HOA Recall Elections – Must They Be Held Within 90 Days?

HOA Recall Elections – Must They Be Held Within 90 Days?

With the new round of changes to the Davis-Stirling Common Interest Development Act, we have received several questions regarding the impact to community association elections, including recall elections.  The Legislature has clarified that community associations will have additional time to schedule a recall election in response to a petition for special membership meeting.

SB 432 changes an association’s election procedures with regard to recall elections. It revises the Corporations Code and corrects a conflict created by SB 323 regarding recall elections. Previously, recall elections called by a signed petition of the members meant that the association must hold the special membership meeting no later than 90 days after the signed petition is received by the association. However, the new Civil Code Section 5115 added two (2) new election steps to the normal 30-day period before ballots could be counted. There now are three (3) separate phases of association board elections, each with its own minimum 30-day requirement. Those three (3) phases could not be completed in 90 days. This means that if the association includes – in the recall – the conditional election of replacement directors, the association could not timely conduct the election of replacement directors within the 90-day requirement. Thus, it would be impossible for the association to comply with the Corporations Code while at the same time complying with Civil Code 5115.

The Legislature has spoken with regard to this issue.  Effective January 1, 2022, with the enactment of SB 432, the statutory conflict is resolved by way of an amendment to Corporations Code Section 7511(c) to extend the time for associations to hold a petitioned membership meeting from 90 to 150 days of receipt of the petition. This will provide for sufficient time to call for nominations, announce candidates, and get out the ballots to ensure compliance with the timelines imposed by the new statutory scheme.

By:  Brian D. Moreno, Esq., CCAL

Brian D. Moreno Law Corporation is a full-service community association law firm serving associations throughout California.

Judgment Enforcement:  What can an association do to collect an old small claims judgment?

Judgment Enforcement: What can an association do to collect an old small claims judgment?

In a down economy and/or real estate market, a community association may be forced to pursue delinquent assessments by way of a small claims judgment, especially if the senior lender has foreclosed and extinguished the association’s assessment lien.  While initially, an association’s chances of recovery are low if the owner’s property has been foreclosed, an association may have several options available years later.  After all, a judgment will last for 10 years and may be renewed by the association (provided it is renewed prior to the 10-year expiration).  The Judgment – which accrues interest at 10% and may include post-judgment attorney fees and costs – may be enforced in at least the following ways:

  • Bank Levy.  The association may pursue a bank levy after a bank account is identified.
  • Wage Garnishment.  If the association is able to identify an employer, a wage garnishment may be pursued and executed directing the owner’s employer to deduct a portion of his or her wages.
  • Foreclosure.  A Judgment lien can be created and attach to all real property owned by the judgment debtor in the county in which an Abstract of Judgment is recorded.  Assuming sufficient equity exists, the association may pursue foreclosure of the judgment lien.
  • Rent Assignment.  If the owner is leasing the property, the association may request that the court issue a rent assignment order directing the tenant to pay rent to the association.
  • Till Tap.  If the owner has a business, the association could have the Sheriff collect     cash kept in the register or received from customers.

Indeed, California law provides several mechanisms by which the association can pursue other assets that may be owned.

Encroachment Disputes:  New considerations based on recent laws

Encroachment Disputes: New considerations based on recent laws

An encroachment is where an owner intentionally or unintentionally places an object (e.g., a fence) or structure on the property of another person.

Is Self-Help the Answer?

When evaluating an encroachment, the first consideration may be to simply remove the encroaching structure.  After all, the association has exclusive jurisdiction over the common area and, in most cases, the right to enter upon an owner’s property to correct CC&Rs violations.  Plus, removing the structure avoids having to file a lawsuit and is seemingly quicker.  In California, however, courts discourage using self-help to remove encroachments or reclaim land. Indeed, taking such action is fraught with risk and creates significant exposure to liability.  Thus, the association board should thoughtfully consider such risks before proceeding.  Along those lines, the association’s legal counsel should be consulted to evaluate the association’s ability to employ self-help and remove an encroaching structure without court intervention.

Associations Should Act Promptly In Seeking The Removal Of An Encroachment

Generally, if an association waits too long to resist an encroachment, the encroaching party may acquire a property interest to which he or she would not otherwise be entitled.  The association’s rights in this regard will depend on a number of different factors, including the nature of the encroachment, its location, and the type of encroaching structure.  Nonetheless, the association should act promptly in seeking to resolve the encroachment issue – waiting too long to act could result in the association having to forfeit certain legal rights and/or property interests.

Consider Offering A License Agreement As Part Of An After-The-Fact Architectural Review Process

Encroachment disputes can lead to litigation, which can be stressful and expensive for the community.  Obviously, the nature of the encroachment will dictate whether litigation is necessary.  If the encroaching structure is harmless, the association should consider offering a license agreement to the encroaching owner as part of an after-the-fact architectural application process, and the license agreement would be a condition to any architectural approval granted.  The license agreement would offer several benefits, including preserving the association’s rights; requiring immediate removal of the encroaching structure if a need arose; binding future owners of that property benefitted by the encroachment; holding the encroaching owner responsible for all damage caused by the structure; and, requiring owner to be responsible for the workmanship of the structure and any permits and/or governmental approval.

A license agreements can be an effective tool for a homeowners association seeking to resolve an encroachment.  The association board should consult with legal counsel regarding the license agreement concept and determine if the license agreement is well-advised.  If so, legal counsel should also be consulted to determine if the agreement needs to be approved by the membership.  In some cases, the board may not have authority to grant an owner exclusive use to a portion of the common area. Nonetheless, offering a license agreement can provide significant benefits and cost savings to the community, especially if it obviates the need to file a lawsuit.

Consider Implementing An Encroachment Policy

Proactively, associations should consider adopting an encroachment policy and/or amend the CC&Rs to address several issues.  First, the policy should set forth a notification procedure wherein the association identifies the encroachment and requests removal of the encroachment.  Second, upon receiving the initial notification, the owner has the option of complying or disputing the encroachment.  The response must be submitted within a certain amount of time (e.g., 30 days).  Failure to respond results in the acceptance of the association’s conclusions.

Third, if a dispute arises, the association would retain a surveyor to perform a survey of the boundary line.  The costs would be split based on whether the association’s initial determination is correct.  Fourth, if an encroachment is established and confirmed by the survey, the owner agrees to promptly remove the encroachment and restore the property.  Fifth, the policy should outline the enforcement options of the association should the owner fail to comply.  Finally, the policy would require any encroaching owner to waive all rights to the common area to which the owner would not otherwise be entitled under the CC&Rs.  

While the foregoing approaches are not necessarily the most aggressive, all offer significant benefits to an association that desires to seek peaceful compliance and avoid litigation.  Moreover, if implemented correctly, all approaches will likely strengthen an association’s position in seeking the removal of the encroachment if litigation cannot be avoided. 

What is an assignment of rents?

What is an assignment of rents?

With the collection of assessments, community associations are always looking for creative ways to increase the chance of recovery.  One underutilized remedy that may provide associations good results is an assignment of rents.  If an owner-landlord fails to pay HOA assessments but continues to collect rent payments from his or her tenant, the association should consider rent assignment.  There are prejudgment and post-judgment rent assignment remedies that can be pursued with regard to the delinquency.  A post-judgment rent assignment can be pursued by way of a request to the court after a Judgment is entered against the owner-landlord.

A prejudgment rent assignment can be pursued even before filing a lawsuit if executed properly.  In California, Civil Code Section 2938 regulates the formation and enforcement of the assignment of rents and profits generated by a lease agreement relating to real property.  It provides that “[a] written assignment of an interest in leases, rents, issues, or profits of real property made in connection with an obligation secured by real property. . .shall, upon execution and delivery by the assignor, be effective to create a present security interest in existing and future leases, rents, issues, or profits of that real property. . . .”   Once a written assignment of rents is properly authorized and formed, the law creates a security interest (i.e., lien) against the rents and profits paid by a tenant. 

The question then is whether the association’s CC&Rs, by itself, creates an assignment of the right to a tenant’s rent payment in favor of the association.  Indeed, section 2938(b) provides that the assignment of an interest in leases or rent of real property may be recorded in the same manner as any other conveyance of an interest in real property, whether the assignment is in a separate document or part of a mortgage or deed of trust.  Since a homeowners association’s CC&Rs is a recorded document and contains covenants, equitable servitudes, easements, and other property interests against the development, it follows that the assignment of rents relief provided in Section 2938(b) can be extended to community associations provided the CC&Rs contains an appropriate assignment of rents provision.

Section 2938, however, does not clarify whether the CC&Rs document on its own creates a lien and enforceable assignment right.  Moreover, a deed of trust is much different than a set of CC&Rs, in that the deed of trust creates a lien against the trustor’s property upon recordation, while a homeowners association would not have a lien until an owner becomes delinquent with his or her assessments and the association records an assessment lien against the property.  Therefore, depending on the scope of the assignment of rents provision in the CC&Rs, a homeowners association would likely need to record an assessment lien first before pursuing rents from a tenant.  Moreover, even after a lien is recorded, homeowners associations should consider adding a provision in the assessment lien giving notice to the delinquent owner that an assignment right is in effect upon recordation of the assessment lien.  Nevertheless, association Boards should consult with legal counsel to ensure proper compliance with the law.

Once the assignment right becomes enforceable, the next issue is how the Association can and should proceed.  Section 2938(c)(3) allows the association to serve a pre-lawsuit demand (a sample of which is included in the statute) on the tenant(s), demanding that the tenant(s) turn over all rent payments to the association.  This can be a powerful tool for homeowners associations.  Moreover, if the tenant complies, the association will receive substantial monthly payments that can be applied towards the assessment debt, and collecting the funds does not appear to preclude the association from pursuing judicial or non-judicial foreclosure proceedings at a later time.

While homeowner associations have the option of pursuing a lawsuit against the delinquent owner and seeking to collect the rent payments after a judgment has been obtained, there are obvious advantages to enforcing the assignment of rents provision prior to pursuing litigation.  A pre-lawsuit assignment of rents demand may prove to be more effective and cheaper.  Additionally, the tenant affected by the assignment of rents demand may place additional pressures on the delinquent owner/landlord having received such a demand.  Given this, the options available pursuant to Section 2938, including the pre-lawsuit demand for rents, should at least be considered and analyzed before action is taken.

Truly, the initial pre-lawsuit demand for rents may persuade the landlord-owner to resolve the delinquency with the association in the face of the potential disturbance of the landlord-tenant relationship.  Even if the tenant fails to comply with the demand and/or the owner fails to bring the account current, the association could nonetheless pursue foreclosure remedies and/or seek to have a receiver appointed to specifically enforce the assignment of rents provision.

In sum, if a delinquent homeowner is leasing the property to a tenant, the homeowners association should consider making a pre-lawsuit demand for rent payments.  If the association’s CC&Rs does not contain an assignment of rents provision, the board of directors should consider amending the CC&Rs to include an appropriate provision.  Without question, the pre-lawsuit demand for rents could provide an excellent opportunity for recovery of unpaid assessments during these difficult economic times.