Bankruptcy Case Spells Danger for Associations Seeking to Collect Delinquent
A new case out of the United States Bankruptcy Court, Northern District
of California, has held that an assessment lien is only valid for the
amount specifically reflected on the lien.
What does this mean? A lien is only good for current delinquent assessments
and not future assessments. The Association will either have to move as
quickly as possible to collect under the lien or record multiple liens
on the property every few months to protect its interests.
Neither option is great. The lapse of time from the date of recording the
lien to the date of foreclosure can be substantial. That could mean a
substantial sum of delinquent assessments that will go uncollected. Recording
a lien every three to five months, however, can be costly, and actions
to collect on such liens redundant, multiple, and inefficient use of the
How did the court get to such an awful conclusion that would leave associations
with such ridiculous options for lien enforcement? The answer is simple,
In this case,
Guajardo, the Association asserted it was owed a total current sum of $12,839.95
plus future assessments, late charges, costs, and fees accrued. The court, however, found the lien was only valid as to the $12,839.95 amount. It looked to the Civil Code which provided that the notice of default
must state the amounts owed as well as to the CC&Rs which provided,
“[e]ach lienable default shall constitute a separate basis for a lien.” The court found, “[f]uture defaults are separate and can be the
subject of additional and future [Notices of Default]s.” Therefore, separate liens for future debt would be required. More liens
means more money spent by the Association in seeking collection of delinquent
assessments, which ultimately may translate into increased assessments
paid by members in good standing to subside the increased costs incurred
to collect from delinquent members.
While some of the court’s reasoning rests on the language of the
Civil Code, the CC&Rs play an integral role in the ultimate outcome
of the case. Potentially, the court would have found differently if the
CC&Rs explicitly provided that all future unpaid assessments, late
charges, interest, costs and fees are subject to and a part of the already
liened amount, as the homeowner has a continued obligation to pay the
assessments and related fees, interest, and costs.
Fortunately this case is not published. Therefore, it is not authority
other courts must follow and adhere to.
However, why risk the chance other courts may come to the same conclusion
leaving your association in the lurch? Act now—review and amend
your CC&R’s as soon as possible to insure that your documents
don’t contain language similar to the one found in the CC&R’s in the
 In re
Guajardo (2016) 2016 WL 943613, *1 (unpublished).