Co-Authored by Pejman D. Kharrazian, Esq.
** This article was published on CACM’s The Law Journal Summer 2026.
He Can’t Say That Here, Can He?? The First Amendment and Community Associations
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He Can’t Say That Here, Can He??
The First Amendment and Community Associations
In 1990, a homeowner in Ladue, Missouri put a sign in her front yard that said, “Say No to War in the Persian Gulf, Call Congress Now.” The sign was vandalized. The homeowner reported the problem to the police, who told her the posting of all signs (with limited exceptions such as identifying the property) was prohibited by a local ordinance. Not surprisingly, the homeowner claimed such restrictions ran afoul of the First Amendment. She took her case to the US Supreme Court, and won.
At first blush, that case suggests the association might run into problems trying to regulate signage on an owner’s lot (or other forms of speech.)1 But—isn’t the law fun?—it’s not that simple. In the first place, the First Amendment by its language only limits actions by the federal government, although case law (and many state constitutions) make it clear the First Amendment also applies to local governments.
The difficulty here is that community associations aren’t governments. Nevertheless, they look a lot like governments, and many cases (and legal commentary) characterize them as “quasi-municipal” in nature—that is, functioning in a manner mighty like a government… The sticking point remains they aren’t really governments (if they were, they’d be entitled to broad immunity for actions they take as governments). And, some non-governmental entities such as “company towns” have been held to be subject to First Amendment protections. A “company town” is a type of employee housing where all homes are owned by the employer, and all aspects of community life are regulated by the employer. But California case law holds that community associations are NOT “company towns.”2
So if they AREN’T true governments, and they are not “company towns”, does the First Amendment protect speech and expressive speech such as signs within the community association? Does that next-door-neighbor really have an unbridled, First Amendment-protected right to erect a sign saying, for example, “The Manager is a Vile Human Being and Should be Fired?”
Questions like this have plagued California courts (and the legislature) for decades. In Laguna Woods Publishing v. Golden Rain Foundation (1982) 131 Cal.App.3d 816 (disapproved on other grounds in Katzberg v. Regents of Univ. of Cal. (2002) 29 Cal.4th 300, 357), the publisher of a commercial newspaper challenged the association’s refusal to allow it access to its gated community for purposes of delivering the newspaper to residents. The association DID allow its self-published commercial newspaper to be distributed to residents. The publisher alleged the exclusion violated its First Amendment rights. The court found the association functioned in a governmental fashion, and therefore could not discriminate between the association-approved newspapers and those of a competitor:
… While the public is not invited into Leisure World, Leisure World in many respects does display many of the attributes of a municipality. That is to say, although the public generally is not invited, there is substantial traffic into Leisure World of a variety of vendors and service persons whom the residents of Leisure World do invite in daily to accommodate the living needs of a community this large. By this we mean to refer to plumbers, electricians, refrigeration repairment, painters, United Parcel deliverymen, to name a few, plus the carriers of newspapers to which the residents have subscribed…”
Some twenty years later, however, the California Supreme Court put the validity of Laguna Woods Publishing in question. In Golden Gateway Ctr. v. Golden Gateway Tenants Association (2001) 26 Cal.4th 1013, the owner of an apartment complex sought to control the right of tenants to pass out literature critical of management. The Court held that the owner’s actions did not rise to the level of state action and thus did not violate First Amendment guarantees. The court went on to point out that if the owner of private property is the functional equivalent of a government (emphasizing the situation where the owner’s private property is open to the public), then Constitutional protections might pertain.
This more recent decision suggests (but does not specifically state) that a gated community might have greater rights to restrict the speech of its residents than a community which is open to the public. But surely that cannot be! Are we confused yet?
Further complicating the question of whether (and if so, to what extent) First Amendment protections apply to homeowners speaking within their communities are cases arising from California’s “anti-SLAPP” statute. “SLAPP” stands for “strategic lawsuit against public participation.” The statute allows the defendant in a lawsuit to try to have the court dismiss the lawsuit if it finds the lawsuit to have been filed in order to limit protected speech. While the statute allows the motion for language occurring in legislative and judicial proceedings, it also allows the motion to be made where the objectionable statement was made in a public forum, on an issue of public interest. The statute doesn’t reference the First Amendment, but the type of language it seeks to protect is often the same language sought to be protected by the First Amendment. And, case law makes clear that language critical of the association (or its residents) is, depending on the precise facts, “statements made in a public forum on an issue of public interest.” In Damon v. Ocean Hills Journalism Club et al. (2000) 84 Cal.App.4th 468, plaintiff—a former manager—sued the association and various persons within the association, based on allegedly defamatory statements made about him and his service as a manager. The association succeeded in having the suit stricken pursuant to anti-SLAPP motion. The court noted that the owners of a common interest development “comprise a little democratic subsociety…” and that a homeowners association board is in effect “a quasi-government entity paralleling in almost every case the powers, duties, and responsibilities of a municipal government…” quoting from Nahrstedt v. Lakeside Village Condominium Ass’n. (1994) 8 Cal.4th 361. In Ruiz v. Harbor View Community Association (2005) 134 Cal.App.4th 1456, the situation was reversed, when an owner sued the association for statements made by the association regarding the owner’s proposed architectural changes, as well as statements made by the association’s attorney which referenced the homeowner was an attorney, and alleged he had violated his professional ethics in connection with the application consideration process. The association succeeded on its anti-SLAPP motion. The court noted the association’s speech was part of an ongoing discussion and contributed to public debate on the issues presented by the discussion. As to statements made after the association had denied the application (which might mean there was no ongoing dispute, and therefore the statements would not be protected by the anti-SLAPP statute), the court stated they nevertheless were covered by the anti-SLAPP statute because they “concern[ed] [association] governance and enforcement of its architectural guidelines…” which continued to be issues of concern for homeowners. Ibid at 1470.3
Further refining the notion of what constitutes protected speech in a community association, the court in Golden Eagle v. Rancho Santa Fe Association (2018) 19 Cal.App.5th 399, 418-419 held that the anti-SLAPP statute protects “private conduct that impacts a broad segment of society and/or that affects a community in a manner similar to that of a governmental entity … In cases where the issue is not of interest to the public at large, but rather to a limited, but definable portion of the public (a private group, organization, or community), the constitutionally protected activity must, at a minimum occur in the contact of an ongoing controversy, dispute- or discussion, such that it warrants protection by a statute that embodies the public policy of encouraging participation in matters of public significance…” (In Golden Eagle, the speech in question was statements made by the association to its members and to a local government regarding an application for approval of proposed development. Its significance for our purposes is its broad-reaching definition of language protected by the anti-SLAPP statute.)
So, while statements made by a homeowner about association issues may not be directly protected by the First Amendment (because the association is not a true governmental entity), a resident’s right to make statements to his fellow residents—or post those pesky signs—may nonetheless be protected pursuant to the anti-SLAPP statute, if a court deems the speech/expression is “private conduct that … affects a community in a manner similar to that of a governmental entity…”
Confused? So was the legislature. Thus, in order to protect the resident’s rights of free speech, and in light of the confusion as to the extent of protection conferred by the First Amendment, California added two sections to the Davis-Stirling Act, Civil Code sections 4710 (in 2012) and 4515 (in 2018). Section 4710 provides that the governing documents may not prohibit posting or display of noncommercial signs, posters, flags or banners on or in a member’s separate interest, except as required for the protection of public health or safety, or if the posting or display would violate a local, state, or federal law. (The statute does provide for certain permissible types of material to make the sign, and a maximum square footage for such signs.) Section 4515 addresses the owner’s right to use common areas or use community-published media for the purpose of comment on a broad range of issues of public import, both as to the community and issues of public interest outside the community. The statute specifically provides that an owner may not be charged a fee, or required to obtain a special insurance policy, in order to use the common areas for such purposes (though the use by owner must be at a reasonable hour and in a reasonable manner.)
Bottom line: while the First Amendment may (or may not) apply to community associations when they seek to limit a resident’s speech, because the association is not actually a governmental entity, such limitations are not favored in the law. The Davis-Stirling Act provides some specific protections for political speech, and the anti-SLAPP statute may take up the slack in case of speech or expressions not specifically covered by Davis-Stirling. An association may be able to justify limiting residents’ speech rights for reasons of public health or safety, but the burden will be on the association to demonstrate the validity of such claims.
1 It should be noted that even if it applies to associations, the First Amendment would not protect the utterer from certain types of speech, such as defamation, “fighting words”, or incitement to commit unlawful acts.
2 On “company towns” see Marsh v. Alabama (1946) 326 U.S. 501. For a case holding that community associations are NOT “company towns,” see Laguna Woods Publishing v. Golden Rain Foundation, infrat.
3 And while the statements regarding the homeowner’s unprofessional conduct might not be protected by the anti-SLAPP statute, the court noted the statements did not legally constitute defamation, because they were contained a letter to the attorney-homeowner himself, and were not published to third parties (an element of the cause of action for defamation.)
Woodbridge and Bird Rock: Two 2025 Cases with Major Association Implications
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Woodbridge and Bird Rock: Two 2025 Cases with Major Association Implications
A number of California court cases were decided in 2025 that managers and their boards should be aware of. Among these cases are 11640 Woodbridge Condominium Homeowners’ Assn. v. Farmers Ins. Exchange (“Woodbridge”) and Bird Rock Home Mortgage, LLC v. Breaking Ground, LP (“Bird Rock”).
Woodbridge
In Woodbridge, the association hired a contractor to replace the complex’s roof. While approximately 80% of the roof membrane was removed, a rainstorm hit, damaging the exposed insulation and plywood, and allowing water to enter some of the units. The roofer subsequently removed and replaced the damaged insulation and plywood, added a layer of base paper and base felt, and hot-mopped and tarred most of the roof. The roofer also covered the roof with tarps in anticipation of another rainstorm. The second rainstorm dislodged the tarps, and rainwater penetrated the exposed felt layer and entered all of the units.
The Association had an “all risks” policy with Farmers Insurance Exchange (“Farmers”). The association tendered a claim to Farmers for both the water damage to the units and the roofing work after the first storm and again after the second storm.
Farmers hired an expert to inspect the roof. The expert opined that the tarps that had been used were too small and that the roofer had violated industry standards by removing 80% of the roof at the same time.
Farmers denied the associations’ claims, citing the “water damage” and “faulty workmanship” exclusions contained in the policy.
The association sued Farmers for breach of contract and breach of the implied covenant of good faith and fair dealing (i.e., for the bad faith denial of the claim). The association also sued the contractor.
The Superior Court granted summary judgment in favor of Farmers (i.e., the court ruled in favor of Farmers based on motion papers, before the trial), concluding that the association’s losses were not covered under the policy because of the water damage and faulty workmanship exclusions contained therein. The association appealed the court’s decision.
The California Court of Appeal (“Court”) reviewed the case and reversed the ruling on the summary judgment motion.
The Court held that there was always a roof on the building because “roof” was not a defined term in the policy, and only certain layers of roofing material had been removed when the damage occurred; so the rain damage was covered. Accordingly, the water exclusion did not bar coverage.
As to the “faulty workmanship” exclusion, the Court found the term to be ambiguous because it could refer to faulty or negligent work and/or a faulty or negligent process. Accordingly, the Court found that coverage was not unambiguously excluded and, therefore, there were triable issues of material fact.
Because the Court found that there was a reasonable interpretation of the policy language under which the association had coverage, the Court reversed the summary judgment and sent the case back to the original trial judge so that a full trial could be conducted.
Prior to Woodbridge, there has only been one “all-risk” insurance case decided in California arising out of damage during roof repairs (Diep v. California Fair Plan Assn.). In the Diep case, the insurance company prevailed on summary judgment. The Court looked at the Diep case, but also looked to other states’ decisions on all-risk insurance coverage. Ultimately, the Court decided to follow the cases from New York, New Jersey, and Oregon.
This case is under review by the California Supreme Court, so the outcome of this case could change.
What are the key takeaways from this case? You should tender insurance claims early and often, as it is not always easy to tell whether there might be coverage. Your boards should also hire qualified experts to advise them on matters that are of great importance to their associations, including experts on evaluating denied insurance claims.
Bird Rock
In Bird Rock, homeowners defaulted on the payment of their assessments, leading the association’s trustee to record a lien and initiate a foreclosure sale under the Davis-Stirling Common Interest Development Act and the association’s CC&Rs. At the initial trustee’s sale, Bird Rock Home Mortgage, LLC (“BRHM”) submitted the highest bid and tendered payment. However, the trustee kept the bidding open after the sale pursuant to Civil Code § 2924m, which extends the bidding period for up to 45 days for certain residential foreclosure sales to allow “eligible bidders” to match or exceed the highest bid. During this extended period, Breaking Ground, LP (“BGLP”) (an eligible bidder through its nonprofit partner) submitted a larger bid and received the trustee’s deed.
BRHM sued, arguing that Civil Code § 2924m does not apply to association lien foreclosures because such liens are not “mortgages” or “deeds of trust” under the statute.
The trial court ruled against BRHM, and BRHM appealed.
The California Court of Appeal affirmed the trial court’s holding, finding that the association’s CC&Rs, which created a contractual lien for unpaid assessments enforceable via nonjudicial foreclosure under Civil Code § 2924 et seq., met the statutory definition of a “mortgage” as a security interest in property for performance of an obligation (e.g., the payment of assessments), regardless of whether such liens constitute traditional home loans.
What are the key takeaways from this case? Assessment liens can be treated as mortgages for foreclosure purposes if the CC&Rs grant the association the power to lien for unpaid assessments and the power to sell the separate interest to enforce the lien. Winning bids at association foreclosure sales may not be final for up to 45 days. The commencement of the 90-day redemption period will be delayed if the bidding period is extended. The initial high bid may not determine the final sale proceeds if the bidding period is extended.
Practice Tips:
- Obtain and keep a complete copy of your associations’ insurance policies, including any exclusions and riders so they are readily available for review.
- When tendering a claim, be sure you are complying with all requirements imposed under the policy for tendering claims. Tender the claim in writing and retain a copy for the association’s records.
- Because the laws pertaining to assessment collection are continually evolving and the potential liability for violating these laws can be significant, your boards should not attempt to perform any assessment collection activities themselves beyond conducting the votes needed to lien and foreclose against delinquent properties.
Majestic Asset Management LLC v. The Colony at California Oaks Homeowners Assn
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Emily A. Long, Esq.
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In October 2007, Majestic Asset Management LLC purchased the Cal Oaks Golf Course from prior owners. Majestic is owned by a husband and wife, Hai and Jen Huang, who own a related company Wintech Development, Inc.
The Cal Oaks Golf Course is located within The Colony at California Oaks Homeowners Association. The 2007 purchase agreement included Majestic assuming the obligations of the prior owners to use the property only as a golf course, to maintain it in at least as good condition as that of other similar golf courses in the area, and to maintain and water the fingers in a manner acceptable to the association. These obligations also exist in the grant deed and in a separate performance deed of trust (PDOT). After Majestic’s acquisition of the golf course, grass and trees died, a lake dried up, and the landscaping deteriorated. Majestic began using the site to host events, despite the association’s disapproval, and Majestic stopped paying a portion of the maintenance costs shared with the association.
In 2012, the Majestic sued the association and the prior owner of the golf course to get out from the obligations of operating and maintain the golf course. They challenged the validity and enforceability of the PDOT. The association countersued against Majestic, Wintech and the Huangs. That lawsuit was tried in 2015, and judgment was entered against Majestic, Wintech and the Huangs. The court also found that the PDOT was valid and enforceable, including the foreclosure provision. Majestic and the Huangs appealed the 2016 judgment, which was affirmed in 2018. The appellate court found that the PDOT and all its obligations remained effect as long as Majestic owns the golf course.
In June 2019, the association moved for a foreclosure order based on Majestic’s ongoing failures to satisfy the obligations under the PDOT. The court initially decided to appoint a receiver instead. More than 2 years later the association again moved for foreclosure pursuant to the PDOT. In September 2022, the court found judicial foreclosure was appropriate. And in March 2023, evidentiary hearings were held regarding the value of the default of the PDOT and whether Majestic had a right of redemption. Based on evidence of the cost to rehabilitate the golf course, the court determined that the value of the PDOT was $2.7 million. In August 2023, the court entered ordered foreclosure of the PDOT and included clarifying language that if Majestic did redeem the golf course, all the terms of the PDOT would remain in effect for as long as Majestic were to own the property.
Majestic appealed both the foreclosure order – as to the impact of redemption on the obligations of the PDOT – and the PDOT valuation. Majestic argued two points on appeal: first, if it redeemed the golf course, the PDOT obligations would be extinguished by the redemption, and second, the PDOT was essentially worthless – not $2.7 million. The appellate court slightly modified the value of the PDOT to $2.5 million, eliminating one category of expenses related to restoring the golf course. As to the foreclosure, the court rejected all of Majestic’s contentions holding that foreclosure was proper and that redemption would not extinguish the obligations under the PDOT.
TAKEAWAY: Deeds of trust do not have to be tied to money to be valid and enforceable.
Olen Properties Corp. v. KCN A MANAGEMENT, LLC
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The Koll Center Newport is a master-planned, mixed-use development area approximately 117 acres in size adjacent to John Wayne Airport in Newport Beach. The Koll Center is subject to CC&Rs that were drafted in 1972 by the original declarant, Koll Center Newport, L.P., and recorded in 1973 over the vacant land which later became the Koll Center. Over decades, the Koll Center was developed and the CC&Rs were amended several times. Plaintiff Olen Properties Corporation became the owner of a four-story office building at the Koll Center. Defendant, KCN A MANAGEMENT, LLC (“KCN”) became the successor declarant under the CC&Rs.
In July 2022, KCN approved the proposal of TPG Acquisition, LLC (“TPG”) for the construction of a five-story, 312-unit apartment complex with 273 basement parking spaces beneath the apartment building, a one-acre public park, and a four-level free standing parking structure (“TPG Project”) adjacent to the building owned by Olen. The proposed development site included 6.216 acres of common parking area used by Olen and other owners.
Olen filed a lawsuit alleging the TPG Project and KCN’s approval of it violated several provisions of the CC&Rs. The trial court agreed and granted an injunction requiring TPG and KCN to follow the CC&Rs’ approval process, including but not limited to, providing complete working drawings and to require that the 452 parking spaces lost to Olen by the proposed development not be reduced below limits required in the CC&Rs.
The court of appeal upheld the trial court’s injunction in certain ways and ordered that the trial court fix the injunction to be consistent with the CC&Rs and its opinion. Notably, the court held that KCN as successor declarant owed fiduciary duties to the owners of real property like Olen at the Koll Center. Further, even if acting in good faith, the court determined that KCN cannot make decisions that violate the CC&Rs. The CC&Rs did not permit the TPG Project to go forward, as designed, because the 273 subterranean parking spots beneath the project did not replace the common parking areas that would be lost to Olen by the proposed development, among other reasons.
TAKEAWAY: A successor declarant who exercises control over the approval process for improvements in a master-planned community owes fiduciary duties under the CC&Rs to property owners in the community.
Schneider v. Lane
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Emily A. Long, Esq.
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The Schneiders and Karla Lane own adjoining properties positioned along Trinity River in Alpine County. Karla Lane’s lot is land-locked to the west of the Schneiders’ property, meaning Lane can only access the county road on the east of the Schneider’s property by a road along the riverbank, River Road. The written easement, recorded on title to both properties, provides ingress and egress between Lane’s property and the county road. The easement while express, did not provide a metes and bounds legal description and merely referenced the “existing road and driveway.” In 2002, a flood washed away part of the River Road.
Lane filed a quiet title and declaratory action in 2003 against the Schneiders, which lasted eight (8) years. In 2011, the trial court held the easement burdened the entirety of the Schneiders’ lot (not just the “existing road and driveway”) and designated a new easement route which was referred to as the 2011 route.
In 2018, another flood eroded the 2011 route, and so a new permissive route was needed. In 2019, the Schneiders filed a quiet title and declaratory action, alleging Lane failed to maintain the 2011 route and protect it from erosion, and disputing Lane’s right to relocate the easement. Lane filed a cross-complaint for declaratory relief, seeking cooperation from the Schneiders to designate an alternate easement route. Trial was held on Lane’s cross-complaint to determine the easement’s location and maintenance responsibilities. The trial court determined the location of the new easement and held that Lane was responsible for maintaining the easement, which included stabilizing the riverbank in an area separate from the easement. All parties appealed.
The appellate court disagreed that Lane was responsible to stabilize the riverbank. The court analyzed Civil Code section 845 and the obligation of an easement owner to “maintain it in repair.” The court found the ordinary meaning of “repair” is to keep up and preserve an easement in good condition, and not to create new structures or make major capital improvement, particularly when the proposed riverbank improvements were 30 to 50 feet away from the easement route.
TAKEAWAY: The owner of the dominant tenement of an easement is responsible for the costs of maintaining and repairing the easement, but not for major improvements or taking separate protective measures that go beyond general upkeep.
Ohio House, LLC v. City of Costa Mesa
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Ohio House, LLC operated a sober living facility for men recovering from addiction in Costa Mesa, California in a multi-family residential zone. Ohio House began offering these services and housing to men in 2012. The City of Costa Mesa (“City”) enacted zoning ordinances in 2015 regulating group homes and sober living homes, including separation requirements between facilities. In 2016, City denied Ohio House’s application for a conditional use permit because the facility did not meet the separation requirement; it was not 650 feet apart from other sober living homes. Among other considerations, City noted in its denial that not requiring Ohio House to comply with the separation requirement would fundamentally alter City’s zoning program. City ordered Ohio House to cease operations and imposed numerous fines.
Ohio House sued City for unlawful discrimination against its residents in violation of the Fair Housing Act (“FHA”), the Fair Employment and Housing Act (“FEHA”) and other claims.
The appellate court affirmed the lower court’s ruling that Ohio House’s intentional discrimination claim failed because the differential treatment imposed under City’s group-living regulations facially benefitted the protected class. City’s zoning code benefitted the disabled over non-disabled because it allowed group homes and sober-living homes with six or fewer residents to operate in residential zones, whereas boarding houses of any size (without supportive services for the disabled) were categorically barred from operating in residential districts. Therefore, there was no intentional discrimination.
Moreover, the court held that Ohio House failed to establish that City’s zoning code disparately impacted the disabled because Ohio House could not prove that the protected class – disabled individuals – suffered an adverse and disproportionate impact, rather the operators of group homes did. Additionally, the court found no evidence of discriminatory preferences disfavoring the disabled or interference with Ohio House’s operations by City because City did not have a discriminatory intent in passing its zoning ordinance. The Court found sufficient evidence that City made changes to its zoning to prevent an overconcentration of group living arrangements that produce deleterious effects to the residential character of communities.
TAKEAWAY: Community associations may not prohibit residential care facilities or sober- living homes that service six or fewer persons pursuant to California Health and Safety Code. This case had no impact on that body of law. However, this decision may result in more cities having confidence to adopt rules that prohibit group living arrangements, while allowing disability-related housing like group homes and sober-living homes to operate, subject to restrictions.
Nabatmama v. Ross Morgan & Co., Inc.
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Emily A. Long, Esq.
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Plaintiff Jeffrey Nabatmama is a tenant within the Shenandoah Villas Homeowners Association. The association imposed over $106,000 in fines against plaintiff for alleged violations of its CC&Rs. Defendant Ross Morgan & Co., Inc. is the association’s community management company, who attempted to collect the fines from plaintiff. Plaintiff filed a complaint against the defendant under the Fair Debt Collection Practices Act (FDCPA). Particularly, plaintiff alleged defendant violated 15 U.S.C.S. §§ 1692a-1692o in its collection attempts.
Defendant filed a motion to dismiss. In ruling on the motion, the trial court appreciated the distinction between regular assessments and fines and held that only the former is considered “debt” under the FDCPA. The court further held that fines do not arise from a consensual transaction, which is required for an obligation to be considered “debt” under the FDCPA; because the fines are penalties imposed for violations of association rules and not from the initial property purchase or agreement to pay regular assessments.
The court held that since fines do not constitute “debt” under the FDCPA, the plaintiff’s claims failed as a matter of law. Thus, the court granted defendant’s motion to dismiss plaintiff’s complaint, with prejudice, because the court found that any amendment to the complaint would be futile.
TAKEAWAY: Regular assessments arise under a consensual transaction tied to a purchase of property while fines are penalties for rule violations. For this reason, community association assessments are considered debts and subject to the FDCPA, but fines are not.
Bird Rock Home Mortgage, LLC v. Breaking Ground, LP
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An owner had defaulted on the association’s assessments, so the trustee and agent for the association recorded a notice of delinquent assessment, a notice of default and election, and a notice of trustee’s sale. The unpaid association assessments and estimated sale costs totaled $37,763.21.
Bird Rock Home Mortgage, LLC submitted the highest bid at the trustee’s sale and tendered $60,000 to the association. However, the check was not deposited, and no deed was ever issued to Bird Rock. Rather, the bidding was kept open for an additional 45 days under Civil Code section 2924m. During this extended bidding period, Breaking Ground, LP submitted the highest bid at $203,000. The association issued a trustee’s deed upon sale to Breaking Ground, and returned Bird Rock’s $60,000 check, which Bird Rock refused to accept.
In an effort to set aside the sale to Breaking Ground, Bird Rock filed a quiet title and declaratory relief against Breaking Ground, alleging Section 2924m did not apply to the lien for unpaid assessments. The trial court held Section 2924m applied to the trustee’s sale to enforce the assessment lien. The trial court further held a lien for unpaid assessments, authorized by its governing documents, qualifies as a “mortgage” for purposes of the nonjudicial foreclosures, thus validating the extended bidding period and the sale and deed delivery to Breaking Ground.
Bird Rock appealed. Upon review, the appellate court affirmed the trial court’s judgment, holding Section 2924m applies to such sales when the property contains one to four residential units, and the sale is conducted under a power of sale contained in a mortgage. The appellate court further held there is no conflict between Section 2924(m) and the Davis-Stirling Common Interest Development Act regarding nonjudicial foreclosures; both can operate together. The judgment in favor of Breaking Ground was affirmed, and respondents were awarded costs on appeal.
TAKEAWAY: This case confirms that the extended bidding period under Civil Code section 2924m applies not only to mortgage/trust deed foreclosures but also to community association assessment lien sales.
11640 Woodbridge Condominium Homeowners’ Assn. v. Farmers Ins. Exchange
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11640 Woodbridge Condominium Homeowners’ Association was in the middle of a re-roofing project when two rainstorms resulted in water intrusion in all the condominium units in the building. The association had an “all-risks” insurance policy with Farmers that covered all property damage, unless specifically excluded under the policy. The association tendered the claims twice: immediately following the first rainstorm and then two weeks later immediately after the second rainstorm. Farmers retained Pete Fowler Construction Services to inspect the roof. Fowler determined that the tarps on the roof were too small and that the roofer had violated industry standards by removing 80% of the roof at once instead of working in small sections. Based in part on Fowler’s report, Farmers denied the claim based on the water damage exclusion and the faulty workmanship exclusion.
Because the cost of remediation and repair of the water damage was estimated at more than $3.5 million, the association sued Farmers for breach of contract and for bad faith. The association also sued the roofing company. Farmers filed a summary judgment motion on the bad faith claim and on the request for punitive damages based upon the language of the policy and the fact that the water intrusion occurred not due to damage to the roof, but rather because the roof had been intentionally removed and was being repaired (water damage exclusion). Farmers also based its summary judgment motion on the fact that the roofer had intentionally removed 80% of the roof at once, which allegedly was outside the industry standard (faulty workmanship exclusion). The trial court granted the motion in favor of Farmers and against the association.
Previously, there was only one “all-risk” insurance case that had been decided in California arising out of damage during roof repairs (Diep v. California Fair Plan Assn.). In the Diep case, the insurance company prevailed on summary judgment. The appellate court not only looked at the prior California case, but also looked to other states’ decisions on all-risk insurance coverage. Ultimately, the appellate court decided to follow the cases from New York, New Jersey and Oregon.
As to the water damage exclusion the court held that there was always a roof on the building because “roof” was not a defined term in the policy and only certain layers of roofing material had been removed when the damage occurred; so the rain damage was covered. As to the faulty workmanship exclusion, the court found the term to be ambiguous because it could refer to faulty or negligent work and/or a faulty or negligent process. Accordingly, the court found that coverage was not unambiguously excluded and that there were triable issues of material fact. Because the court found that there was a reasonable interpretation of the policy language under which the association had coverage, the appellate court reversed the summary judgment rulings on both the bad faith claim and on the request for punitive damages. The association was awarded its costs on appeal. As of the print date of this document, the California Supreme Court has granted review of this case and briefing is pending, so this decision is not yet final.
TAKEAWAY: Always tender early – you never know when there might be coverage.