Lender Approval
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LENDER APPROVAL OF AMENDMENTS

As provided in the Davis-Stirling Act, lender provisions in CC&Rs cannot be amended by an association if the amendments:

Would impair the security interest of a mortgagee of a mortgage or the beneficiary of a deed of trust without the approval of the percentage of the mortgagees and beneficiaries specified in the declaration, if the declaration requires the approval of a specified percentage of the mortgagees and beneficiaries. (Civ. Code §4275(e)(3).)

Difficult to Obtain. Obtaining mortgagee (lender) approval of CC&R amendments and restatements is extremely difficult because banks rarely respond to ballot issues. The courts addressed this problem in Fourth La Costa Condominium Owners Assn. v. Seith (2008) 159 Cal.App.4th 563.

Written Consent. The court ruled that if an association's CC&Rs require mortgagee approval in the form of "written consent" then the mortgagee's signature on a return receipt qualifies as a mortgagee's approval, provided the association includes a letter notifying the lender that failure to return the ballot will be deemed "consent" to the amendment.

As the [trial] court noted, the CC&Rs required an affirmative vote of owners, but only written consent by lenders. The court explained [t]his would tend to indicate that the CC&Rs, as originally drafted, contemplated a distinction between the forms of approval required from each group, with the approval from the latter group being more relaxed in form. The CC[&]Rs did not specify the method by which the consent may be obtained. [The Owners Association's] method of assuring receipt of the proposed changes by the lenders and thereafter providing them with 30 days within which to reject the changes is as good as any." We agree with the court's assessment. (Fourth La Costa v. Seith)
ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.

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