CALIFORNIA COMMUNITY ASSOCIATION COLLECTIONS GUIDE

Yes, California has state laws pertaining to HOA and condo associations.

To better understand the laws for California HOAs, please refer to:

• Davis-Stirling Common Interest Development Act - §§4000 – 6150. Initially passed in 1985, Davis-Stirling has been frequently amended since and addresses nearly every aspect of an HOA’s existence and operation.

To better understand the laws for California Condos, please refer to:

• Davis-Stirling Common Interest Development Act - §§4285-4295, 4610, 4630. While most of the statute’s provisions apply to both condominiums and HOAs, Davis-Stirling includes several provisions specific to condos, including provisions relating to creating, recording, and amending condominium plans and limitations on the divisibility of condominium interests.

In general, Davis-Stirling governs the creation and planning of new common interest developments and the formation and operation of HOAs and other community associations. Among many other things, the law sets forth standards for board elections, association and board meetings, transfer of property interests, elections and voting within communities, budgeting and assessments, record keeping, inspection, and association reporting.

In addition to the Federal Fair Debt Collection Practices Act (FDCPA) statutes, California has its own laws regarding collections. Rosenthal Fair Debt Collection Practices Act applies FDCPA-like restrictions directly to creditors—rather than just to third-party debt collectors. Thus, a California homeowners’ association or condominium association seeking to collect assessments is potentially subject to statutory restrictions on debt collection under California state law, even if the FDCPA would not apply directly to the association.

Although HOA assessments usually qualify as “debts” and homeowners as “consumers,” an HOA attempting to collect assessments on its own behalf is generally not subject to the FDCPA. However, the FDCPA does apply when an HOA refers to delinquent assessments for collection by a law firm or collection agency. 

No, but that does not mean that a management company cannot be in violation of the collection statutes. Collections are heavily regulated and anybody who attempts to collect debts should know what they are doing.

An HOA can collect as much as is legally owed to them in fees, violations, special assessments, administrative costs, and legal fees - as outlined in the governing documents of the association.

California laws place no restrictions on what you can do with the money your association collects in past-due assessments. As long as the money is accounted for in the budget, aligns with the governing documents, and/or is approved by the board of directors it can be spent on any improvements or maintenance that is required by the association.

An association should always contact a delinquent owner to advise them regarding what is owed. Every owner is entitled to see their ledger and know how much they are owed. An owner may request their ledger at any time and an HOA should be willing and able to provide it to them. 

An association that publicly publicizes information about a homeowner's unpaid assessments potentially violates the federal Fair Debt Collections Practices Act which forbids disclosure of information to third parties relating to a debt (which includes HOA assessments).

Yes. Once a property has gone through probate and the court has decided who is the legal owner, all the past due fees are due and payable to the HOA unless the governing documents have a provision that says the debt rolls over to the association. Going forward, after probate has been settled, the new owner must pay their fair share.

It depends. Because California is not a super lien state, a bank foreclosure will take priority over a community association’s lien and does not require the lender to provide any compensation to the association for unpaid assessments. 

So, if both a mortgage-holder and a community association are foreclosing on a property, chances are often slim that the HOA will be able to collect. This is because there is often no money leftover for the HOA to collect on their debts once a bank has been paid using the sale funds. However, Axela clients are able to take advantage of a service that tracks bank foreclosures through to sale. Once the sale has concluded, Axela can petition on behalf of the association to have first access to any excess funds left over after the mortgage lender has collected.

Yes. Foreclosure should be the last desperate attempt to recover the association’s money. An HOA should consider a merit-based collection agency to recover its delinquent money before moving to put people out of their homes. Notices should be given to a delinquent before any action is taken.

What makes California different from most other states is the amount of notification needed to be given before an association can move forward with a lien/foreclosure or non Judicial sale. Liens and foreclosures cannot take place on fresh delinquencies. If payment is 90 days late, the lender can start the foreclosure process, the owner then has three months to catch up on late payments, and then the bank has to wait another 20 days before it can set a date for the auction. This process can take more than 200 days to complete.

The traditional way to collect is to have the management company send a few courtesy letters to a delinquent owner and then send the file to the attorney for foreclosure. California is a Judicial Foreclosure state and the process can be long and expensive.

The best way to handle collections for HOAs is to engage the owners and be armed with all the information you can acquire. Know the equity in the unit, read and understand the governing documents, find out where the owner is, and then begin to engage in the collection efforts. Once again, this is a very heavily regulated industry so this should be done by professional and licensed companies. Once you engage with an owner, you may be surprised to see that most of them will cooperate and come to the table. You just have to ask them and be willing to work with them.

Yes. The board of directors has a fiduciary duty to collect these assessments and if the individual is not in bankruptcy there is nothing legally stopping them from the collection of delinquent assessments.

4 years. The statute of limitations periods for HOA claims are different for every state. In California, mortgage debt has a statute of limitations of 4 years.

Yes. California does not differentiate between an in-state and out-of-state owner from a collections perspective.

Yes. In California, an HOA or Condo must be a properly registered corporation and up to date on all of their state and federal filings.

As stated in Civil Code §5650(b), regular and special assessments are delinquent 15 days after they become due (unless an association's governing documents provide a longer period of time). If an assessment is delinquent, associations may recover all of the following:

• A late charge not to exceed 10% of the delinquent assessment or $10.00, whichever is greater (unless the CC&Rs specify a smaller amount).
• Interest on delinquent assessments, reasonable fees and costs of collection, and reasonable attorney's fees, at an annual interest rate not to exceed 12%, commencing 30 days after the assessment becomes due unless the CC&Rs specify a lower interest rate, in which case the lesser rate applies.

If the file has not gone to the attorney it is advisable to contact the manager or treasurer of the association to get a copy of the delinquent ledger. Then review the ledger and if you can prove that you made payments that were not applied properly, advise the management company. If the file has been sent to a collection agency the law requires that the collection agency give the debtor 30 days to dispute the debt.