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Homeowner Groups' Power to Foreclose Is Under Attack

Lawmakers say boards have gone too far by seizing and selling units over minor disputes.

June 07, 2004|Daniel Yi | Times Staff Writer

Alarmed by a flurry of horror stories, state lawmakers are rushing to resolve a long-standing complaint about homeowners associations: the power that they have to seize properties without going to court.

By law, associations are entitled to foreclose on the homes of members who fail to pay their dues. Though most residents pay their bills before their houses are actually sold, thousands have lost their homes, sometimes over disputes involving a few hundred dollars.

"It's legalized extortion," said Marjorie Murray, a state advocate for senior citizens, many of whom live in condominiums and private communities run by associations. "Why should homeowners associations have such a power?"

Some homeowners association leaders say they need so-called nonjudiciary foreclosure powers, which allow them to take property without seeking a judge's approval, to keep neighborhoods looking tidy and to protect property values. Without such powers, associations would have little ability to require homeowners to pay assessments that cover the costs of such projects as new roofing in a condominium complex or landscaping services and street maintenance in a gated subdivision.

"Unless and until these debts are collected, the remaining homeowners must make up the difference, and that is unfair to them all," said Skip Daum, a lobbyist for the Community Associations Institute, a trade group whose members include homeowners association boards, community managers and lawyers.

But the Assembly and the Senate, responding to recent high-profile cases, are considering two bills this year that would limit homeowners associations' nonjudiciary foreclosure powers.

"One of the doctrines of our laws is that the penalty or remedy should fit the violation," said Assemblyman Darrell Steinberg (D-Sacramento), whose bill banning nonjudiciary foreclosure passed the Assembly at the end of May. "And taking someone's home obviously should be the last resort."

The controversy over nonjudiciary foreclosure stretches beyond California as legislators from Arizona and Texas, among others, have attempted -- with mixed results -- to limit the power of homeowners associations. Still, associations in many states can simply auction a property after deeming a bill overdue and filing notices with the county.

An estimated 8 million Californians -- about one-fourth of the state's population -- live in communities governed by homeowners associations. About 2,500 residential developments governed by associations are built in the state each year, the California Research Bureau says. And 40% of new single-family homes sold are in homeowners associations, the Public Policy Institute of California says.

As they grow in numbers, homeowners associations -- a form of private government whose elected board members enforce community rules and levy assessments -- have come under criticism, even ridicule, over seemingly trivial regulations, including what lawn ornaments residents are allowed to have or what color they can paint a front porch.

But the ability to take someone's home is such an extraordinary power that its use should be limited, even banned, critics of the practice say. Some associations are too quick to resort to foreclosures, sometimes over relatively small amounts, the critics say. And because the associations have little interest besides recovering the dues they are owed, homes are sometimes sold for pennies on the dollar, leading to huge losses for individual homeowners.

In Tom and Anita Radcliff's case, their association sold their home in less than a year over what began as a $120 bill.

Citing financial and health problems, the couple didn't pay the annual dues. Their Copperopolis, Calif., home, which was appraised at $277,432 and had a $30,000 lien on it, was auctioned for $70,000 in December.

The sale left the retired couple with about $68,000 after subtracting the unpaid assessment and collection fees -- and without their house.

"It just didn't occur to me that someone would foreclose over $120," said Anita Radcliff, 64. "It was outside the realm of my reality."

Mike Woodbury, an attorney for their homeowners association, Copper Cove at the Lake Tulloch Owners Assn., said the couple were given warnings and opportunities to avoid the sale. "It is the obligation of the homeowner to pay the assessments," he said.

The couple filed a lawsuit in March, alleging among other things that the foreclosure was an abuse of collection laws. They are being allowed to stay in the home until the lawsuit is resolved.

Melissa Colburn of Chula Vista, Calif., sued her homeowners association after it sold her $230,000 two-bedroom townhome for $5,150.

Colburn, an expert on hazardous materials, said she wasn't receiving her homeowners association bills because of a mail mix-up. She got an eviction notice in late 2002 from the man who bought her home, Carlos Sosa.

"I thought it was a joke," she said. "I almost threw the piece of paper away."

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