Purchaser of Home Foreclosed by HOA Entitled to Recover Repair Costs from Redeeming Homeowner

In an effort to collect unpaid assessments, Associations have the power pursuant to California Civil Code Sections 1367(a) and 1367.1 to record a lien on the offending property and subsequently enforce that lien through foreclosure. After the foreclosure sale, California Code of Civil Procedure § 729.035 states that "the sale of a separate interest in a common interest development is subject to the right of redemption...if the sale arises from a foreclosure by the association of a common interest development..." This right of redemption allows the delinquent homeowner to redeem the foreclosed property from its purchaser by paying the requisite "redemption price" within 90 days. California Civ. Code § 1367.4.

 

The recently decided case of Barry v. OC Residential Properties, LLC (2011), holds that if such a homeowner wishes to exercise her right of redemption, the redemption price should include any repair costs paid by the purchaser that were "reasonably necessary for the preservation of the property."

In Barry, the Plaintiff redeeming homeowner challenged the redemption price because it included over $17,900 in expenses that the Defendant purchaser paid for maintenance and repair work on the unit after the foreclosure sale, an electric bill, and interest on the foreclosure sale price. In ultimately affirming the validity of the redemption price, the court in Barry relied on a declaration given by one of Defendant's project managers that concluded that the unit was "in need of repair and rehabilitation" and that the "repairs made were necessary to prevent further damage to the property."

Short Sales and Delinquent Assessments

ASKED - "What happens to an owner's delinquent assessments if the owner sells his property in a short sale?" 

 

ANSWERED - In an effort to avoid foreclosure, an owner may elect to sell his property in a "short sale" by selling the property for less than is owed on the mortgage. Because the lender will take a loss on the property, the lender 's approval is required before the sale can take place. 

Any outstanding liens on the property must be satisfied for the sale to proceed. Provided that the Association has liened property for the delinquent assessments, it stands in a strong position to recoup at least some money.

 

Though the Association is under no obligation to release its lien, it should realize the benefit of having a new, dues-paying owner in the property. The Association should negotiate with the parties involved by seeking contribution from the lender, buyer, and realtors in exchange for the Association waiving some of the late fees and interest that may have accrued on the outstanding assessment amount. This type of reasonable approach will (1) help the Association recover at least some money, (2) provide the Association with a dues-paying owner, and (3) help prevent the new owner from harboring resentment for the Association.

 

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Board Member Qualifications--Defining "Ownership" for a Trust Beneficiary

ASKED - "One of our incumbent Board Members was recently discovered to be the beneficiary of a trust that holds title to her home. The title was transferred by Grant Deed to the named Trustee many years ago. The Board Member asserts that she is an owner and thus eligible to serve as a Board Member. Is she correct?"

 

ANSWERED - Maybe. Associations are permitted to set reasonable requirements/qualifications in their Bylaws or CC&Rs for members to serve on the Board. Laguna Royale v. Darger (1981). These requirements typically include that any member wishing to serve on the Board have an ownership interest in a property located within the Association. We typically treat the trustees as the owners of the property due to their ability to control title. However, general principles of trust law in California view trust beneficiaries as holding "the equitable estate or beneficial interest in" property held in a trust and are "regarded as the real owner[s] of [that] property." Steinhart v. County of Los Angeles (2010).

 

The answer will ultimately depend on a number of factors including the nature of the restrictions/qualifications contained in your Association's Governing Documents and the type of trust involved. We recommend discussing the issue with your Association's legal counsel.

 

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