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Court of Appeals Takes Stand on Partial Payments

Posted on October 16, 2014<

In an opinion filed on October 14, 2014 and certified for publication, the California Court of Appeal has held that a homeowners association must accept a partial payment made by an owner of a separate interest in a common interest development and must apply that payment in the order prescribed by statute (i.e., to assessments first). The Court further held that the association's obligation to accept partial payments continues after a lien has been recorded against an owner's separate interest, and the association's ability to pursue foreclosure of its lien depends upon the amount and the age of the assessments following application of the partial payments. (See opinion filed in Huntington Continental Townhouse Association, Inc. v. Miner (2014) Case No. G049624.)

In making its ruling, the Appellate Court relied largely on Civil Code §5655(a) in the Davis-Stirling Common Interest Development Act, which states that: "Any payments made by the owner of a separate interest toward a debt described in subdivision (a) of Section 5650 shall first be applied to the assessments owed, and, only after the assessments owed are paid in full shall the payments be applied to the fees and costs of collection, attorney's fees, late charges, or interest." The Appellate Court held that the above provision both permits an owner to make a partial payment at his or her whim and requires the association to accept the partial payment and credit it to the owner's account.

The Court further stated its opinion that the Legislature intended for section 5655(a), requiring an association to accept partial payments, and section 5720(b), limiting foreclosure, to apply both to judicial and nonjudicial foreclosure and to prevail to the extent of any conflict with Civil Code section 2924c, subdivision (a)(1) (which governs foreclosure pursuant to a power of private sale).

The Huntington Continental case involved a situation where an association had recorded a delinquent assessment lien against an owner and filed a judicial foreclosure lawsuit in Superior Court. Prior to trial, the owner attempted to submit a payment which would cover only his delinquent dues and not any interest, late fees, attorney's fees or collection costs. Acceptance of the partial payment would have brought the assessment debt below the statutory threshold to foreclose. Because the payment was rejected by the association, the Appeals Court held that the association was not entitled to foreclosure and, thus, reversed the judgment for foreclosure entered by the trial court.

At the end of the day it seems that the Court wanted to further restrict an association's right of foreclosure and has elected to construe certain provisions of Davis-Stirling to support this result.