California Court Says Lender that Delays Foreclosure for “Strategic” Reasons is Not Liable for Unpaid HOA Assessments

UNPUBLISHED California Appellate Court decision (September 15, 2017).

In this case, a homeowners association (“Association”) filed suit against lenders holding liens on a homeowner’s property seeking to recover unpaid assessments owed to Association by the homeowner. Association sought to impose liability on the lenders contending that they were “strategically” delaying foreclosing on the defaulting homeowner’s residence to allow the real estate market to recover without paying for the benefits that were being provided by Association for such things as insurance, maintenance, and utilities. By not paying for the assessments relating to the subject property and receiving the benefits, Association contended that the lenders were unjustly enriched.

In rejecting the Association’s claims against the lenders, the Court held that lenders are not “owners” that are responsible for the payment of Association’s assessments, and lenders are entitled to foreclose if and when they feel it is appropriate. The Court further held that the lenders were protected by the California lien priority statutes which would allow Association to foreclose its junior lien on the defaulting owner’s property without waiting for senior lienholders to foreclose on their liens.

Additionally, because Association’s Declaration authorized Association to sue the homeowner for unpaid assessments, Association had the right to sue the homeowner, or the homeowner’s estate since the homeowner had died, for the unpaid assessments without foreclosing on the owner’s interest in the subject property. In deciding not to seek collection of the unpaid assessments from either the owner’s estate, or through a foreclosure of its junior lien on the property, Association had made the same type of “strategic” decisions that it accused the bank of making.

See case decision: Palms__Sands_Owners_Ass’n_Inc._v._Bank_of_Am._N.A._(Cal._App._2017)1[4]