Condo, Townhome Owners Cheer, Jeer Schwarzenegger Veto
by Broderick Perkins
When California Gov. Arnold Schwarzenegger closed out his first legislative season with fewer bill signings than any of the state's first-year governors in modern history, among the Vetoinator's 273 targets was a highly contentious bill critics say could have financially jeopardized California's 37,000 homeowner associations (HOAs) and their members -- 7 to 8 million homeowners who live in condos and townhomes. In California, the high cost of housing often makes an HOA-governed home much more affordable than others, but the legislation sheds light on one of the stark differences between living with an HOA and living without one. When it comes to HOA living, your home is not always your castle. Passed by the California Legislature in August, Assembly Bill (AB) 2598 was vetoed in late September. The new law would have forced homeowner associations to get a court order before foreclosing on a property because of unpaid association dues or assessments under $2,500. The legislation had bipartisan legislative support after it was triggered by foreclosure proceedings against a Calaveras County couple whose $285,000 home was auctioned off over $120 in disputed dues. Unique to homeowner associations in California and elsewhere, a tough debt-collection tool called a non-judicial foreclosure was used to take the home from the couple. Unavailable to lenders foreclosing on homes not governed by HOAs, the technique is available -- by law -- to thousands of private communities in California and elsewhere in the nation to collect overdue homeowner assessments. "Assessments are the lifeblood for associations, providing the funds to maintain association property. Inability to collect assessments thus threatens the financial viability of California community associations. Industry professionals and association members feared that such limits would lead to a landslide of association members who simply stopped paying assessments, leaving their nonpayments to be made up by residents who did pay regularly," said Oliver Burford, executive director of the Executive Council of Homeowners (ECHO), a San Jose, CA-based statewide non-profit educational organization for its 1,470 homeowners association members. As the bill made its way through the legislature this year, developers, already beleaguered by the high cost of insurance due to construction defect litigation often stemming from HOA-governed communities, expressed concern that they would not be able to sell units if new buyers could willingly avoid paying the dues needed to maintain the property. Lenders may have stopped loaning money to developers and homeowners associations because the legislation would have made their investments riskier. He praised the bill's intent and asked state agencies to reexamine the foreclosure practice for possible refinement, but agreed with the bill's opposition. "While the intent of this legislation is laudable and intended to protect homeowners from being foreclosed upon for small sums of delinquent assessments, this bill is overly broad and could negatively impact all homeowners living in common-interest developments," Schwarzenegger said in his veto statement. The American Homeowners Resource Center in San Juan Capistrano, CA, a consumer advocacy group for those who live in homes governed by HOAs lobbied for the legislation in a letter to the governor claiming lobbying against the legislation was "riddled with falsehoods and distortions," especially about the financial impact of the legislation. "First, 99.99 percent of homeowners are not deadbeats. They have gone through a rigorous credit check when they applied for a mortgage. The vast majority of homeowners pay their property taxes in full and on time, even though the state waits 5 years before initiating foreclosure," wrote Arnold A. McMahon with the resource center. He and others said foreclosure for relatively minor sums was overkill when most homeowners have financial difficulty from time to time and mortgage lenders see no need to foreclose for such small amounts. He also said the legislation would have permitted HOAs to seek Small Claims Court redress for sums under $2,500. He lost the argument. "Many community associations are already faced with difficult economic circumstances and decisions, including limited reserve funds for planned expenditures, tight budgets and rising assessments. The only major source of revenue the majority of community associations have is assessments collected from association members. Limiting or putting restrictions on the collection of lawfully imposed assessments and special assessments ... would undoubtedly involve additional expenses for community associations, which would only have exacerbated their financial situation and hurt those constituents the bill intended to protect," said Nathan Mitchell with Community Care Property Management, a Pleasanton, CA HOA management company managing 35 associations representing 3,000 homeowners in Northern California. | 
