Thursday, October 30, 2008

Strengthening the Rights of Homeowners in Community Associations

A Homeowners Association (“HOA”) has the power through the board of directors to enforce the governing documents, to make and enforce rules, and to levy fines and penalties against homeowners who do not comply. HOAs have been compared to municipal governments in both the duties owed to homeowners and the power to police homeowner conduct through the courts or through non-judicial methods.

While a 2007 National Survey by Zogby International reported that 72% of those interviewed had a positive experience living in a community association, this is little consolation for the homeowner who is faced with the threat of foreclosure for unknown charges on their dues statements, illegal assessments, unreasonable rules, or discriminatory conduct by the HOA. Owners may also encounter an HOA that fails to maintain the common areas, to prepare and distribute annual disclosures, to hold open meetings where homeowners can have their concerns addressed, or to respond to nuisance complaints or problems between homeowners.

The weight of the legal community is on the side of the HOA. Both the California Association of Community Managers (http://www.cacm.org/) and the Community Associations Institute (http://www.caionline.org/) make available to their members an extensive list of top shelf lawyers available to represent HOAs which are likely to have greater financial resources for attorneys' fees than do individual owners. Fortunately, if the homeowner prevails in an action against the HOA the homeowner’s attorneys' fees may be borne by the HOA.

There is an effort on many fronts to increase the regulation of HOAs. In July 2006, the AARP published “A Bill of Rights for Homeowners in Associations,” which advocated for fairness in litigation, and for the oversight of associations and directors. CAI responded that the AARP proposal would “increase costs to those who abide by the rules, yet benefit those who act against the common interest.” The California State Assembly has twice tried to enact a law which would create a Community Association Ombudsman who would assist community association homeowners. The legislation was vetoed both times by Governor Schwarzenegger, most recently at the end of last month.

Mandatory education for board members and an improved mechanism for settling complaints of homeowners against their HOA would benefit all homeowners. In a recent Colorado case, an HOA was ordered to pay $550,000 in attorneys' fees and related costs to a homeowner who asked the Booth Creek Townhouse Association to investigate moisture intrusion into his unit. The original repair would have cost about $5,000. If the HOA’s appeal of the attorneys' fees award fails, the homeowner members of the association will be responsible for paying the debt.

In a significant act, CAI filed a friend-of-the-court brief in support of the homeowner who was “forced to take several legal actions year after year for the sole purpose of forcing the association to honor its obligations and perform its duties….”

Tuesday, October 14, 2008

The Importance of Recording a Lien Correctly

If a homeowner who is behind in their dues files bankruptcy and the property goes into foreclosure, will the HOA (Homeowners Association) be able to collect the assessments owed? It depends. If the HOA has properly recorded a lien against the owner's interest the HOA will be considered a secured creditor and will have a much better chance of collecting.

The HOA must have a written statement of the policy for collecting delinquent assessments which is distributed annually to owners (See Annual Disclosures). The lien can only apply to delinquent assessments and to late fees, costs of collection (including attorneys' fees), interest on delinquent assessments, and reimbursement assessments for damage done to the common area. The lien and foreclosure process cannot be used to collect fines for rules violations or other monetary penalties.

The decision to record a lien must be made by the board of directors in an open meeting and the vote to record a lien must be mentioned in the minutes of the meeting. The decision to record a lien cannot be delegated to the managing agent or property manager. At least 30 days before a lien is recorded the owner of the separate interest must be sent notification by certified mail. The notice must contain all of the items listed in California Civil Code Section 1367.1. Among other requirements, these items include an itemized statement of charges and the right to request a meeting with the board.

Having a collection policy in place and enforcing it systematically is important to protect the HOA. If it is determined that the HOA has recorded a lien in error, the HOA must promptly reverse all late charges and fees and release the lien. The HOA would also have to pay all costs relating to dispute resolution which might include attorneys' fees for the owner of interest.

If you are part of an HOA considering filing a lien, or a homeowner who believes a lien has been improperly recorded against their interest, it is important to understand your rights and responsibilities. Legal counsel can help. Call Link Schrader, Attorney (323) 822-9422 or by email link@link-schrader.com