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Legal Ruling Strikes Blow to Homeowners Association

Ruling in the case that inspired the bestselling novel, "HOA Wire" holds that foreclosure sale after judicial foreclosure judgment is void due to failure to follow pre-foreclosure requirements of Davis-Stirling Act.


Santa Monica, California – WEBWIRE

Author and attorney Kenneth Eade announced today a court ruling invalidating a foreclosure sale in the case that inspired his bestselling novel, “HOA Wire.”
 
In California, the Davis-Stirling Common Interest Development Act, gives a homeowners association the authority to levy assessments, which become an involuntary lien against the homeowner’s interest when the HOA records a “Notice of Delinquent Assessment,” and gives the HOA the right to enforce that lien in any manner permitted by law, including foreclosure.  Thus, if the homeowner does not pay a delinquent assessment, his or her interest may be sold at either a judicial or non-judicial foreclosure sale, resulting in the possibility of the HOA becoming the owner of the unit and evicting the homeowner from their own home.

In the case of Pelegrino v. Marina Strand Colony #1 Homeowners Association, Los Angeles Superior Court Case No. SC122125, the Superior Court ruled in favor of the homeowner’s to invalidate a foreclosure sale that had taken place after the HOA received a judicial foreclosure decree in L.A. Superior Court Case No. SC112127, on the grounds that the HOA did not strictly comply with the pre-foreclosure requirements of the Davis-Stirling Act.  The court ruled that the foreclosure was improper because the HOA did not personally serve notice of its board’s decision to foreclose as required by section 5705(d) of the California Civil Code.

Prior to the case of Diamond v. Superior Court, 217 Cal. App. 4th 1172 (2013), decided by the Sixth District Court of Appeal on June 18, 2013, courts were refusing to overturn foreclosures if the HOA could demonstrate “substantial compliance” with the statute.  The Diamond case held that the notice requirements of former sections 1367.1 and 1367.4 must be strictly construed, “pursuant to the plain language of the statutes and their legislative history” and set aside the foreclosure sale in that case for the HOA’s failure to send the homeowner a copy of the recorded notice of delinquent assessment and failing to give the required pre-lien notice of a right to demand alternative dispute resolution.

In the Pelegrino case, the homeowners sued the HOA for declaratory relief after the HOA received a judicial foreclosure judgment.  The HOA in that case claimed that the statute did not specify when notice of the board’s decision to foreclose should be served, and that the notice could be served in any manner in which a summons could be served.  The HOA argued they could serve it any time before the foreclosure sale.  However, the reason for personal service in accordance with CCP section 415.10 is to give notice of a legal process in order to comply with the principles of due process.

The fourteenth amendment to the United States Constitution provides that “no state shall deprive any person of life, liberty or property without due process of law.”  The legislative history of the amendment creating section 1367.4, plainly requires the HOA board to provide notice of its decision to foreclose as a condition of foreclosure, which is a taking of property authorized by the state.  Notice is a concept of due process, and to require that notice to be given by personal service, as opposed to the other methods of service specified in the Code of Civil Procedure, the legislature plainly prescribed the highest form of notice.  The purpose of such service statutes is to assure that due process is satisfied.  See American Express Centurion Bank v. Zara, 199 Cal. App 4th 383 (2011).  Since the statute specifies personal service of the board’s decision as a precondition of foreclosure, that service must occur before the commencement of foreclosure proceedings, to allow the homeowner notice and the opportunity to defend against them.

The Pelegrino case was one of HOA cases which inspired Eade’s novel, “HOA Wire,” in which the president of an HOA is murdered and every resident is a suspect.  The novel is part of the Brent Marks Legal Thriller Series, and is available at: http://amzn.com/B00QPD8HF6.


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