AB 2502 (Brownley) Collection on HOA Assessments

Fact Sheet
PURPOSE The purpose of AB 2502 is to ensure that homeowner associations (HOAs) and their agents comply with existing state laws governing the collection of homeowner assessments. AB 2502 establishes that these laws cannot be voided through private contracts. Compliance with existing law ensures that assessments are collected fairly and that homeowners do not lose their homes to foreclosure through the unscrupulous and predatory business practices of HOAs or their agents, including but not limited to debt collection companies. BACKGROUND About one in five California homeowners lives in common interest developments governed by HOAs, which levy assessments on homeowners to maintain commonly owned areas and to offer other services. HOAs routinely hire property managers, law firms, and debt collectors to collect homeowner accounts alleged to be delinquent. The typical contract between the debt collector and HOA severs communication between the HOA and the homeowner, even though existing law affirms that the homeowner can negotiate a payment plan with the board. The typical debt collector contract, however, provides that if the association board negotiates with the homeowner, the HOA must pay all the collection costs levied on the homeowner account. After taking over the account, many HOA debt collectors try to coerce homeowners into their own payment plans demanding that they waive their statutory consumer protections under Davis-Stirling. The plans demand specifically the waiver of Civil Code 1367(a) requiring that homeowner payments be applied first to principal; only after assessments are paid in full, are payments to be applied to debt collector profits, i.e. interest, late fees and collection costs. Noncompliance with this existing law means the unpaid assessment principal continues to grow. Waiver of this right makes it much harder for homeowners to pay off the debt that puts them at risk of foreclosure. Under current law, once the unpaid principal reaches $1,800, the debt collector can record a Notice of Default and foreclose on the home. This collection practice is causing many disabled, senior, and minority Californians to lose their homes. AB 2502 closes loopholes, clarifies existing law and adds important protections for homeowners who are at risk of losing their homes due to the predatory business practices of some debt collection agents hired by HOAs SUMMARY The Davis-Stirling Act governing homeowner associations provides certain consumer protections for individual homeowners when the association is collecting assessments. AB 2502 clarifies existing law and adds protections for homeowners and for HOAs.

Office of Assemblymember Julia Brownley AB 2502 - Fact Sheet Contact: Wendy Notsinneh (916) 319-2041 Page 1

Specifically, the bill: Clarifies that laws governing assessment collection apply not only to homeowner associations but to any agents, representatives, debt collectors or any subcontractor engaged in HOA assessment collection. These laws include Civil Code 1367(a) governing the application of payments first to paying down principal and only second to paying down debt collector profits and collection costs. Prohibits any third party from seeking a waiver from the principal first application and deems any contract void and unenforceable should the contract or payment plan require such a waiver. Requires the third party to collect payments on unpaid assessments according to the payment plan between the association board and the homeowner. Requires the HOA board to negotiate all payment plans on unpaid assessments without interference from the debt collector. Allows a payment plan to be arranged and approved in an open board meeting rather than in closed, executive session at the request of the homeowner. Clarifies that the associations agent or a third party must provide payment receipts to the homeowner upon request. Clarifies that the homeowner may make partial payments to pay down debt during difficult financial times as determined by the HOA board of directors. Increases the delinquency trigger from $1,800 to $3,600 and extends the timeperiod from 12 months to 18 months before an association can record the Notice of Default and/or foreclose on a homeowners property. Clarifies that assessment collection must comply with the HOAs own

collections policy adopted annually by the HOA board and distributed to homeowners. The policy must identify all third party collection agencies under contract to the board. EXISTING LAW The Davis-Stirling Act provides protections to homeowners who are delinquent in their assessments by requiring payments to be first applied to the principal owed. Only after the principal is paid in full, can payments be applied to interest, fees or collection expenses. Current law specifically: Allows the HOA board, to assess fees for management of common interest developments. Allows assessments to become delinquent 15 days after they are due unless the governing documents provide for a longer time. Allows the HOA board, in closed executive session, to make payment arrangements with homeowners on unpaid balances. Requires any payments toward an assessment debt to be applied first to the principal owed; only after the principal owed is paid in full shall payments be applied to interest or collection expenses. Requires that when an owner makes a payment on an assessment, the owner may request a receipt and the association is required to provide it. Allows an association, once the principal is collected, to recover reasonable costs incurred in collecting delinquent assessments; a late charge not exceeding 10 percent of the delinquent assessment or $10, whichever is greater; interest on all sums imposed at an annual interest rate not to exceed 12 percent.

Office of Assemblymember Julia Brownley AB 2502 - Fact Sheet Contact: Wendy Notsinneh (916) 319-2041 Page 2

Allows an association to record a lien and/or to foreclose on a members property to satisfy the lien if delinquent assessments and dues exceed $1,800 or are delinquent for more than 12 months. SPONSORS

Center for California Homeowner Association Law (CCHAL) California Alliance for Retired Americans (CARA) SUPPORT Center for California Homeowner Association Law (CCHAL) California Alliance for Retired Americans (CARA) Gray Panthers Older Womens League (OWL) Public Interest Law Project (PILP)

OPPOSITION

Version:

Office of Assemblymember Julia Brownley AB 2502 - Fact Sheet Contact: Wendy Notsinneh (916) 319-2041 Page 3