A basic mission of our social order, achieved only imperfectly, is to provide a remedy for every wrong. Thus is was that last year, the California Legislature acted to remedy a perceived “wrong” in the foreclosure of assessment liens in common interest developments. Lawmakers were convinced that too often, homeowners associations were utilizing nonjudicial foreclosure to enforce small dues delinquencies, against homeowners with substantial equity. Although the resulting “fix” contained a number of different concepts, the basic idea was that nonjudicial foreclosure should not be available until and unless the debt reached $1800, or 12 months, and that homeowners should have a redemption right following HOA foreclosures.

But if society tries to provide remedies for “wrongs”, what about when they provide a “right” without a remedy? Put another way, what if legislation gives citizens a right, but no means to effectuate that right? That is exactly the situation with the redemption right provided in last year’s SB 137.

The redemption right issue has something of a “square peg, round hole” quality to it. The 90-day right of redemption has always existed for judicial foreclosures, with quite defined procedures and the sheriff acting as the “levying officer”. But SB 137 grafted redemption onto nonjudicial foreclosures of HOA liens, without any of the procedural rules which exist in the judicial context. Who exactly is the “levying officer” in a nonjudicial foreclosure, and what rules apply? Or stated even more basically, if a homeowner wishes to exercise their redemption “right” under the new law, who do they tender the money to, and how much? Sometime in the near future, this situation is going to arise, and you cannot exactly make up the rules as you go along!

To address this issue and others, for 2006 UTA is sponsoring AB 2624 by Assembly Member Guy Houston (R-Livermore). Mr. Houston is a logical choice to carry the legislation, as he has extensive experience in the mortgage business and thus understands the basic issues in the bill. AB 2624 is likely to be assigned to either the Assembly Banking Committee, or the Judiciary Committee, with a first hearing in late April or early May.

Given the square peg, round hole problem, UTA Legislative Chair Ron Roup made a valiant effort to draft some clarifications on the redemption issue, basically making the trustee the levying officer. The initial draft is almost certain to undergo changes and amendments; among many other issues, the question will arise whether trustees should receive the same fees collected by sheriffs as levying officers. But there are other issues as well: for example, shouldn’t notices of sale in HOA nonjudicial foreclosure sales advise the public that they will not exactly be purchasing clear title to properties at trustee’s sales? Should something be recorded after the sale, other than a trustee’s deed, to indicate that title to the property is in a state of legal purgatory?

In light of the breadth of SB 137 last year, other issues and questions of interpretation are certain to arise. These may or may not be addressed legislatively. We are advised that counsel for homeowners groups are meeting and coming to conclusions, which will be addressed in future editions of this column, and elsewhere in UTA News.

Lest members think that UTA has become “all HOA, all the time”, rest assured that this is not the case. There are several proposals contained within AB 2624 that relate to trustees generally, including clarification of statutes of limitation under the doctrine of ancient mortgages, and treatment of cashiers checks from purchasers at sale. These issues were developed, as in the past, through the UTA “wish-list” process.

Finally, some 2000 new bills were introduced in the California Legislature prior to the February 24 bill introduction deadline. The bills are being read and evaluated now; if the past is any indication, several dozen are likely to relate to trustees in some fashion. These bills will be discussed in the next issue of UTA News.

For previous articles by Michael Belote, click here.