Doskocz v. ALS Lien Services (2024) 102 Cal.App.5th 107 is a published court decision involving an assessment collection dispute. ALS Lien Services (“ALS”) assists associations in the collection of unpaid assessments. Teresa Doskocz (“Doskocz”) is a homeowner in the Danville Green Homeowners Association (“Association”) in Danville, California. ALS sent Doskocz a pre-lien letter and then recorded a lien against her property for unpaid assessments. Thereafter, Doskocz and the Association agreed to a payment plan, and ALS prepared a payment plan agreement.

ALS's standard payment plan agreement requires debtors to waive Civil Code §5655(a)'s order in which payments are to be applied, and its collection services contract with associations requires the associations to agree to payment plans with this waiver. Civil Code §5655(a) provides that payments “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.” Based on the waiver included in the payment plan agreement, instead of applying payments in the order required by Civil Code §5655(a), ALS would apply portions of payments to ALS's own collection fees and costs before the assessments owed had been paid in full.

Doskocz made five of the six installment payments required under the payment plan agreement but failed to make the last payment, and she then requested another payment plan. ALS informed her that her balance at the time was $1,074.90 but proposed a payment plan for three monthly installments totaling $2,033.19 (the case does not describe what accounted for the difference). Instead, Doskocz made two monthly payments of $537.45, which she intended to satisfy the $1,074.90 balance. ALS then sent Doskocz a letter stating that she still owed $830.73 and that ALS would record a Notice of Default if payment was not made within 10 days. Recording a Notice of Default is the first step in the nonjudicial foreclosure process.     

Doskocz filed a class action lawsuit against ALS. Ultimately, the court ruled in favor of Doskocz and against ALS on several grounds. First, the court held that the payment plan agreement's waiver of Civil Code §5655(a)'s order in which payments are to be applied was void because it violated public policy. The court examined the legislative history of Civil Code §5655(a) and noted that the author of the bill explained that its intent was to prevent “overreaching by collection firms” applying payments to collection costs rather than the principal balance and creating a “treadmill wherein the collection costs continue to accrue despite the good faith efforts of the homeowner to cure any back debts.” The court also pointed out the use of the word “shall” in the statute's description of how payments are to be applied means that the application would ordinarily be deemed mandatory.

The court further found that ALS violated the Fair Debt Collection Practices Act (“FDCPA”) by sending a letter to Doskocz threatening to record a Notice of Default if payment was not received within 10 days when her balance was only $830.73. Civil Code §5720 prohibits associations from using foreclosure to collect assessments unless the principal assessment balance, not including late charges, interest, and collection costs, equals or exceeds $1,800.00 or the assessments are more than 12 months delinquent. ALS argued that the prohibition only applied to actually holding a foreclosure sale, but the court held that the prohibition “means not only a foreclosure sale but also the commencement and perfection of the foreclosure process leading up to a sale, including recording a Notice of Default.” The FDCPA prohibits a debt collector from, among other things, threatening to take action that cannot be legally taken and threatening to effect dispossession of property where there is no present right to possession of the property. Courts apply a “least sophisticated debtor” standard when considering whether a debt collector has violated the FDCPA. Here, the court concluded that the least sophisticated debtor would reasonably understand ALS's letter threatening to record a Notice of Default if payment was not made within 10 days as indicating an intention to foreclose when foreclosure was not legally permitted based on Doskocz's debt at that time.

Doskocz also prevailed on other procedural matters not related to assessment collections. 

This case underscores the intricacies of assessment collection and the importance of strict compliance with both Civil Code and FDCPA requirements.