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CAI GreAter Los AnGeLes ChApter • www.cai-glac.orgprioriTy oF assessmenTs Liens:a piTFaLL oF JUDiCiaL ForeCLosUres anD money JUDgmenTsby Wayne Pariser, Esq.If an association does not create a new lien after a judicialforeclosure or money judgment, it can lose its priority overother creditors. An assessment, special or regular, becomes adebt of the unit owner when the association levies it (CivilCode § 1367.1(a)). However, the association does not have asecurity interest in the unit until the association records aNotice of Delinquent Assessment with the County Recorder’soffice, after first providing the statutorily-required notice tothe owner. Recording the Notice of Delinquent Assessmentcreates a lien on the unit, enabling the association to forecloseon the unit if the unit owner’s account is not brought current(Civil Code § 1367.1(d) & (g)). The assessment lien is effectivewhen the Notice of Delinquent Assessment is recorded and issenior to (i.e., has priority over) all other creditors’ liens that arerecorded after the Notice of Delinquent Assessment, unless theCC&Rs contain a clause subordinating the association’s lien toany others (e.g., lenders/mortgagees) (Civil Code § 1367.1(f )).The inverse is that the association’s lien is junior to any liens recordedbefore the Notice of Delinquent Assessment. In otherwords, any previously recorded liens have priority over theassociation’s lien.An assessment lien may be enforced in any manner permittedby law (Civil Code § 1367.1(g)), which includes non-judicialforeclosure, judicial foreclosure, and lawsuits for a money judgment.Non-judicial foreclosure, the most commonly utilized, is asale of the unit by a trustee to satisfy payment of the assessment,without any legal proceedings in court. Judicial foreclosure isa legal proceeding by which a court renders a judgment for theamount owed and for sale of the unit to satisfy payment of thatamount. (An association might choose judicial foreclosure topreclude the owner’s right to demand binding arbitration to determineany dispute over the assessment (Civil Code §§ 1367.1(c)(1)(B) & 1367.4(c)(1)) or to obtain the money judgment if thevalue of the unit is not sufficient to cover the previously recordedliens and the association’s lien.) If the unit’s value is insufficientto cover the previously-recorded liens, the association canforego foreclosure, sue the owner for a money judgment only,and collect from the owner’s other assets.In a recent case, the California Court of Appeal considered theeffect of a judicial foreclosure judgment on the priority of theassociation’s lien over a later recorded lien of another creditor.continued on page 29www.FirstBankHOA.com* CDARS is a service mark of Promontory Interfinancial Network, LLC.FDIC Insured up to $50 million per Tax ID.28 •July/August 2011
CAI GreAter Los AnGeLes ChApter • www.cai-glac.orgprioriTy oF assessmenTs Liens: a piTFaLL oF JUDiCiaL ForeCLosUres anD money JUDgmenTscontinued from page 28In Diamond Heights Village Association, Inc. v. Financial FreedomSenior Funding Corp. ( June 7, 2011) 11 Cal. Daily Op. Serv.6930, 2011 Daily Journal D.A.R. 8297, the court ruled thatwhen an assessment lien is enforced through judicial action,the resulting judgment supersedes the assessment lien, andcollection requires enforcement of the judgment. Accordingto the Court, when a final judgment is entered, the lien itself isno longer enforceable because the judgment creates a new debtor liability, distinct from the lien and the assessment. In otherwords, the judgment extinguishes the association’s previousrights and remedies, substituting in their place only the rightsgranted by the judgment.establish the priority of its security interest in the unit. Afterthe association recorded its Notice of Delinquent Assessmentand won its judicial foreclosure judgment, the unit ownerobtained a reverse mortgage, giving a deed of trust (i.e., lien)to the lender. The court held that the deed of trust had priorityover the association’s rights because the judicial foreclosurejudgment replaced the previously-recorded assessment lien and,hence, does not relate back to the date of the assessment lien.The court intimated, but did not expressly state, that had theassociation created a judgment or execution lien, the new lienwould have related back to the date of the assessment lien, givingit priority over the deed of trust.To have a security interest in the unit after obtaining the judgment,the association must create a new judgment or executionlien on the unit. A judgment lien is created by recording anAbstract of Judgment (Code Civil Proc. §§ 674 & 697.310). Anexecution lien is created by levying execution of the judgmentto have the property sold and having the levying officer recorda Notice of Levy (Civil Code Proc. §§ 697.710 & 700.015(a)).In Diamond Heights Village Association, Inc. v. Financial FreedomSenior Funding Corp., the association did neither, relying onits previously-recorded Notice of Delinquent Assessment toWhenever an association obtains a judgment to collect an assessment,whether a judicial foreclosure judgment or a straightmoney judgment (even a small claims court judgment), it shouldimmediately have recorded the documents necessary to create anew lien on the unit (Abstract of Judgment and/or Notice ofLevy) to protect the priority of the association’s lien over theliens of other creditors.Wayne Pariser is a partner with Pariser & Pariser, LLP, a lawfirm that provides a wide range of legal services to communityassociations. He can be reached at wdp@pariserandpariser.com."Why see the generalist when you cansee the SPECIALIST ?"BEST SERVICEBEST PRICEVoted Best In our Class!• DECK COATINGS (MAINTENANCE AND REPAIR)• DECK RECONSTRUCTION (DRY ROT, STUCCO)• BELOW GRADE AND PLANTER WATERPROOFINGOVER 5 MILLION SQUAREFEET OF DECKCOATINGS ANDWATERPROOFINGINSTALLED, REPAIREDAND REHABILITATED.HOA APPROVED. WE DOIT ALL!Call: 888-388-WICR (9427) www.wicr.netJuly/August 2011 • 29
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