Today's challenges for homeowner associations are numerous. Collecting delinquent homeowner assessments probably ranks at the top of the list. Historically there has always been some percentage of homeowners that become delinquent. In most cases sending a delinquency letter will get most owners to become current. When a demand letter does not work, the association will file a Delinquent Assessment Lien to become a secured creditor. Since owners do not want to lose their home over past due assessments, they will pay when there is a threat of foreclosure.

If a homeowner is not paying their mortgage and their HOA assessments, the threat of foreclosure may not be enough leverage to get the homeowner to pay.

This is especially true if there is no equity in the property. If the owner is in default on his or her mortgage and HOA assessments, and there is no equity, the owner may be able to live "rent free" without paying monthly mortgage payments and HOA dues for a considerable period of time. The owner can save tens of thousands of dollars not paying anything until the property is foreclosed. The owner can do even better if he or she vacates and rents the property to gain income. With the percentage of rental units at 30% or greater in some developments the possibility that the owner has a tenant paying rent is likely.

Any judicial proceeding to collect past due assessments will take time to get a judgment. However, if the property is rented there is a way the HOA can get an assignment of rents without court action by serving a demand upon the renters to pay the HOA directly. (California Civil Code 2938 using Demand to Pay Rent)

In order for the HOA to use Civil Code 2938, the following is required:

1. The CC&Rs must have an assignment of rents clause;
2. A lien for the delinquent assessments should be recorded to secure the debt; and
3. A statutory Demand to Pay Rent to a Party Other than Landlord, pursuant to Section 2938 of the Civil Code is sent to tenant and owner.

It is important that the association follow each step of the process starting with the recording of the Notice of Delinquent Assessment (Lien). The recorded lien gives the association a "secured party" status and is therefore considered the "secured party" pursuant to the Lien and the "assignee" pursuant to the assignment of rents provision in the CC&Rs. The HOA or its representative/attorney must pay close attention to: 1) all the requirements of CC 2938; 2) the assignment of rents provision in the HOA's CC&Rs; 3) perfecting a Lien to become a "secured party"; and 4) ensuring that both the tenant and landlord/owner are notified when the assessments are brought current such that the assignment of rents should no longer be in effect.

It must be noted that, if the association enforces the assignment by way of a Demand to Pay Rent (without the appointment of a receiver) and the tenant complies, the delinquent landlord/owner may make written demand upon the association to pay the reasonable costs of protecting and preserving the property, including payment of taxes and insurance and compliance with Building and Safety codes, if any (CC Section 2938(g)). The HOA's obligation to protect the property by payment of taxes and insurance cannot exceed the amount that it actually receives pursuant to the assignment of rents.

The HOA should have policies and rules (in CC&Rs and otherwise) require approval of all rental arrangements and to have the owner submit a copy of the lease agreement that the landlord/owner has with their tenants. The HOA requirements for renters should be that the lease agreement generally incorporate the association's governing documents and that the tenant agrees to abide by same. From a practical standpoint, without the lease and tenant information the association will have no real way of knowing how much rent to expect in the event of an assignment of rents. Therefore, it is very important that the HOA be diligent about getting a copy of all lease agreements and tenant information. Without this a tenant could say "I'm just paying $250 in rent," when in actuality they are paying $2,250 in rent. In this situation if the HOA got $250 it would be missing $2,000 which the tenant is paying the landlord/owner.

HOAs need to be aware of all the legal tools available to collect on delinquent assessments. Using the assignment of rents provision, if contained in the CC&Rs, is a powerful tool to collect past-due assessments without the need for court action. There are specific procedures the HOA must follow to avoid possible threats of tort liability against the association by the landlord/owner such as interference with contract, etc. The landlord/owner may take legal action even if the assignment of rents is don properly; however, the association would have an appropriate defense to that action and would prevail with a court order for the assignment of rents pursuant to Civil Code Section 2938.

If your CC&Rs do not have an assignment of rents provision and lease disclosure requirements, you may want to consider amending your CC&Rs.