AB 2624 - Further Clarification of the Assessment Collection Law As It Relates to Homeowner Associations

Feldsott & Lee
A Law Corporation

The California Legislature has once again decided to tweak the law as it relates to the collection of delinquent assessments by homeowner associations. As of January 1, 2007, Assembly Bill 2624 (hereinafter “AB 2624”) will become operative. Specifically, AB 2624 as it applies to common interest developments seeks to accomplish the following*:

1) Authorizes the trustee in an non-judicial foreclosure sale to receive as fees the cost of service of either a notice of default or the decision by the board of a common interest development to foreclose upon the separate interest of an owner, as specified.

2) Provides that the owner’s legal representative shall be the person whose name is shown as the owner of a separate interest in the association’s records, unless another person has been previously designated by the owner as his or her legal representative in writing and mailed to the association, as specified.

3) Requires that a notice of sale in connection with an association’s foreclosure of a separate interest in a common interest development to include a statement that the property is being sold subject to the right of redemption.

This article will address the major amendments to the Civil Code only as it relates to Common Interest Developments starting with the addition of the following provision to Civil Code §1367.1(g) [added language in bold]:

“The fees of a trustee may not exceed the amounts prescribed in Sections 2924c and 2924d, plus the cost of service of the following: (1) the notice of default pursuant to subdivision (j) of Section 1367.1. (2) The decision of the board to foreclose upon the separate interest of an owner as described in paragraph (3) of subdivision (c) of Section 1367.2.”

As noted above, this provision now allows the trustee to recover not only the specified fees as stated in §2924c and d, but also the cost of service of the notice of sale and/or the decision of the board to foreclose. It is important to note however that this amended section only applies to non-judicial foreclosures, which would typically be handled by a trustee.

The next amendment to the Civil Code by AB 2624 is to §1367.1(j), which adds the following language:

“The owner’s legal representative shall be the person whose name is shown as the owner of a separate interest in the association’s records, unless another person has been previously designated by the owner as his or her legal representative in writing and mailed to the association in a manner that indicates that the association has received it.”

Prior to this addition to §1367.1(j), there was no guidance to an association as to who was the legal representative of the owner. This ambiguity in the statute made service of the required documents (notice of default, notice of sale, etc.) more difficult. Now, that the person serving as the owner’s legal representative is clearly spelled out in this addition to §1367.1(j), service of the required documents will be easier for an association attempting to comply with the statute.

Next, AB 2624 amends Civil Code §1367.4(c)(3) by adding the following language (in bold):

“The board shall provide notice by personal service in accordance with the manner of service of summons in Article 3 (commencing with Section 415.10) of Chapter 4 of Title 5 of Part 2 of the Code of Civil Procedure to an owner of a separate interest who occupies the separate interest or to the owners legal representative, if the board votes to foreclose upon the separate interest. . .”

This addition to the Civil Code simply makes the service requirements consistent for the service of the notice of sale and for the service of notice to the owner/occupier of a separate interest of the board’s decision to foreclose upon that particular separate interest. What is unclear, however, is whether the alternative methods of service under Code of Civil Procedure §415.20 et seq. are equally available to the board should the board be unable to personally serve the owner. By way of example, some of the other methods for service of a summons and now according to this amendment the service of the board’s decision to foreclose include: leaving a copy at the owners usual place of business (Code of Civil Procedure §415.20); and/or leaving a copy at the usual mailing address and subsequently mailing the notice to the address where the notice was left (Code of Civil Procedure §415.20) among others listed in Chapter 4 of Title 5 of Part 2 of the Code of Civil Procedure (referenced in the statute).

Finally, the other significant amendment by AB 2624 is the addition of the following language to Civil Code §1367.4(c)(4):

“. . . In addition to the requirements of Section 2924f, a notice of sale in connection with an association’s foreclosure of a separate interest in a common interest development shall include a statement that the property is being sold subject to the right of redemption created in this paragraph.”

§2924f sets forth the requirements for a notice of sale. Now, pursuant to this addition to §1367.4(c)(4), the owner is specifically informed within the notice of sale that he or she has the right to redeem. It is unclear from the addition to this section whether the association must also include a statement that the right to redeem lasts for 90 days; however, an argument can be made that because the statute references “. . .the right of redemption created in this paragraph” an association would also be required to include the time frame for redemption in the notice of sale.

While the legislature has once again attempted to clear up certain ambiguities in the procedures for an association to proceed with a non-judicial foreclosure there still remain some unanswered questions, perhaps it is inevitable that further clarification will be needed in the future.

*Please note that AB 2624 also amends various other provisions in the Civil Code pertaining to mortgages, deeds of trust and notices of sale; however these amendments apply generally to the California law of mortgages and seek to accomplish the following:

1) The amended provisions make the performance of the functions and/or procedures necessary to carry out the duties regarding a sale of a separate interest in a common interest development privileged communications.

2) Authorizes a duly authorized agent to conduct the sale and act in the sale as the auctioneer for the trustee.

3) Revises and recasts the provisions under existing law to require certain information for judicial foreclosures and nonjudicial foreclosures on the certificate of sale.