Owners (9th Cir. 2018) 895 F.3d 633 which found that unsecured delinquent assessments, whether pre-petition or post-petition, are dischargeable under 11 USC section 1328 (a). If the debts are unsecured, the association may lose its right to collect the delinquent assessments from a homeowner once a bankruptcy case is filed.
It is unclear how California Courts will respond following de Guillen. Te 9th
Circuit opinion is not binding on
state courts and, to date, no California case has relied upon its reasoning. Furthermore, as noted in de Guillen, there is a published California Appellate decision which held that Davis-Stirling authorized continuing liens. (See Bear Creek Master Assn. v. Edwards (2005) 130
Cal.App.4th 1470.) However, the Bear Creek opinion also relied upon the language of the CC&Rs which expressly stated that “any demand or claim of lien or lien on account of prior delinquencies shall be deemed to include subsequent delinquencies and amounts due on account thereof.” (Id. at p. 1488.) If an association’s CC&Rs do not permit
continuing liens, a California Court following the reasoning of de Guillen may find the subsequently accruing assessments to be unsecured.
Although both de Guillen and Bear Creek note the burden imposed by filing successive liens, either the legislature or California Supreme Court will need to resolve the conflict in the law. At a minimum, associations are on notice that bankruptcy courts will find unnoticed and subsequently accrued delinquent assessments unsecured. Until the conflict is resolved, associations should consult with their general counsel, property managers, and trustee services to ensure that delinquent assessments can be properly secured and recovered.
JOHN F. BAUMGARDNER is an attorney with Chapman & Intrieri, LLP in their Roseville, California office. His practice
focuses on representing Homeowners Associations in construction defect disputes, judicial collections, general counsel matters, general civil litigation, and revision of governing documents.
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