• Land Use Attorney Capitola

CASE UPDATE: HOA Must Accept Partial Payments Toward Delinquent Assessments.

In Huntington Continental Townhouse Assoc., Inc. v. Miner, (2014) 230 Cal.App.4th 590, the court held that a homeowners’ association (HOA) must accept an owner’s partial payment toward a delinquent HOA assessment balance. In this case, the owner (Miner), stopped making monthly assessment payments and eventually incurred a balance of approximately $6,400.00 in assessments, penalties, fees and costs.  The HOA imposed a lien against the owner’s property, had the lien recorded, and then filed a lawsuit to foreclose on the lien.

After the case was filed, the owner requested an itemized statement and payment plan, and then mailed the HOA a check for $3,500.00, which the HOA returned, stating that it was unable to accept partial payments.  The trial court held that the HOA property foreclosed on the lien.

The main issue on appeal was whether the HOA was required to accept the $3,500.00 partial payment.  If it was, then the total outstanding assessment amount would have been less than $1,800.00, which is the minimum threshold amount for an HOA to file a foreclosure proceeding to collect delinquent regular or special assessments.  (The minimum amount is for the amount of the assessment only, and cannot include accelerated assessments, late charges, collection costs, attorney’s fees or interest).  (Civ. Code § 5720.)

The Davis-Stirling Act (aka the Homeowners Association Law, Civ. Code §§ 5650-5740), provides three remedies for collecting delinquent assessments in amounts less than $1,800.00:  The first is “a civil action in small claims court ….” (Civ. Code § 5720(b)(1).)  The second is “[b]y recording a lien on the owner’s separate interest upon which the association may not foreclose until the amount of the delinquent assessments secured by the lien, exclusive of any accelerated assessments, late charges, fees and costs of collection, attorney’s fees, or interest, equals or exceeds one thousand eight hundred dollars ($1,800) or the assessments secured by the lien are more than 12 months delinquent.”  (§ 5720(b)(2).)  The third is “[a]ny other manner provided by law, except for judicial or nonjudicial foreclosure.” (§ 5720(b)(3).)  (Note, however, that the limitation on foreclosure of assessment liens for amounts less than $1,800 does not apply to “[a]ssessments secured by a lien that are more than 12 months delinquent.”  (Civ.Code § 5720(c)(1).)

In holding that the Act required the HOA to accept a partial payment toward delinquent assessments, the court relied on Code section 5655(a), which provides that any payments made by the owner of a separate interest toward a debt described in section 5650(a) “shall” be applied first to assessments, then to fees and costs of collections, attorneys’ fees, late charges and interest, in that order.  The court also confirmed that an HOA must accept a partial payment even if it is made after an HOA has commenced measures to collect the delinquent assessment.  The Court explained the policy underlying these code sections as follows:

Requiring an association to accept a partial payment reducing the amount of delinquent assessments to less than $1,800 is consistent with this stated legislative policy of protecting owners from losing their home equity over small amounts of delinquent assessments. Permitting an association to reject a partial payment could lead to the very situation the Legislature sought to avoid: foreclosure and loss of the owner’s equity in the home when the owner is delinquent in paying assessments in an amount under $1,800.

The court rejected the HOA’s argument that partial payments are only permitted pursuant to a payment plan under Civil Code section 5665. The court also rejected the HOA’s argument that a disgruntled owner’s only remedy is to make full payment under protest (Civ. Code § 5658), explaining that those procedures only apply when an owner disputes the validity or amount of the charge or sum, which is different from just not paying it.

©2014 Miles J. Dolinger. This article is not intended to and does not constitute legal advice or a solicitation for the formation of an attorney-client relationship

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