Enforcement of the assessment lien is accomplished by way of a non-judicial foreclosure. Non-judicial foreclosure is an approximately seven-month-long process with four distinct phases:
Phase One: The Notice of Default.
Recording a Notice of Default commences the non-judicial foreclosure. The Notice of Default announces that the homeowner owes a certain amount of money, including delinquent assessments, late charges, costs of collection and costs of foreclosure, to the association, and has ninety (90) days to pay the amount due.
Phase Two: The Notice of Sale.
If ninety (90) days passes after the Notice of Default is recorded and there is no payment by the homeowner, then the association can record the Notice of Sale. The Notice of Sale updates the amount owed by the delinquent homeowner, and announces that the homeowner must pay within twenty (20) days, or the property may be sold at public auction (i.e., the foreclosure sale).
Phase Three: The Foreclosure Sale.
If the homeowner does not pay the debt (or make arrangements to do so through a payment plan), a foreclosure sale will occur. The foreclosure sale is literally held on the courthouse steps, with the foreclosure trustee seeking bids for the property from the public. The association will have placed the opening bid by way of what is called a credit bid which is authorization to treat the amount owing at the time immediately preceding the sale as the association’s purchase price to zero the account. If there are no qualified bidders, the credit bid prevails and the creditor becomes the owner of the property.
Phase Four: The Redemption Period.
Under the Davis-Stirling Common Interest Development Act, Civil Code Section 1367.4(c)(4), a foreclosure sale pursuant to an assessment lien is subject to a ninety (90) day right of redemption by the homeowner. The foreclosure sale does not result in a clear transfer of title. For ninety (90) days, the homeowner may pay all delinquencies, etc., and costs of collection, including the costs of foreclosure, and obtain title. After ninety days has passed without payment, however, a Trustee’s Deed Upon Sale is issued, and the winning bidder at the sale (typically the association) is given title to the property.
As described elsewhere on this website, prior to initiating foreclosure by recording the Notice of Default, the association must serve the debtor with a notice stating that the board has voted to initiate foreclosure. If the association becomes the owner of the property, the association’s ownership is subject to the homeowner’s mortgage on the property. The association is not liable to pay off the mortgage, but the lender can initiate its own foreclosure and take title to the property (and the lender is not subject to the Davis-Stirling Act’s ninety-day right of redemption).
Click here for a non-judicial foreclosure flow chart, showing the events of a non-judicial foreclosure.