Collection Statute of Limitations

Source: Adrian J. Adams Esq. 

QUESTION: What is the statute of limitations for collecting delinquent assessments?

ANSWER: Statutes of limitations (SOL) are laws that restrict the time period within which legal proceedings may be brought. For example, if a driver runs a red light, the state can’t wait twenty years to prosecute the infraction. For traffic violations, the state has one year to take legal action, otherwise time runs out and legal action is no longer allowed.

Protect the Accused. This legal concept is designed to protect defendants from unfair prosecution. If the government drags its feet prosecuting a crime, evidence to defend the accused may be lost with the passage of time, i.e., memories fade, witnesses die and documents are lost. Protecting the accused also applies to private grievances, which are referred to as civil actions. (When the state takes action, it’s called a criminal proceeding; when a private individual seeks redress for damage, it’s called a civil action.)

Collecting Debt. There are different statutes of limitations when it comes to collecting debt. If money is borrowed and a promise made orally to repay the debt, the statute of limitations is two years. (Code Civ. Proc. §339.) If parties enter into a written agreement, the SOL is four years (Code Civ. Proc. §337). When the obligation is the result of recorded restrictions, e.g., an obligation created by CC&Rs, the SOL is five years. (Code Civ. Proc. §336(b), Pacific Hills HOA vs. Prun.) Accordingly, an association has five years to initiate action to collect delinquent assessments. However, if a court views the obligation as a written contract, the SOL is four years.

RECOMMENDATION: There seems to be some uncertainty as to whether the SOL for delinquent assessments is four years or five. Regardless, boards should not be waiting years to collect a debt owed to the association. Uncollected debt is harder to collect the older it gets. Plus, it burdens the membership who must make up the difference in the budget and it skews an association’s financial statement. If it’s bad debt, associations should write it off. If it’s collectable, boards need to pick acollection method and pursue the debt in accordance with the association’s collection policy.

Thank you to Wayne Louvier and Richard Witkin for their input on this question. NOTE: Adams Kessler offers all forms of debt collection. Contact us for more information.