Associations are allowed to simultaneously file a lien on a property for delinquent assessments and sue for a money judgment. Once an association obtains a money judgment against a delinquent owner, any existing assessment lien on the property is automatically extinguished and must be replaced with a judgment lien if the association wants to preserve its rights. (Diamond Heights v. Financial Freedom.)
PROS: Collecting delinquent assessments via small claims court is inexpensive; they are easy to win; the owner may pay voluntarily or soon after judgment entered; judgment affects the credit rating of the owner; a judgment lien can attach to any and all real property owned by the judgment debtor; and fines can be included in the claim.
CONS: Winning does not equal collecting; the delinquent owner remains in possession of property and may accrue future delinquencies, ad infinitum; decisions may be somewhat arbitrary and there is no appeal; and a personal judgment is dischargeable in a Chapter 7 bankruptcy filing.
$5,000 Limitation for HOAs. Although owners can sue associations for claims up to $10,000 (Code Civ. Proc. § 116.221), associations are limited to $5,000. (Code Civ. Proc. § 116.220.) There are additional limitations on assessment collections that apply to foreclosures that do not apply to small claims actions.
An association that seeks to collect delinquent . . . assessments of an amount less than . . . $1,800 . . . may not collect that debt through judicial or nonjudicial foreclosure, but may . . . collect . . . that debt . . . in small claims court . . . (Civ. Code § 5720(b).)
In other words, the $1,800 limitation applies to foreclosures NOT small claims actions. The statute clarifies the point by stating that "The amount that may be recovered . . . for delinquent assessments may not exceed the jurisdictional limits of the small claims court." (Civ. Code § 5720(b)(1).)
$2,500 Twice Per Year. Associations cannot file more than two small claims actions per calendar year in which the amount demanded exceeds $2,500. (Code Civ. Proc. § 116.231(a).)
Represented by Agent. An association may be represented in small claims court “through an agent, a management company representative or bookkeeper who appears on behalf of that association.” (Code Civ. Proc. § 116.540(i).)
Procedure. See small claims collection procedures.
Appeal. A delinquent owner may appeal an adverse judgment but the association (as plaintiff) cannot. (Code Civ. Proc. § 116.710.) If the court rules against the association, its claim is wiped out. It cannot appeal and it cannot switch to a different means of collection per the single action rule. On the other hand, if the association obtains a judgment against the delinquent owner, he/she can appeal the decision into superior court. In superior court, both parties are allowed to be represented by an attorney. Even if the association prevails a second time, it cannot collect all of its attorneys' fees. Fees are limited to $150. (Code Civ. Proc. § 116.780(c).)
Collecting the Judgment. If the association receives a personal money judgment, the board can levy against the owner's bank account, sell personal property (vehicles, boats), garnish the owner's wages, levy any rental income he/she may have, and record a judgment lien against his/her real property.
ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.
