If you are dealing with past due homeowner’s association fees and costs, bankruptcy may be able to help you reduce the amount that is required to be paid back to the homeowner’s association.
In bankruptcy, when the homeowner’s association has followed the procedural and notice requirements to record a Notice of Assessment lien then the amounts listed on the lien become secured debts against the homeowner’s property in bankruptcy. After recording the notice of assessment lien additional amounts of fees, costs and attorney’s fees continue to accumulate but may be unsecured if no additional notice of assessment lien is recorded. These additional unsecured amounts may be eliminated in a Chapter 7 or 13 bankruptcy.
Unrecorded Assessments and Costs are Personal Debts of the Owner
Condominium Associations are created in California by the Davis-Stirling Common Interest Development Act. Cal. Civ. Code §4000. The Davis-Stirling Common Interest Development Act does not give the association a lien against property once the declaration of covenants, restrictions and conditions of the association are recorded. California Civil Code Section §5650, makes any assessment and any late charges a “debt of the owner of the separate interest at the time the assessment or other sums are levied.” A condominium assessment becomes a debt of the owner when the assessment is levied by the condominium association. Diamond Heights Village Assn., Inc. v. Financial Freedom Senior Funding Corp. (2011) 196 Cal.App.4th 290, 301. A debt is a personal obligation of the owner until the association records a notice of delinquent assessment with the county recorder. Cal Civ Code §5675. Recording the notice of delinquent assessment creates a lien and gives the association a security interest in the lot or unit against which the assessment was imposed. The lien dates from the time the lien is properly recorded. Thaler v. Household Finance Corp. (2000) 80 Cal.App.4th 1093, 1100-1102 (95 Cal.Rptr.2d 779]. “California follows the ‘first in time, first in right’ system of lien priorities.” Condominium assessment liens follow this same system. There is no automatic lien created through the assessment payments that become due, since the Davis-Stirling Act specifies that it is a personal debt against the owner until the notice of delinquent assessment is recorded.
Notice and Procedural Requirements Under the Davis-Stirling Act Are Required to Create a Lien
The Davis-Stirling Act details the notice and filing requirements for creation of a lien. The Act does not authorize a continuing lien and further is contrary to the lien notice and procedural requirements found in the act. Under Section 5660 the act requires that the association first send the owner a detailed notice no less than thirty days before filing of a lien to collect past due assessments. The association must notify the owner of record of the following:
“description of the collection and lien enforcement procedures of the association,” (b) a “statement of the charges owed by the owner, including items on the statement which indicate the amount of any delinquent assessments,” (c) a “statement that the owner shall not be liable to pay…if it is determined the assessment was paid on time to the association,” (d) a statement the owner has a “right to request a meeting with the board,” (e) a statement that the owner has the “right to dispute the assessment debt by submitting a written request for dispute resolution to the association,” and (f) a statement that the owner has the “right to request alternative dispute resolution with a neutral third party….”
In addition, California Civil Code §5675 provides for the procedural requirements for placing an assessment lien through recording a notice of delinquent assessment:
(a) The amount of the assessment, plus any costs of collection, late charges, and interest assessed in accordance with subdivision (b) of Section 5650, shall be a lien on the owner’s separate interest in the common interest development from and after the time the association causes to be recorded with the county recorder of the county in which the separate interest is located, a notice of delinquent assessment, which shall state the amount of the assessment and other sums imposed in accordance with subdivision (b) of Section 5650, a legal description of the owner’s separate interest in the common interest development against which the assessment and other sums are levied, and the name of the record owner of the separate interest in the common interest development against which the lien is imposed.
The act also requires that the notice of delinquent assessment must be signed by a designated person, include an itemized statement of charges and a copy of the notice be mailed by certified mail to the record owner. Cal. Civ. Code § 5675(b)-(e). These notice requirements are to be strictly construed. Diamond, 217 Cal. App. 4th at 1189.
Several federal cases have addressed the procedural and notice requirements for the creation of a lien under the Davis-Stirling Act and have required strict compliance. In Guajardo, a bankruptcy court determined that language in a Notice of Delinquent Assessment purporting to create a lien on future unknown defaults was ineffective under the Davis-Stirling Act. In re Guajardo, 2016 WL 943613. The court noted that “future amounts” clause was inconsistent with the portion of the Davis-Stirling Act requiring unpaid amounts to be specifically set forth in the notice and in attached accounting. It further stated that “the general imposition of a “present” lien at the time of any by operation of the CCRs with respect to all future and potentially unknown assessments does not satisfy the notice and lien provisions of the Civil Code”.
In Warren the court followed the same reasoning when it sustained the Debtor’s objection to the secured amount. The court held that the claimant was entitled to a secured claim for only amounts stated in its notice of lien assessment, but not for secured assessments that came due and remained unpaid subsequent to its recordation. In re Warren, 2016 WL 1460844.
Federal cases addressing the issue have determined that the Davis-Stirling Act requires that the lien amounts be specifically set forth in the notice and have limited the lien amount to that found in the recorded notice.
If you have accumulated a large amount of fees and costs that the homeowner’s association has failed to a record a notice of assessment lien for, then bankruptcy can help you eliminate these amounts.