The Communicator - Volume 1, Issue 2 - (Page 9)

OPTIONS FOR A NEW ASSESSMENT COLLECTION MODEL The current assessment collection system in essence positions the CID as a secured creditor. A secured creditor has some “hard asset” that it can take from the debtor and convert to cash to satisfy the unpaid debt. The non-judicial lien and foreclosure process was designed as a relatively straightforward method for the association to acquire a security interest in the owner’s unit and, as a last resort, convert that interest into cash to collect unpaid assessments. is $5,000 and less than $2,500 per case if more than two cases per year are required (CCP §116.231); 2. Uneven decisions by small claims court “ judges” (CCP 116.725 provides for a motion to correct a clerical error or erroneous legal basis error); 3. The time and costs associated with the process; 4. Even if you get the judgment, the collection process can be arduous, and; 5. You must be able to find and serve the debtor. This last requirement could prove the most daunting. Most HOAs do not If there is no equity in the unit, even if perfectly executed, the existing lien and foreclosure hammer no longer works for CIDs in many cases and they are suffering bad debt losses. These losses must be covered by the other owners or come from reserves, which in most cases are critically under-funded – not a good thing in either case. As stated above, this model assumes sufficient equity to satisfy the unpaid obligation. Since this model no longer works in many cases, the only options are processes used to collect unsecured debt and legislative action. The lowest cost unsecured creditor collection process for CIDs is Small Claims Court and the appropriate legislative action is for California to adopt the “Super Lien” plan in effect in at least 22 other states. Neither of these options represents a perfect solution to the problem, but clearly they have become significant tools to improve CIDs’ abilities to collect unpaid assessments. have the information about the debtor that they need to serve the debtor and to collect on judgments. Before granting credit most lenders gather significant information regarding the debtor. In this case a CID becomes an unsecured creditor the moment the owner is delinquent on their assessments. The typical information gathered is: 1. Social Security Number; 2. Driver’s License Number; 3. Bank account information (may be found-in EFT authorizations and check based payments); 4. Professional licenses (MD, Real Estate, CPA, Attorney, Insurance, etc.) 5. Employer contact information; 6. Next of kin contact information; 7. Credit reports. Up to now, the CIDs have generally not collected such information and the legal ability and process to do so must be fully vetted by our legal brethren. Several delicious questions that they need to answer are: 1. Can CIDs use their “reasonable rules and regulations” power to acquire such information and, if so, what do those rules and regulations look like? 2. Can CIDs, like cooperatives, veto a buyer due to bad credit? 3. Can CIDs require “security deposits” by owners to minimize their credit risk and, if so, how much is reasonable? 4. What are the risks to CIDs that gather and maintain owners’ sensitive credit information? Without these tools the CID’s ability to pursue the unsecured creditor is severely compromised. Moreover, if CIDs are to use this venue to collect delinquent assessments, they must have industrial strength accounting systems and providers. While the law (cited above) allows a small claims court representative to be “ an agent, a management company representative, or bookkeeper ” (Lawyers are not allowed to represent clients in small claims court), such representative may not be “ employed solely to represent the party in small claims court.” THE PRIORITY LIEN The Uniform Common Interest Ownership Act (1994) (UCIOA) §3-116 allows an HOA to collect up to six months of unpaid assessments from foreclosing lenders. Currently, at least 22 other states have adopted this element of the UCIOA. Up to now it has not been adopted in California. Space does not allow a fuller discussion of this option. However, it has been a useful tool in these other states and it is clearly time for the industry trade associations and legislative advocates to pursue this option. CONCLUSION Small Claims Court, a Priority Lien law, and lawsuits are powerful tools that must be deployed in the CID assessment collection process. In addition Bad Debt Collectors can be used for foreclosed-upon properties. Industry trade associations and related professionals must develop small claims court templates; pursue the priority lien option with the legislature; and move quickly and promptly on unpaid assessments. The Communicator • 9 SMALL CLAIMS COURT As part of the recent revision of the non-judicial foreclosure process (Civil Code §1367.4) the California legislature strengthened CIDs’ abilities to utilize the small claims court process (Code of Civil Procedure §116.540 (i) & (j)). Significant boundaries and issues with this process are: 1. Since a CID is not a “natural person” (CCP §116.221) its small claims limit

Table of Contents Feed for the Digital Edition of The Communicator - Volume 1, Issue 2

The Communicator - Volume 1, Issue 2 Contents President's Message The Hammer is Broken Top 10 Mistakes That Get Board Members Sued Dealing with Bankruptcy Ask the Experts – Are Your Contractors Licensed and Insured? 2008 Events & Education Calendar Welcome to CAI BayCen Directory Updates Index to Advertisers

The Communicator - Volume 1, Issue 2

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