There are different statutes of limitations when it comes to collecting debt.
- If money is borrowed and a promise made orally to repay the debt, the statute of limitations is two years. (Code Civ. Proc. § 339.)
- If parties enter into a written agreement, the SOL is four years (Code Civ. Proc. § 337).
- When the obligation is the result of recorded restrictions, e.g., an obligation created by CC&Rs, the SOL is five years. (Code Civ. Proc. § 336(b), Pacific Hills HOA vs. Prun.)
Accordingly, an association has five years to initiate action to collect delinquent assessments. However, if a court views the obligation as a written contract, the statute of limitations is four years.
Start Date for SOL: When evaluating issues related to statutes of limitation, there are (at least) two important issues: (1) determining the time period after which an action is barred, and (2) determining when that time period starts running. Generally, the time period starts when there is an actionable wrong, such as a breach of contract or violation of the CC&Rs. However, in some cases the time period can run from a later date, especially in cases of "delayed discovery" or in the case of certain types of billed accounts ("account stated"). Boards should consult with an attorney to determine if an actionable wrong is too old to pursue.
Recommendation: Uncollected debt is harder to collect the older it gets. Plus, it burdens the membership (who must make up the difference in the budget) and it skews an association's financial statement. If it's bad debt, associations should write it off. If it's collectible, boards need to pick a collection method and pursue the debt in accordance with the association's collection policy. To fulfill their duties as directors, boards should be diligent in the collection of delinquent assessments.
ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.