When a homeowner fails to pay their share of the association expenses, the board is duty-bound to pursue the unpleasant but necessary task of compelling the member to pay. The association has three options – small claims court, non-judicial foreclosure and judicial foreclosure. In each approach, collection costs are added to the debt.
Small Claims Court
In small claims court associations can sue for a limited amount – up to $5,000 twice each year and each additional claim is limited to $2,500 per claim, under Code of Civil Procedure Section 116.231(a). Small claims court is fast, filing fees are low, and attorneys are not allowed to represent parties in small claims court trials. Plaintiffs cannot appeal the outcome, while defendants can appeal, sending the case to a retrial before a Superior Court Judge, under Code of Civil Procedure 116.710.
Nonjudicial foreclosure involves a series of notices and waiting periods, after which the property is taken away from the owner without court supervision. The goal of non-judicial foreclosure is simply for the HOA to take ownership of the property if the member does not pay the arrearage. If the property does not have enough net value to cover the debt, HOAs may not after a nonjudicial foreclosure pursue the member for more money. If the member is already in foreclosure from a lender, foreclosure is not a helpful option for the association. Prior to completing a foreclosure sale to take the property, consult legal counsel to confirm foreclosure is in the HOA’s best interests, because sometimes it isn’t.
The foreclosure threat does not always compel owners to pay. Some have no fear because their property is so encumbered with other liens that it has no net value, while others simply do not understand that the association can take away their home. An example occurred in a notorious incident years ago involving the Radcliffs of Copperopolis, in Northern California, who lost their home by non-judicial foreclosure over a debt of $120. Anita Radcliff later commented “it didn’t occur to me that they could take away my property….” The nonjudicial foreclosure process must follow many technical requirements, and any error requires the process start over from the beginning, under Civil Code 5690. Homeowners wishing to dispute the debt and stop the nonjudicial foreclosure process normally sue the HOA, manager, and collection company, seeking a restraining order stopping the foreclosure process.
Judicial foreclosure involves a lawsuit seeking money damages and an order foreclosing upon the property. Such claims normally can be filed as a “limited jurisdiction” case (meaning seeking less than $25,000), reducing delay and cost. In the lawsuit, HOAs can elect not to seek an order of foreclosure, or money judgment, or both, depending on the circumstances. Homeowners wishing to dispute judicial foreclosure actions need not sue the HOA, manager and collection firm, but only need to respond to the lawsuit. Since the HOA attorney is involved in judicial foreclosure actions, perhaps the greatest drawback of judicial foreclosure is the cost, so monitor attorney assessment collection costs carefully, and make sure there is a reason for the expense.
One size does not fit all, in shoes and in the HOA world. Consider the various options, then choose what works best for the HOA and its circumstances.