A significant case for community associations recently came out of the Court of Appeal. In Doskocz v. ALS Lien Services, the court addressed two previously undecided issues pertaining to the collection of delinquent assessments: (1) can the statutorily prescribed priority for applying partial assessment payments (i.e., first to the principal balance of the assessment itself and then to collection costs, attorney’s fees, late charges, and interest) be changed with the owner’s consent and (2) can a Notice of Default be recorded before the $1800/one-year threshold is met?
On the first issue, Civil Code section 5655(a), part of the Davis-Stirling Common Interest Development Act, requires that partial assessment payments be applied first to the principal balance of the assessments owed, and, only after the assessments owed are paid in full, can payments be applied to collection costs, attorney’s fees, late charges, and interest. There is an argument, as was made in Doskocz v. ALS, that an owner can waive this priority as part of the terms of an agreed payment plan, so that the partial payments would be applied first to the collection costs (or late charges or interest) before the assessment balance. This argument is based on the provision in Civil Code section 5665 that requires the association to provide the standards for payment plans, if any exist, when an owner requests a meeting to discuss a payment plan. As the argument goes, the waiver of the partial payment priority can be part of the payment plan standards permitted by section 5665. However, the court in Doskocz v. ALS put an end to that argument, holding that waivers of the payment priority are void (i.e., not valid or enforceable) because they are against the public policy behind the statutorily mandated priority of protecting owners against collection abuses.
As for the second issue (recording a Notice of Default), Civil Code section 5720, also part of Davis-Stirling, prohibits foreclosures before the delinquent assessment balance is at least $1,800 or more than one year old. The nagging question was whether recording a Notice of Default, before the $1,800 or one-year threshold was met, violated this prohibition. This question is important because the Notice of Sale (and, hence, the foreclosure sale) cannot be issued until at least 90 days after the Notice of Default is recorded, and having to wait for that threshold to be satisfied before recording the Notice of Default could result in substantial delay in holding the foreclosure sale. On the one hand, the Notice of Default is a prerequisite to the foreclosure sale and part of the foreclosure process; on the other hand, the foreclosure sale cannot proceed until the Notice of Sale is issued, and the Notice of Default by itself arguably does not effectuate the foreclosure. The court in Doskocz v. ALS answered the question, finding that the steps in the foreclosure process, including recording a Notice of Default, and not just the foreclosure sale itself, are included in the statutory prohibition, requiring that the $1,800 or one-year threshold be met before the Notice of Default is recorded.
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