5. 5. Judicial Foreclosure <ul><li>Through judicial foreclosure, the Association obtains a judgment ordering the sale of the property, and if the sale proceeds do not cover the debt, the Association can seek a deficiency judgment.  </li></ul><ul><li>Board can choose not to proceed to foreclosure and instead seek a money judgment. </li></ul>
  6. 6. Judicial Foreclosure <ul><li>Judicial foreclosure begins with the filing of a complaint and the recording of a notice of Lis Pendens (litigation pending). </li></ul><ul><li>The complaint will state the amount of the debt, and why the default should allow the foreclosure to take place and the property be allowed to be taken as security.  </li></ul><ul><li>The homeowner will be served notice of the complaint, either by mailing, direct service, or publication of the notice, and will have the opportunity to be heard before the court.  </li></ul><ul><li>The homeowner has thirty (30) days to respond to the complaint.  If the owner answers, the Association will be involved in a lawsuit. </li></ul><ul><li>If the owner does not respond, which occurs in the majority of cases, and assuming the court finds the debt valid and in default, it will issue a judgment for the total amount owed, including the costs of the foreclosure process.  </li></ul>
  7. 7. Judicial Foreclosure <ul><li>After the judgment has been entered, a writ confirming a money judgment will be issued by the court, authorizing a sheriff’s sale.  </li></ul><ul><li>If the Association chooses to foreclose, it occurs by sheriff’s sale, which is an auction, open to anyone, held in a public place, such as in front of a courthouse on its steps, or, if noticed, in front of the property being auctioned. At the end of the auction, the highest bidder will become the owner of the property, subject to the court’s confirmation of the sale and subject to senior encumbrances.   </li></ul><ul><li>Swedelson & Gottlieb will conduct and complete a judicial foreclosure for an Association choosing judicial foreclosure rather than nonjudicial foreclosure. </li></ul>
  8. 8. Nonjudicial Foreclosure <ul><li>Association Lien Services utilizes the nonjudicial foreclosure process because we’ve found it to be the fastest, most flexible and cost-effective method to obtain the owner’s payment of delinquent assessments or to foreclose on a non-paying owner to facilitate getting a new owner in the unit who should begin paying assessments (even if it is the bank).  </li></ul><ul><li>An advantage of nonjudicial foreclosure is that the Association is not bound by initiation of the nonjudicial foreclosure process.  The Association can switch to judicial foreclosure or money judgment at any time before the nonjudicial foreclosure sale is conducted.  </li></ul>
  9. 9. Nonjudicial Foreclosure <ul><li>Letter with Lien Already Recorded and Notice of Default </li></ul><ul><li>15 days prior to recording a NOD, a copy of the lien is sent to the delinquent owner. This is not a statutory requirement, but ALS records have established that 10% of delinquent owners pay during this 15 day period. The letter advises the delinquent owner that his or her account has been forwarded to our office and the 30 day period after the recording of the lien has expired, and the homeowner is determined to be in default of its obligations to the Association. </li></ul><ul><li>ALS will prepare and record a Notice of Default. The NOD is mailed, to all owners and interested parties and personally served on the owners. Each owner receives his or her own copy unless they are married and reside together. </li></ul><ul><li>Once a Notice of Default is sent to title for recordation, a Trustee Sale Guarantee (TSG) is ordered. </li></ul><ul><li>A TSG is a search provided by a title company searching the records of the county where the property is located, showing all necessary parties, liens, senior liens, encumbrances and covenants and restrictions of record. This document is reviewed by ALS and provided along with notification of any potential title issues that are found of record. </li></ul><ul><li>An owner has 90 days to cure the default. During this ninety day period no collection actions are being taken against the homeowner. During this time, the homeowner may request a payment plan. </li></ul>
  10. 10. Nonjudicial Foreclosure <ul><li>Foreclosure / Notice of Sale (NOS) </li></ul><ul><li>The foreclosure action commences with the actual act of recording the notice of trustee sale, after the board votes to initiate foreclosure against an owner in executive session . All actions leading up to the foreclosure sale are merely proceedings to secure an interest in delinquent assessments ( i.e. recording the lien, noticing the default, etc. ) However, you cannot notice the sale or use language that threatens a sale until the statutory threshold of either $1,800 or one year of delinquency has been reached. </li></ul><ul><li>Once the Authorization to Publish and board resolution to initiate foreclosure are received from the association, ALS will prepare a Notice of Sale. </li></ul><ul><li>Personal service of the NOS is required if an owner resides at the unit. The NOD and NOS are personally served at the same time. If an owner does not reside at the unit, service of the NOS can be completed by mail. </li></ul>
  11. 11. Nonjudicial Foreclosure <ul><li>Foreclosure / Notice of Sale (NOS) </li></ul><ul><li>An association’s foreclosure sale will be scheduled approximately four weeks from receipt of the Authorization to Publish and board resolution. </li></ul><ul><li>The sale is conducted, and the results of the foreclosure sale may be: (1) the property reverts to the beneficiary (association) subject to any senior encumbrances; or (2) the property is sold to a third party subject to any senior encumbrances. </li></ul><ul><li>If the property reverts to the association, the association may: (1) do nothing and allow the senior lender to foreclose (association’s credit is not impaired); (2) contact a real estate agent and attempt to sell the property; or (3) wait until the expiration of the 90-day period, post sale, and commence eviction proceedings (if the property is occupied) and lease the property. </li></ul>
  12. 12. Nonjudicial Foreclosure <ul><li>Foreclosure / Notice of Sale (NOS) </li></ul><ul><li>A homeowner has a 90-day right of redemption after the foreclosure sale. </li></ul>
  13. 13. Frequently Asked Questions <ul><li>What are the costs to the Association? </li></ul><ul><li>There are no ALS upfront costs to the association as the costs of collection are passed on to the delinquent homeowner. </li></ul><ul><li>In limited circumstances, however, such as if the association accepts payment directly from the homeowner after having referred the matter to our offices, if the homeowner files for bankruptcy, if there is a wipe-out by a senior lienholder, or the account is otherwise uncollectable using the nonjudicial foreclosure process, ALS will write down its fees to $325.00 plus costs, such as postage, recording costs, TSG and title searches. </li></ul><ul><li>If the Association forecloses and the property sells to a third party, the third party pays all back assessments, late fees, interest and collection fees and costs. </li></ul><ul><li>If the Association forecloses and the property does not sell to a third party, the Association cannot then sue the delinquent owner for the amount of the delinquency, therefore the Association would not be able to recover back assessments. This is a result of a legal principle called Election of Remedies or the one-action rule. </li></ul><ul><li>If the lender forecloses  and the Association does not foreclose, then the Association can sue the delinquent owner and obtain a money judgment.  The Association would try to collect on the judgment and Swedelson & Gottlieb can assist the Association with such collection. </li></ul>
  14. 14. Frequently Asked Questions <ul><li>What does it mean if the lender/bank records a notice of default or notice of sale and the Association has recorded a lien? </li></ul><ul><li>If the lender/bank records a notice of default ahead of the Association’s notice of default or notice of sale, it can then conduct a foreclosure sale ahead of the Association and “wipe out” the association’s lien. This is called a senior wipe out. </li></ul><ul><li>Should the Association stop its collection efforts and wait for the senior sale? </li></ul><ul><li>If a sale is imminent (within 30 days), then the Association may consider postponing its sale to allow the senior to proceed. If the senior does not foreclose, then there is no reason why collection efforts should not continue. </li></ul>
  15. 15. Frequently Asked Questions <ul><li>Do you report to credit bureaus? </li></ul><ul><li>No. In order to report to a credit reporting agency, you must be a member. Most credit reporting agencies don't allow memberships for companies reporting only a few debts or payment accounts. In fact, typical requirements call for at least 500 debts or payment lines to be available for submission – before the national credit bureau will consider your business for membership. Furthermore, there is an annual fee and service charges associated with maintaining a membership account. </li></ul><ul><li>What if the Association has a judgment, but it has not collected the judgment or the homeowner continues to own the property and is delinquent? </li></ul><ul><li>The Association should recommence collections, including recording a new lien for delinquent assessments, interest, and late fees that have come due post-judgment. </li></ul>
  16. 16. Frequently Asked Questions <ul><li>What takes so long? </li></ul><ul><li>If no delays occur, the typical non-judicial foreclosure takes around four months AFTER the date the Notice of Default was recorded. Payment plans, senior monitoring, bankruptcy monitoring, homeowner disputes, and IDR/ADR disputes can cause the process to take longer. </li></ul>
  17. 17. IDR/ADR Requests <ul><li>Prior to recording a lien, the Association shall offer or if requested participate in dispute resolution pursuant to the Association’s meet and confer program. </li></ul><ul><li>Prior to the Association’s foreclosure sale , the Association shall offer or if requested participate in dispute resolution pursuant to the Association’s meet and confer program or alternative dispute resolution with a neutral 3rd party. </li></ul><ul><li>INTERNAL DISPUTE RESOLUTION </li></ul><ul><li>Either a Homeowner or the Association to a Dispute may invoke the following procedure: </li></ul><ul><li>The party may request the other party to “meet and confer” in an effort to resolve the dispute. The request must be in writing. An owner may refuse a request to meet and confer. The Association may not refuse a request to meet and confer. </li></ul><ul><li>The Association’s Board of Directors shall designate a member of the Board to meet and confer. The parties shall meet promptly at a mutually convenient time and place, explain their positions to each other, and confer in good faith in an effort to resolve the dispute. </li></ul><ul><li>A resolution of the dispute agreed to by the parties shall be memorialized in writing and signed by the parties, including the Board designee on behalf of the Association. The agreement reached binds the parties and is judicially enforceable if both of the following conditions are satisfied: (a) The agreement is not in conflict with law or the governing documents of the common interest development or Association; and (b) The agreement is either consistent with the authority granted by the Board of Directors to its designee or the agreement is ratified by the Board of Directors. </li></ul><ul><li>A member of the Association may not be charged a fee to participate in the process. </li></ul>
  18. 18. IDR/ADR Requests <ul><li>ALTERNATIVE DISPUTE RESOLUTION </li></ul><ul><li>Alternative dispute resolution requests are to be addressed pursuant to California Civil Code sec. 1369.510. </li></ul><ul><li>Costs are to be borne equally by the parties. </li></ul>
  19. 19. BANKRUPTCY <ul><li>What is Bankruptcy? </li></ul><ul><li>Bankruptcy is a proceeding in Federal court in which an insolvent debtor’s assets are liquidated and the debtor is relieved of further liability. There are 3 types of bankruptcies: Chapter 7, Chapter 11 and Chapter 13. </li></ul><ul><li>  Who is a Debtor? </li></ul><ul><li>A debtor is the entity (person, partnership or corporation) who is liable for debts and is the subject of a bankruptcy case. </li></ul><ul><li>  Who is a Creditor? </li></ul><ul><li>A creditor is the person or organization to whom the debtor owes money or to whom other legal obligations are due. </li></ul><ul><li>What is Dismissal? </li></ul><ul><li>Dismissal is the termination of the bankruptcy case without either the entry of discharge or a denial of discharge. If the bankruptcy is dismissed without discharge, it is as if the bankruptcy never occurred. </li></ul><ul><li>  What is Discharge? </li></ul><ul><li>Discharge is the legal elimination of debt through a bankruptcy. The debtor is no longer required to pay any debts that are discharged. </li></ul>
  20. 20. BANKRUPTCY <ul><li>Bankruptcy and the Automatic Stay </li></ul><ul><li>Once a delinquent owner (hereinafter the “Debtor”) files his/her/its bankruptcy petition, an automatic stay is imposed upon creditors that preclude the creditors from pursuing the Debtor and the Unit for the unpaid amounts (including pre-petition and post-petition assessments) owed while the bankruptcy is pending unless the creditor applies to the Court for relief from the automatic stay.  As an analogy, the automatic stay is like handcuffs on the creditors.  In order to remove the handcuffs (to pursue the Debtor while the bankruptcy matter is on-going), the creditor has to seek and obtain the permission of the Court (via a Motion for Relief from the Automatic Stay).  If the creditor’s request for relief is granted, then the Court removes the handcuffs on the creditor and the creditor can pursue the Debtor for the debt while the bankruptcy matter is still on-going.  </li></ul><ul><li>If the Creditor decides not to bring a Motion for Relief from the Automatic Stay, then the Creditor would have to wait until the bankruptcy case is closed and the stay lifted, at which time it can then file legal action against the Debtor to recover the delinquent post-petition assessments including late fees, interest, collection costs and attorneys’ fees, and/or record a lien and foreclose if the lender does not proceed to do so.  </li></ul>
  21. 21. BANKRUPTCY <ul><li>What can the debtor do if a creditor attempts to collect a discharged </li></ul><ul><li>debt after the case is concluded? </li></ul><ul><li>If a creditor attempts collection efforts on a discharged debt, the debtor can file a motion with the court, reporting the action and asking that the case be reopened to address the matter. The discharge constitutes a permanent statutory injunction prohibiting creditors from taking any action, including the filing of a lawsuit, designed to collect a discharged debt. A creditor can be sanctioned by the court for violating the discharge injunction. The normal sanction for violating the discharge injunction is civil contempt, which is often punishable by a fine. Accordingly, once you and/or the Association receive notice that an owner has declared bankruptcy, you should immediately cease all collection activities against the debtor and the unit, regardless of whether the Association has recorded a lien or not. If the Association was aware of the bankruptcy, it would be a violation of the automatic stay if the Association or its agents, including the property manager, were to send the debtor a bill for the pre-petition amounts due, for which the Association could be subject to sanctions by the bankruptcy court if a Motion for Sanctions were to be filed by the debtor or the Bankruptcy Trustee. </li></ul><ul><li>Additionally, once you and/or the Association receive notice that an owner has declared bankruptcy, you should split the accounts into pre-petition and post-petition accounts. The only thing the Association can possibly do after receipt of the bankruptcy notice and automatic stay is imposed is to send the delinquent owner a monthly payment coupon regarding the upcoming post-petition assessment due. Said “coupon” or invoice should not include any information regarding the pre-petition amounts due. </li></ul>
  22. 22. BANKRUPTCY <ul><li>If there is no lien for delinquent assessments at the time of the bankruptcy filing, a discharge in a Chapter 7 bankruptcy results in the debt for delinquent assessments levied prior to the bankruptcy filing being no longer legally collectable from the debtor. </li></ul><ul><li>  </li></ul><ul><li>If there is a lien for delinquent assessments at the time of the bankruptcy filing, then the lien survives the discharge and although the debt is no longer collectable against the debtor, the lien is enforceable against the property provided debtor has an ownership interest in the property. </li></ul>