Maria A. Basave de Guillen (“Debtor") filed a Chapter 13 bankruptcy on February 28, 2018. The Association filed a proof of claim in the amount of $64,137.20 on March 30, 2018, asserting that the amounts owed are secured by the assessment lien, and by an abstract of judgment. The Debtor filed an objection thereto on May 15, 2018. The Debtor's objection set forth many grounds, but ultimately only one was persuasive to the Court. The Bankruptcy Court ruled that the assessment lien secured only the amount originally stated therein ($1,395.00), but the abstract of judgment secures the amount of the judgment ($29,970.65). The remaining $34,166.55 is unsecured. The Debtor has not yet filed a motion to avoid the judgment lien.
Whether, in California, an assessment lien is a continuing lien, rather than a lien which is limited to the amount stated therein when the lien was originally recorded.
The Association (Appellant) asserts that liens are continuing liens. The Debtor asserts that liens are limited to the amount set forth therein when recorded.
The issue has been one that has been considered in two unpublished opinions: one by the Northern District of California District Court, and one by the Northern District of California Bankruptcy Court. In those cases, the courts held that liens are limited to the amount stated therein when recorded. Those decisions appear to be contrary to California law.
In 2005, the California Court of Appeal considered the issue. In Bear Creek Master Association v. Edwards (2005) 130 Cal.App.4th 1470, 1489, the court expressly held that associations are not required to record successive liens, and the lien is a continuing lien which secures all amounts authorized by statute and the governing documents. The court in that case held as follows:
"Condominium homeowners associations must assess fees on the individual owners in order to maintain the complexes." (Park Place Estates Homeowners Assn. v. Naber (1994) 29 Cal.App.4th 427, 431-432, 35 Cal.Rptr.2d 51, italics original.) Those fees are statutorily prescribed to be "a debt of the owner . . . at the time the assessment . . . [is] levied." (Civ.Code, § 1367, subd. (a).) "These statutory provisions reflect the Legislature's recognition of the importance of assessments to the proper functioning of condominiums in this state. Because homeowners associations would cease to exist without regular payment of assessment fees, the Legislature has created procedures for associations to quickly and efficiently seek relief against a nonpaying owner." (Park Place Estates Homeowners Assn. v. Naber, supra, 29 Cal.App.4th at p. 432, 35 Cal.Rptr.2d 51, italics added.)
Were the relevant provisions to be construed as Edwards suggests, the described statutory purpose of providing for a quick and efficient means of enforcing the CC & R's would be seriously undermined; each month, or at such other intervals as the assessments are charged under a given set of CC & R's, the association would be required to record successive liens. A successive recordation requirement would impose a heavy — and needless — burden upon homeowners' associations, fraught with risk to the association, and undue windfall to the delinquent homeowner, should any installment be overlooked. We are unwilling to construe Civil Code section 1367 to require such an oppressive burden. Both delinquent homeowners and the public at large are placed on notice, with the recordation of the initial assessment lien, that subsequent regularly and specially levied assessments, if they continue unpaid, will accrue in due course. The purpose of the lien notice and recordation will have been served, and the association's remedy justly preserved, by the initial recordation of lien. (Emphasis added.) *
* The foregoing case references former Civil Code §1367, which was amended in 2013 to be re-numbered as §§5660 – 5690.
California statutes also suggest that liens are continuing liens. Civil Code §5675(a) provides, in relevant part:
The amount of the assessment, plus any costs of collection, late charges, and interest assessed in accordance with subdivision (b) of Section 5650, shall be a lien on the owner's separate interest in the common interest development from and after the time the association causes to be recorded with the county recorder of the county in which the separate interest is located, a notice of delinquent assessment,… (Emphasis added.)
Civil Code §5650(b)(1) provides that associations may recover reasonable costs incurred in collecting the delinquent assessment, including reasonable attorneys' fees. Because most collection costs will be incurred after a lien is recorded, as a result of efforts to enforce the lien, the statutes must be interpreted such that the lien secures those costs.
Civil Code §5720 provides a limitation on the foreclosure of assessment liens. That section states, in relevant part:
(b) An association that seeks to collect delinquent regular or special assessments of an amount less than one thousand eight hundred dollars ($1,800), not including any accelerated assessments, late charges, fees and costs of collection, attorney's fees, or interest, may not collect that debt through judicial or nonjudicial foreclosure, but may attempt to collect or secure that debt in any of the following ways:
* * *
(2) By 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. (Emphasis added.)
Section 5720(b)(2) acknowledges that a lien may be recorded on one date, and that it will reach the statutory threshold for foreclosure at a later date.
Nevertheless, two Bankruptcy Court opinions have held that assessment liens are limited to the amount stated in the lien when it was recorded.
In In re Guajardo (2016 Bankr. LEXIS 769; 2016 WL 943613), the Bankruptcy Court held that because liens must include an “itemized statement of the charges owed by the owner, including items on the statement which indicate the amount of any delinquent assessments, the fees and reasonable costs of collection, reasonable attorney's fees, any late charges, and interest, if any." Cal. Civ.Code § 5660 (emphasis added). In turn, both repealed section 1367.1(d) and current Civil Code section 5675 limit the lien to that specified amount." That court expressly rejected the holding in Bear Creek v. Edwards, stating that “the lien provisions of the Bear Creek covenant, however, were much more specific as to future accruals than those in this case."
Similarly, in In re Warren (2016 U.S.Dist LEXIS 49917; 2016 WL 1460844), the Court rejected the argument that California statutes create a continuing lien, stating: “The Court disagrees. Section 5720(b)(2) simply provides an association with the option to wait to record the lien until delinquent assessments exceed $1,800. Alternatively, the association may record the lien and wait a year to foreclose thereon."
Court Ruling: United States Bankruptcy Appellate Panel of the Ninth Circuit Opinion
Brief Author: Nathan McGuire, Esq.
CAI Amicus Review Panel: Mr. Robert Diamond, Esq., Chair of Amicus Committee, Mr. Edmund Allcock, Esq. (MA), Mr. Gary Kessler, Esq. (CA), Mr. Thomas Moriarty, Esq. (MA)