Partial Payments of Assessment Delinquency OK

Since the assessment collection procedures were changed by the legislature in 2005, many have questioned whether associations were required to accept partial payments from delinquent members. Most associations and their law firms contended that unless the board and homeowner agreed upon a payment plan, the association could refuse anything less than full payment.

That question was resolved by the appellate court opinion in Huntington Continental Townhomes Association v. Miner, issued October 14, 2014.

In that case, homeowner Miner fell behind in his assessments and the association sued, asking for the court to foreclose upon the home. After the lawsuit was filed, Miner and the Association agreed on a payment plan. However, Miner defaulted on the payment plan, and later sent a $3,500 check to the association. The payment was about $2,100 short of the full balance, and the association refused the check and proceeded to obtain a judgment against Miner.

The appellate court ruled that the Davis-Stirling Act does not allow associations to refuse partial payments, and that if a homeowner pays enough to reduce the balance below $1,800 or one year (of principal), the association’s foreclosure activity must cease. The court pointed out the lien still remains in force, but that foreclosure activity on the lien must cease.

The court noted that even if a homeowner stops foreclosure in this fashion, the association has options – it can proceed with a small claims court action for the funds (small claims court cannot award foreclosure, only money), can pursue a money damages claim in Superior Court, or can wait until the principal balance again reaches one year or $1,800 delinquency and resume foreclosure.

The court’s opinion, interestingly, acknowledges that some delinquent owners may use this ruling to stall foreclosure by paying just enough to keep the principal balance below the threshold, but that “the Legislature engaged in a balancing process and chose to accept that risk in order to protect owners from foreclosure and the loss of equity in their homes..”

The upshot of the ruling is simple for California associations – if a delinquent homeowner offers money, take it. Credit it first to the principal balance (required under Civil Code Section 5655). Associations pursuing non-judicial foreclosure must stop that process if the resulting principal balance falls under the threshold. If an association is pursuing judicial foreclosure, the lawsuit can proceed but only for money damages, until the principal balance reaches the threshold.

Associations and delinquent members still should try their best to agree upon reasonable payment plans. Agreed payment plans cut off the hostility and the increasing cost of an ongoing collection process.

If a homeowner plays the partial payment game, trying to stave off foreclosure and to make the collection fees seem large compared to the principal balance, this tactic can be brought to the court’s attention to illustrate why the associations collection costs are reasonable.

Association boards owe it to their community to make sure everyone in the association pays their proper share of the community’s expenses. There is no reason to let this ruling deter that effort – ultimately the owner who plays games with delinquencies usually just increases their debt and problems.

Written by Kelly G. Richardson

Kelly G. Richardson Esq., CCAL, is a Fellow of the College of Community Association Lawyers and a Partner of Richardson | Ober | DeNichilo LLP, a California law firm known for community association advice. Submit questions to [email protected]. Past columns at www.hoahomefront.com. All rights reserved®.