By now for most of us the “new normal” is simply the “normal” as we have all become involuntarily accustomed to living with COVID-19. While the health consequences of the Coronavirus are very much to the forefront, the inevitable economic impact has become increasingly prevalent. Many of the owners and occupants of the associations we all represent, manage, and govern are in financial dire straits and as tends to happen during economic hard times, one of the first bills to be moved to the bottom of a growing pile is the invoice for assessments from the homeowners association.
Recognizing that literally millions of its residents have lost income since the March 19th “Stay At Home” Order, the State of California imposed a moratorium on foreclosures and unlawful detainer (eviction) actions to provide temporary relief for people who could potentially be facing the prospect of losing their homes due to their inability to pay rent or the mortgage. AB 828-Temporary moratorium on foreclosures and unlawful detainer actions: coronavirus (COVID-19) is intended to codify that moratorium.
AB 828 would add Civil Code §2944.11 to the California Civil Code. As of the date of preparing this article, the bill has been amended by the author and re-referred to the Judiciary Committee. It is not current law as yet but based on the support the bill has received from State legislators, its passage appears to be a foregone conclusion. In essence, SB 828 will prohibit any “person,” defined to include “an association as defined in Section 4080” from:
(1) Causing or conducting the sale of real property pursuant to a power of sale.
(2) Submitting for recordation of a notice of default pursuant to Section 2924.
(3) Submitting for recordation, posting, or publication of a notice of sale pursuant to Section 2924f.
(4) Submitting for recordation a trustee’s deed upon sale pursuant to Section 2924h.
(5) Initiating or prosecuting an action to foreclose, including, but not limited to, actions pursuant to Section 725a of the Code of Civil Procedure.
(6) Enforcing a judgment by sale of real property pursuant to Section 680.010.
Those of you who are familiar with the foreclosure actions, either judicial or non-judicial, used by associations to pursue collection of delinquent assessments will realize that the foregoing prohibitions effectively neuter those actions. Assuming SB 828 passes and Civil Code §2944.11 takes effect, associations will be permitted to record a Delinquent Assessment Lien (“Lien”) against the separate interest of a delinquent homeowner but will be prohibited from taking the subsequent steps required to foreclose on that Lien.
While homeowner associations are not in the business of foreclosing on their members and taking title to their homes, the prospect of losing their home provides the leverage or incentive to compel delinquent homeowners to bring their account current. It is fair to say that recording a Lien against a delinquent homeowner’s home does not create the incentive to bring their account current that recording a Notice of Default and then a Notice of Sale does. The Lien secures the debt owed to the association and associations should absolutely record them but without the ability to foreclose on the Lien, that is all it will do.
Again, SB 828 is not the law yet, but all indications are that it is only a matter of time. We have been advising our clients since the onset of COVID-19 to plan for the inevitable economic consequences of the Coronavirus, and many associations are seeing steady increases in the number of delinquencies in their communities. If, but more likely when Civil Code §2944.11 takes effect, associations will be precluded from employing the legal remedies they have typically used to pursue delinquent assessments. As such, the total amount of delinquent assessments will increase while the total amount of recovered delinquent assessments will decrease.
The current draft of Civil Code §2944.11 provides that it will become “inoperative 91 days after the state or locally declared state of emergency ends” and that it will be repealed on January 1, 2022. This means that association could be precluded from prosecuting foreclosure actions for the next year and a half. Even then, assuming an association only has a Lien recorded against a delinquent homeowners separate interest, it will take another approximately 4-6 months to take the steps required to be in position to foreclose on that Lien and to create the incentive for the delinquent homeowner to bring his or her account current.
We strongly suggest that all associations plan and budget for the prospect of a significant decrease in the “cash flow” generated by assessments for at least the next two (2) years.