QUESTION: If a delinquency is less than $1,800 and less than 12 months, can an HOA record a NOD? A board member stated we can record a notice of default 30 days after recording a lien. Isn't a notice of default the start of foreclosure?
ANSWER: There appears to be some disagreement in the industry as to when a foreclosure starts. A few argue that a “Notice of Default” (NOD) is only a preliminary notice and the foreclosure process does not begin until a "Notice of Sale" is sent. Most take a more conservative approach that the NOD actually starts the foreclosure process. They argue that the Davis-Stirling Act makes it clear that anything following the recording of a delinquent assessment lien initiates the foreclosure process. As provided for in Civil Code § 5720(b)(2), associations may collect debt:
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.
Since a Notice of Default follows the notice of lien, it starts the foreclosure process. NODs are mailed to delinquent owners by certified mail and recorded to let them (and the rest of the world) know that the owner is in default and the association has decided to sell the property.
Recommendation: Until the legislature or the courts sort out the issue, the safer approach is to wait until the $1,800 - 12 month threshold has been met before recording a Notice of Default. Boards should review the matter with the legal counsel when adopting a collection policy.
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