An Assessment Collection Case

by Stanley Feldsott 

This case involves Highland Greens Homeowners Association of Buena Park and was a suit brought by the Association against Maria A. Basave De Guillen. Although we currently only have a Westlaw citation (2019 WL 4034663), the case was decided by the Bankruptcy Court in our Ninth Circuit (Bk. No. 8:18-bk-10693-CB) on August 26, 2019.

Without becoming enmeshed in a discussion of the Bankruptcy Court’s interpretation of the Davis-Stirling Act and the Diamond case (217 Cal.App.4th 1172) and the distinctions with that case that can easily be made the following is Highland Greens Homeowners Association in a nutshell:

Highland Greens recorded a lien for delinquent assessments and as standard practice, after putting in the specific amount, the lien stated “plus all future occurring assessments”. The Bankruptcy Court had no problem with the specific amount that was set forth in the lien. What the Court said was that there is no continuing lien and so assessments accruing after the amount set forth in the lien had accrued were not covered by the lien, but were treated as an unsecured debt.

There is, of course, the issue to what extent a Federal Bankruptcy Court decision constitutes precedence when there is no state court decision dealing with the same issue. The fact that the Bankruptcy Court wants to treat the subsequently accruing assessments as not covered by the lien and the Association is unsecured is one thing. To say now that an Association, after recording a lien, must record a new lien every month (or periodically) would seem to make little sense, drive up the costs of collection ultimately paid for by the homeowner, delay collection proceedings, and play havoc on the Association’s ability to function. Each Association and its respective collection attorneys will have to make a decision on how to proceed with respect to “subsequently accruing assessments”.

There seems to be much panic and, in my opinion, misinformation concerning the Highland Greens Homeowners Association of Buena Park vs. Maria A. Basave De Guillen bankruptcy case (BK. No. 8:18-bk-10693-CB). The case admittedly does present some real problems for those who do assessment collection by way of private sale. There is no doubt that selling a home with the wrong amount via private sale can have serious financial consequences for the association. Indeed, in my opinion, this is just simply one more potential liability an association faces when electing to proceed by way of private sale.

In judicial foreclosure, it is a different story. The complaint filed by attorneys who do judicial foreclosure will usually include a claim for the money owed as a personal obligation, which has nothing to do with the lien. In that same case, there will be a foreclosure claim. If the amount set forth in the foreclosure claim is incorrect because it included subsequently accruing assessments, foreclosure is still granted, but for the lesser amount. The personal judgment is for the full amount.

Most Associations record a lien after 60 days. In the interim, the safest practice would be to go through the entire lien process again (Board resolution, notice of intent, lien) prior to commencement of any foreclosure proceedings. Alternatively, just continue current practice of judicial foreclosure and understand that until we get some legislation or a state court to deal with the issue in a reported decision, a state court may rule that part of your claim is unsecured. There will certainly be no surprise in how the Bankruptcy Court will rule. Associations may elect to proceed as in the past, understanding that if the case becomes contested, there may be an issue with the “subsequently accruing” assessments. Worst case scenario would be that the “subsequently accruing” assessments may simply support a personal judgment which you would immediately record and would act as a lien.

It is probably of little comfort to those doing private sales to know that a state court is not required to follow a decision of the federal bankruptcy court dealing with a state act. Yes, it might be persuasive authority should opposing counsel raise the issue in a judicial foreclosure action and the judge might reduce the amount of your foreclosure claim but that would not affect the personal claim pled in that same case with the personal claim remaining unaffected. In a private sale, there is no judge. It is a self-help remedy.

Our office will continue its present practice. One has to consider how many judicial foreclosure cases actually go to trial. Yes, a number of them certainly go by default, but in judicial foreclosure, unless the default is set aside, the case becomes res judicata (the matter has already been decided) and the right of rescission does not include the right to relitigate the amounts involved.

It would be nice to have some specific legislation providing that a recorded lien will also act to secure future accruing assessments. Until then, it is this writer’s opinion that as long as you are using judicial foreclosure, there is no need to undertake expensive, cumbersome and time consuming procedures. If, for some reason, you are going to use private sale as your main vehicle for assessment collection, you need to take a long hard look on how you will proceed.