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Fact sheet: SB 137 (Ducheny)

Fact sheet: SB 137 (Ducheny)
New law in California protects Association homeowners from foreclosure for delinquent Association debts

Many California homeowners have had their homes placed at risk after their homeowners’ associations initiate foreclosure to recover delinquent assessments for small dollar amounts. In some cases, homeowners lost their homes worth substantially more than the few hundred dollars that were outstanding in delinquent assessments.
The Governor recently signed into law SB 137 (Ducheny) to protect such homeowners living in common interest developments (CIDs), which are typically condominium developments or single family homes located within a single development, subject to the rules and regulations of a homeowners’ association.
SB 137 places limits on when homeowner associations can foreclose upon homeowners for delinquent assessments and provides additional protections for homeowners living in common interest developments. The new law revises and recasts the procedures for collecting delinquent assessments for certain homeowner association debts that arise on and after January 1, 2006. It does so by establishing a minimum threshold which must be met before a homeowner association can foreclose, either judicially or non-judicially, upon a homeowner’s property for delinquent assessments. Several of its provisions are the first of their kind in the United States.
SB 137 establishes two thresholds, only one of which must be met, for an association to use foreclosure as a collection tool:

  1. either the assessment debt is $1,800 or more, exclusive of assessment charges; or
  2. the debt is more than 12 months delinquent.

It is very important to note that these are alternative provisions. For example, a homeowner association would be permitted to initiate foreclosure for a debt of only $120.00 if that debt is more than 12 months delinquent.
When a homeowner association seeks to collect delinquent assessments that do not meet either of these thresholds for initiating foreclosure, the association may either:

  1. file a civil action in small claims court; or
  2. record a lien upon which it is prohibited from foreclosing until:

    a. the amount equals or exceeds $1,800, or
    b. the assessments are more than 12 months delinquent.

Once a threshold is met and the association initiates foreclosure, it can use foreclosure to recover the assessment debt plus all collection charges and fees.
When the debt meets the threshold requirements for initiating foreclosure, the bill permits foreclosure, but subject to specific conditions. Among the conditions:

  1. an association board of directors must make a formal decision to foreclose upon a lien;
  2. at an executive meeting of the board;
  3. by a majority vote;
  4. at least 30 days prior to any foreclosure auction to sell the property; and
  5. must record the results of the vote in the association’s minutes, as specified.

The new law protects association homeowners by requiring the following:

  1. an association must send all debt collection correspondence and legal notification to both a primary and secondary address, if the homeowner provides written notice of the secondary address to the association, and
  2. an association must record with the notice of delinquent assessments an itemized list of charges owed by the homeowner.

Under the new law, a homeowner can request a meeting with the board to resolve a dispute over the assessment debt. The board of directors of an association must respond to a homeowner’s written dispute of a debt within 15 days of the postmark of the request.
The association is prohibited from recording a lien or initiating a foreclosure without participating in those procedures if so requested by the homeowner. If it is determined through dispute resolution that an association has filed a lien in error, the association is required to reverse the lien and assume all costs.
SB 137 provides homeowners with a right to repurchase their foreclosed upon property from the purchaser who bought the property through foreclosure within 90 days of sale. The bill is silent on both the repurchase terms and procedures.
To view the full text of SB 137, click here.