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Court Again Reaffirms the Requirement to Strictly Comply with HOA Laws

Foreclosure, HOA Litigation, Litigation, and Real Estate Law by Simon Offord, Esq.

The recent case of Diamond v. Superior Court (Casa Del Valle Homeowners Association) has reaffirmed the importance of a Homeowners Association (“HOA”) strictly complying with statutory requirements, in this case to foreclose on a lien for delinquent assessments.

Owners in a Homeowners Association may not realize that their homes may be foreclosed upon if they fail to pay assessments.  However, California Civil Code Sections 1367.1 and 1367.4 expressly impose strict conditions that an HOA must satisfy before an assessment lien may be enforced by a judicial foreclosure.

In 2006, the Board of the Casa Del Valle Homeowners Association (the “Association”) decided to replace all roofs in the project.  Because the Association’s reserve funds were insufficient to cover the expense, the Board determined that a special assessment was needed to raise funds to pay for the roof replacement.  As you can guess, the Plaintiff, Arlyne Diamond, did not pay the $9,750.00 special assessment.

Thereafter, the Association’s attorney sent Diamond a pre-lien letter, recorded a lien against her property, and thereafter filed suit, seeking judicial foreclosure.  Diamond defended the suit, alleging that the Association failed to strictly comply with the pre-lien and lien requirements of the Civil Code.  The trial court held that the “substantial compliance” of the Association was sufficient to defeat Diamond’s allegations.  Diamond thereafter appealed.

The court of appeal held that substantial compliance was not sufficient, and the Association’s failure to strictly comply with the pre-lien and lien requirements prevented them from judicially foreclosing.  Specifically, the Association failed to meet the following Civil Code requirements:

  1. Mailing a copy of the recorded lien to the owner within 10 days of the recording
  2. Providing the owner with pre-foreclosure notice of her right to alternative dispute resolution
  3. Recording the Board’s executive session foreclosure approval in the minutes of the following open meeting, and
  4. Personally serving notice of the board of director’s intent to foreclose on the owner prior to commencing its foreclosure action.

The Association argued that (1) Diamond had actual knowledge of the lien, (2) was offered alternative dispute resolution at the pre-lien stage, (3) did not suffer any invasion of privacy because of the failure to record the foreclosure approval, and (4) served the intent to foreclose with the lawsuit, thus they had done enough to satisfy the Code requirements.

The appellate court expressly disagreed, pointing to the “shall” language in the Code and relying on the legislative intent to protect owners from abuse of the foreclosure process.  Further, the court clarified that the offer of alternative dispute resolution must be made both at the pre-lien state and pre-foreclosure stage.

Many of the laws related to HOAs contain mandatory requirements and demand strict compliance. As this case shows, the foreclosure process is no exception.  If you have any questions regarding your HOA, or real estate related legal questions generally, please contact us at (650) 327-2900 or on the web at www.brewerfirm.com.

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