Accounts Receivable

COLLECTION OF DUES
AND OTHER RECEIVABLES

Section 1365 (d) of the California Civil Code mandates that Homeowner Associations give their membership a statement describing the association’s policy and procedures for collecting unpaid association dues and other receivables. These policies and procedures must be distributed annually to all homeowners not less than 60 days before the end of the fiscal year.

§ 1365 (d) A statement describing the Association’s policies and practices in enforcing lien rights or other legal remedies for default in payment of it’s assessments against its members shall be annually delivered to the members during the 60-day period immediately preceding the beginning of the association’s fiscal year.

COLLECTION PROCEDURE
(sample)
CONDO SWEET CONDO
HOMEOWNERS ASSOCIATION
COLLECTION PROCEDURE

IT IS VERY IMPORTANT THAT YOU MAKE THE SATEMENT
“THIS IS AN ATTEMPT TO COLLECT A DEBT.”
Association or agent will provide for collection of dues and special charges or assessments, fees, or other charges, and late payment penalties and other fines and other revenues from miscellaneous sources as specified by the Association. Collection procedures performed by Agent will be in conformity with Association collection policy and will include the following:

Monthly statements with return envelopes will be mailed out on or about the 20th day of each month for the following month. The statement will state the day the amounts are due. The statement will describe the amount of the dues for the current month, late fees, special assessments, fines, and any other amounts currently due.

When the assessment dues are not received by the 15th day of the month in which payment is due, a delinquent notice may be sent which could include a late penalty.

When payment of the delinquent assessment is not received by the 15th day of the following month, Agent will attempt to contact the Homeowner to affect payment. A delinquent notice may also be sent which shall include a description of all amounts due and late penalties to date.

Delinquent assessments of 15 days or more shall be reported monthly to the Board of Directors. The Board shall give direction to the agent pursuant to further action.

Unless instructed by the Board of Directors to the contrary, cost of collections shall be received from the respective Homeowner. The homeowner shall also pay extraordinary costs to association.

Legal action and costs shall be negotiated on an individual basis before initiating said action.

CALIFORNIA CIVIL CODE

§ 1366. Levy of Assessments-Purposes-Delinquency

(a) Except as provided in this section, the association shall levy regular and special assessments sufficient to perform its obligations under the governing documents and this title. However, annual increases in regular assessments for any fiscal year, as authorized by subdivision (b), shall not be imposed unless the board has complied with subdivision (a) of Section 1365 with respect to that fiscal year, or has obtained the approval of owners, constituting a quorum, casting a majority of the votes at a meeting or election of the association conducted in accordance with Chapter 5 (commencing with Section 75 1 0) of Part 3 of Division 2 of Title I of the Corporations Code and Section 7613 of the Corporations Code. For the purposes of this section, “quorum” means more than 50 percent of the owners of an association,

(b) Notwithstanding more restrictive limitations placed on the board by the governing documents, the board of directors may not impose a regular assessment that is more than 20 percent greater than the regular assessment for the association’s preceding fiscal year or impose special assessments which in the aggregate exceed 5 percent of the budgeted gross expenses of the association for that fiscal year without the approval of owners, constituting a quorum, casting a majority of the votes at a meeting or election of the association conducted in accordance with Chapter 5 (commencing with Section 75 1 0) of Part 3 of Division 2 of Title I of the Corporations Code and Section 7613 of the Corporations Code. For the purposes of this section, quorum means more than 50 percent of the owners of an association. This section does not limit assessment increases necessary for emergency situations. For purposes of this section, an emergency situation is any one of the following:

(1) An extraordinary expense required by an order of a court.

(2) An extraordinary expense necessary to repair or maintain the common interest development or any part of it for which the association is responsible where a threat to personal safety on the property is discovered.

(3) An extraordinary expense necessary to repair or maintain the common interest development or any part of it for which the association is responsible that could not have been reasonably foreseen by the board in preparing and distributing the pro forma operating budget under Section 1365. However, prior to the imposition or collection of an assessment under this subdivision, the board shall pass a resolution containing written findings as to the necessity of the extraordinary expense involved and why the expense was not or could not have been reasonably foreseen in the budgeting process, and the resolution shall be distributed to the members with the notice of assessment.

(4) An extraordinary expense in making the first payment of the earthquake insurance surcharge pursuant to Section 5003 of the Insurance Code.

(c) The association shall provide notice by first-class mail to the owners of the separate interests of any increase in the regular or special assessments of the association, not less than 30 nor more than 60 days prior to the increased assessment becoming due.

(d) Regular and special assessments levied pursuant to the governing documents are delinquent 15 days after they become due. If an assessment is delinquent the association may recover all of the following:
(1) Reasonable costs incurred in collecting the delinquent assessment, including reasonable attorney’s fees.
(2) A late charge not exceeding 10 percent of the delinquent assessment or ten dollars ($10), whichever is greater, unless the declaration specifies a late charge in a smaller amount, in which case any late charge imposed shall not exceed the amount specified in the declaration.
(3) Interest on all sums imposed in accordance with this section, including the delinquent assessment, reasonable costs of collection, and late charges, at an annual percentage rate not to exceed 12 percent interest, commencing 30 days after the assessment becomes due.

(e) Associations are hereby exempted from interest-rate limitations imposed by Article XV of the California Constitution, subject to the limitations of this section.

§ 1366.1. Excessive Fees Not Permissible

An association shall not impose or collect an assessment or fee that exceeds the amount necessary to defray the costs for which it is levied.

§ 1367. Assessment Is Debt of Owner-Lien against Interest

(a) A regular or special assessment and any late charges, reasonable costs of collection, and interest, as assessed in accordance with Section 1366, shall be a debt of the owner of the separate interest at the time the assessment or other sums are levied.

(b) The amount of the assessment, plus any costs of collection, late charges, and interest assessed in accordance with Section 1366, shall be a lien on the owner’s interest in the common interest development from and after the time the association causes to be recorded with the county recorder of the county in which the separate interest is located, a notice of delinquent assessment, which shall state the amount of the assessment and other sums imposed in accordance with Section 1366, a description of the owner’s interest in the common interest development against which the assessment and other sums are levied, the name of the record owner of the owner’s interest in the common interest development against which the lien is imposed, and, in order for the lien to be enforced by nonjudicial foreclosure as provided in subdivision (d) the name and address of the trustee authorized by the association to enforce the lien by sale. The notice of delinquent assessment shall be signed by the person designated in the declaration or by the association for that purpose, or if no one is designated, by the president of the association. Upon payment of the sums specified in the notice of delinquent assessment, the association shall cause to be recorded a further notice stating the satisfaction and release of the lien thereof.

(c) A lien created pursuant to subdivision (b) shall be prior to all other liens recorded subsequent to the notice of assessment, except that the declaration may provide for the subordination thereof to any other liens and encumbrances.

(d) A lien created pursuant to subdivision (b) may be enforced in any manner permitted by law, including sale by the court, sale by the trustee designated in the notice of delinquent assessment, or sale by a trustee substituted pursuant to Section 2934a. Any sale by the trustee shall be conducted in accordance with the provisions of Sections 2924, 2924b, and 2924c applicable to the exercise of powers of sale in mortgages and deeds of trust.

(e) Nothing in this section or in subdivision (a) of Section 726 of the Code of Civil Procedure prohibits actions against the owner of a separate interest to recover sums for which a lien is created pursuant to this section or prohibits an association from taking a deed in lieu of foreclosure.

(f) This section only applies to liens recorded on or after January 1, 1986.

NOTE:

If the homeowner does not agree with the assessment, within thirty (30) days from the date that the Notice of Delinquent Assessment is recorded, the homeowner Must . . .
a) State in writing that the amount is paid under protest by certified mail, and
b) PAY all charges demanded by the Association.

If the homeowner complies with the aforesaid, the Association shall inform the owner that the owner may resolve the dispute through alternative dispute resolution as set forth in Civil Code Section 1354 or civil action. This right may not be exercised more than two times in any single calender year and not more than three times within any five calender years.

Any payments made by the homeowner shall be applied in order as follows: to the principal owed, late charges, attorney fees, and collection coats.

COLLECTION PROCEEDINGS

A function of the Board of Directors is to collect the dues, assessments and other receivables of the association. The Board has a fiduciary responsibility to protect the assets of the association and the interests of the homeowners. The Board does not have the option nor the right to forgive the dues or other assessments owed the association by a homeowner.

1. Late Fees and Interest Charges

California Civil Code section 1367, Association’s CC&Rs and/or Bylaws allow the association to levy late fees when a homeowner fails to pay association dues or assessments on time. The amount of the late fee may vary depending on the respective association’s CC&Rs and/or Bylaws. A ten ($10.00) dollar late fee is common practice. The law also allows the association to levy a finance charge on the unpaid association dues. This is not commonly done though it is permitted. The interest charged may be determined by the Board of Directors but should be reasonable and not in violation of state law.

2. Liens

To assure that the interests of the association are protected, associations may file a lien against the unit of the owner in arrears. This lien, commonly known as a Default Lien, may be filed by the association without court action. This lien is only temporary and may be removed from the unit automatically in one year. A stronger and more permanent lien is a Judgement Lien. The court fills this lien when the association receives a judgement from the court. The association must file the proper forms with the court and pay the required fee. This fee will vary with each court but is generally a very small amount. This lien is good for ten (10) years.

3. Forbearance Agreement

In the process of collecting association dues or assessments from a cooperating homeowner, the board may decide to enter into a payment agreement with the homeowner rather than filing court or other action. This document, often referred to as a forbearance agreement, sets forth the conditions and provisions of the agreement.

CONDO SWEET CONDO

SAMPLE ONLY

HOMEOWNERS ASSOCIATION

FORBEARANCE AGREEMENT

We: ___________________________________, owners of record of unit # _______________ Ave. ______, California, do hereby acknowledge that we owe the “_______________ HOMEOWNERS ASSOCIATION” the amount of $________.00, for association dues, late fees, interest charges and foreclosure fees which are as of this date outstanding. We do herewith deposit with the Association a cashiers check in the amount of $_______.00 dollars towards this amount which shall result in a net balance of $_____.__.

I, (we) do hereby agree to pay off the balance, as indicated above, by making ______ (xx) equal monthly payments in the amount of $___.__. Said payments shall be paid in addition to the current monthly association dues, and shall be paid on or before the fifteenth (15) day of each month respectively until the account has been paid in full. The current monthly dues, as assessed by the Board of directors, for the homeowners association shall be paid monthly when due.

I (We) do hereby also agree to pay all current Association dues, late fees and interest, (and other costs which may subsequently accrue), on or before the fifteenth (15) day of each month, and to keep this account current in the future.

In the event legal action should be brought to compel payment, said owners do herewith agree to pay all legal fees, attorney’s fees and other costs incurred by the “_________________ Homeowners Association” in the collection or enforcement of this agreement.

I (We) do also herewith agree to fully exonerate, indemnify and save harmless “_________________ Homeowners Association” from and against all claims or actions and all expenses incidental to the defense of any such claims and actions based upon or arising out of or sustained in connection with the faithful performance of this agreement or by conditions created thereby and if requested by the association, to assume the defense of any such claims or actions.

WE DO ALSO ACKNOWLEDGE, THAT IN THE EVENT WE FAIL TO MEET ALL OF THE PROVISIONS AND CONDITIONS AS CONTAINED IN THIS AGREEMENT, AND AS PROVIDED IN THE CC&Rs AND BY-LAWS OF THE ASSOCIATION, THAT THE HOMEOWNERS ASSOCIATION WILL PROCEED WITH FURTHER LEGAL ACTION OR OTHER ACTION AS DEEMED APPROPRIATE BY THE BOARD OF DIRECTORS TO PROTECT THE INTERESTS OF SAID ASSOCIATION WHICH ACTION MAY INCLUDE SMALL CLAIMS COURT, JUDICIAL OR NON-JUDICIAL FORECLOSURE AND ETC.

Acknowledged this ___ day of ________, 200X.

_________________________________________________

Homeowner BOARD DIRECTORS

___________________________ __________________________________

Date:

4. Small Claims

Small Claims is becoming a more popular method of collecting outstanding dues and assessments from homeowners. The process is very inexpensive, does not require an attorney and with good account records and proper assessment procedures, judgement in favor of the association is almost guaranteed. When judgement is received, the association may proceed to collect the unpaid amounts by garnishment of wages, may file a judgement lien and proceed with other actions as provide by law.

5. Foreclosure: Judicial and Nonjudicial