Four Methods Of Response
Associations in California have four basic options in dealing with delinquent assessments: Inaction, small claims court, non-judicial foreclosure, or judicial foreclosure.
Inaction: The drawbacks of inaction are self-evident. Until the association pursues the debt, most often it will not be collected.
Small claims court: This method involves no attorneys, and is quick. However, the association can only pursue claims of $2,500 to $5,000 twice a year. Also, small claims court can be unpredictable, and the results are not appealable if the judge (often a volunteer) gives the plaintiff association a bad decision. On the other hand, the defendant debtor can appeal.
Non-judicial foreclosure: This method involves no attorneys. The association takes away the debtor’s property, without court supervision. The foreclosure process involves various notices to the owner and waiting periods, and concludes with the association owning the property. The Association cannot pursue any deficit if the property does not have enough equity to cover the debt.
Judicial foreclosure: This method involves filing a lawsuit. In this lawsuit, the association pursues both ownership of the property (judicial foreclosure) and an award of money damages.
Advantages Of Judicial Foreclosure
The advantages of the judicial foreclosure process are numerous and substantial:
1) In a declining or flat real estate market, the threat of foreclosure is less significant – many properties are “upside down” with no equity, so members have less reason to pay.
2) In the current economy and real estate market, the association often should not take over ownership, but with non-judicial foreclosure that is the only option. If the association decides not to take the property, the money spent pursuing non-judicial foreclosure is not well-spent.
3) Judicial foreclosure gives the association the additional option of pursuing money damages. If the property has no equity, a money judgment is still something the member must reckon with, and gives the member another reason to pay.
4) A money judgment is normally followed by recording an “Abstract of Judgment” in the debtor’s county of residence. The judgment is valid for ten years, and is renewable. The member who is unable to pay today may be able to pay as their circumstances improve.
5) Members often do not understand non-judicial foreclosure, but they know a lawsuit is a serious matter, and so are more likely to respond.
6) With judicial foreclosure by R|O|D, the member receives a claim not from a debt collection company, but from the HOA’s attorney – once again, making it more likely the member will recognize this as a serious matter.
7) Judicial foreclosures are not required by law to start completely over if a technical flaw is found in the notices, while non-judicial foreclosures must start completely over. A technical error with the lien has no bearing on the lawsuit for damages (Civil Code Section 5700(b).) In the meantime, any error in the lien is corrected and moves forward from that point, while the lawsuit claim for money damages continues to proceed.
8) An uncontested judicial foreclosure is just as fast as a non-judicial. The owner is in default 30 days after the suit is filed and served, and default judgment papers are filed with the court.
9) Should a lending institution foreclose on the property, wiping out an association’s lien, the association still has a money damages claim in process.
The Reluctance To Pursue Judicially
With such powerful reasons to pursue judicial foreclosure, why is this method not the primary method of choice by California’s 45,000 common interest developments? There are two reasons, and each is addressed by the R|O|D Collect program.
The first is the fear of unlimited attorney fees, and the second is the normal law firm practice of billing on an ongoing basis for services. The R|O|D Collect program mitigates the major concerns which inhibit associations from pursuing the most advantageous remedy.
1) We defer our fee to the end of the matter. When the homeowner pays or we obtain judgment, we then bill the association for our services. So, normally the association does not pay us, as our fees come from the delinquent member.
2) Our fees are principally based on fixed fees for each task, and are comparable to the cost of a non-judicial foreclosure. In the normal R|O|D Collect matter, the fees are predictable, because most of our tasks are “flat fee” based.
3) The normal cost to pursue a matter by R|O|D Collect ranges from approximately $345- 2,000.
What about those cases where the homeowner retains counsel and countersues? Does that prove the judicial approach is more expensive? No, because those members would have retained counsel to sue to attempt to stop the foreclosure anyway…and normally in that scenario they sue not only the association but the manager and the foreclosure company.
When attorney fees are deferred and can be kept controlled, judicial foreclosure is the clear choice.
The R|O|D Collect Program
The R|O|D Collect approach is judicial foreclosure, supervised by the lawyers at Richardson|Ober|DeNichilo, one of the state’s top common interest development law firms.
Once an association engages the R|O|D Collect program, its matters are assigned to a Collection Manager, who monitors the progress of a file from beginning to end, and who is the primary point of contact for questions which are not of a legal nature. Questions of a legal nature are handled by the Richardson|Ober|DeNichilo attorney advising your association.
The process begins most efficiently through use of RODcollect.com, a web site devoted to the management of your collection matters. Files may be quickly uploaded through the web site, and are immediately electronically forwarded to the correct Collection Manager supervising your association’s matters.
Once the matter is referred to Richardson|Ober|DeNichilo for handling, authorized persons in the association (often the manager and one or two directors) may at any time check the progress of any collection matter, and through a simple process retrieve a status report on each and every file open. Copies of any document created during the collection process are easily retrieved and printed. The effect is that the client essentially has 24/7 access to its file.
When a matter reaches the point of judgment or foreclosure motion, the association has the benefit of Richardson|Ober|DeNichilo attorney advice on the association’s options.
When the matter results in payment to the association, the funds are placed in the firm client trust account. No funds are disbursed until the client has in writing authorized the release of the association funds, as well as Richardson|Ober|DeNichilo fees. Of course, the late fees and interest are the association’s, not the law firms.
Promptness, efficiency, affordability, legal supervision by your association legal counsel – Try RODcollect.com – your association deserves better options.