July 27, 2010
What Can You Do When the HOA Board Does Not Enforce the Rules?
This is a hot topic. The question sent to me is:
""What can I do about a board that does not enforce the rules? They won’t do anything about people disobeying the rules because they are afraid of retaliation. As a 20 year homeowner, what can I do and where do I start?"
There are many ways to attack this problem. But first, understand that board members are volunteers, they have their hands full these days just trying to keep their HOA or Condo Association "afloat", and they can use help.
So, first, get educated about rules. There are 5 "Enforcement" Primers available on my website for $25 each that will tell you everything you ever wanted to know about rules and enforcing them. And forms to boot! These Primers are intended to assist boards in setting rules and policies that are reasonable, and they being able to enforce them!
Second, run for the board! If you want to help, get your hands in the pot. If you want to know what the board responsibilities are there are two Primers on the website relating to Board Basics (responsibilities) - I (basic) and II (intermediate). There is also an Operations Primer and an Ops forms Primer to assist with operations.
Chronic complainers (about rules enforcement) can become part of the problem. Become part of the solution! Get involved in the leadership in your association. If you are not willing to do that, then at least keep your corner "clean".
Posted by Beth Grimm at 11:42 AM
July 17, 2010
SHORT SALES IN HOAs, STRAIGHT THINKING
There has been much commentary about short sales in homeowner associations lately. What happens to the delinquent assessments in a short sale? Some commentators suggest they never get paid or that the debt is extinguished in the short sale. Not so. Some suggest that the association must have a lien on the property to collect or if the sale goes through without payment of the assessments and there is a lien, that the lien is extinguished. Not so.
The best result of course is that the bank/seller do things properly and an escrow demand comes to an association asking how much is owed, and the delinquent amount is considered as part of what must be settled in the sale. Whether the bank, the seller or the buyer pay the delinquencies is of no particular consequence, if someone agrees and they are paid to assist the sale. I have heard of buyers ante'ing up more $$ when the bank appraisal came in too high to do the deal. The buyer might be willing to throw in some money toward the debt to get the good deal.
When they are not paid, or when the HOA is being asked to negotiate down what is due, it is important to consider what is happening and whether it makes sense. Here are some considerations:
1. The debt is that of the SELLER and if the debt is not paid, the association still can go after the seller for the accrued debt. But is it worth it? If the seller is a family that lost its home because the owner lost his or her job or suffered grave financial circumstances, probably not. If the seller is an investor who appears to be dumping property to cut losses, maybe so.
2. If the assessment debt is not paid and the property transfers, it would be my contention that the HOA could still consider putting a lien on the property or moving forward on an existing lien to foreclosure (assuming the governing documents provide for it) as the assessment debt still remains on the property and it has not been "extinguished" by law. If a senior mortgage holder forecloses for its debt and the HOA has a lien, that lien would normally be extinguised as a matter of law. This is not the case in a voluntary sale to your brother, uncle, or kid, or in a short sale. You cannot pursue a buyer specifically, but the property may be up for grabs. Thus, all parties (lender, seller and buyer) should take heed in settling on a short sale without inquiring about HOA debt. It is risky business. All might end up in litigation against each other.
3. If the HOA is being asked to negotiate down the debt, keep in mind that "a bird in the hand is worth 2 in the bush." In case that is not clear, 50 cents on the dollar in hand might be the best deal in town. Getting the unit transferred to a new owner without waiting for the bank to foreclose (many are stalling foreclosures) might be worth nothing on the dollar. Entering into an agreement with the buyer to make payments might be the way to go - assuming they are solvent or moving in that direction.
In other words, HOAs and Condo Boards - being ignorant of the rights remaining or being belligerent in your demands might hurt you. Consult with legal counsel to be sure you are knowledgeable about your rights (don't consider a blog to be legal advice - attorneys do tend to argue about things).
As many have said, is doubly important in this economy to have a strict assessment collection policy that allows for recording a lien at the earliest possibility because let's face it, HOAs and Condo contacts are hard for the lenders and title officers to find. If sellers don't ante up the information about their debt to the association, a lien will. And, a lien offers a point of contact, and additional protections in the event of bankruptcy. Yes, the costs to the owner who is already strugging go up considerably when a lien is recorded, but if that owner has not stepped up and entered into a payment plan that is being honored, there are oh-so-many-protections that the Association needs.
Posted by Beth Grimm at 1:02 PM
July 13, 2010
RENT SKIMMING - HOA Foreclosure - Desperate Situations
A few months ago I did an E-Newsletter on the rent skimming law in California. For those who do not know what that is, it is when someone buys properties at a foreclosure sale held by a junior lienholder or HOA, rents them out, takes the rents and does not pay any money to the senior mortgage holder whose debt is still viable. This person is "skimming" the rents and often continues to do so until the senior mortgage holder forecloses. There are legal penalties for doing that and there is more on this in the E-News Archives on my website. And HOAs that take properties back at foreclosure sales when the owners do not pay the assessments are at risk if they rent the place out, and "skim" the rents.
However, the HOAs are often in a very difficult position, today more than ever before in my history as an HOA attorney (more than 25 years). The economy and rising number of people who simply cannot pay, or simply "walk away", is hurting the HOAs. The inclination of many banks today to stall foreclosures lest they become owners of HOA properties and be held responsible for the upkeep of the property and assessments is very troubling. It is understandable, given that they are in "business" and have their own set of problems and criteria, but it is hurting HOAs!
I have received the calls from Boards that are desperately trying to find some means of collecting assessment money, or collecting the debt from unpaid assessments, about homeowners and investors who have either committed suicide, skipped town or simply crawled within themselves because of their financial plights. So pushing those parties for reimbursement can be like pushing a dead horse.
If an HOA is considering going through with a foreclosure sale and (assuming the property is upside down or unmarketable for any reason) "skimming rent", I suggest first exhausting all possible options (considering all circumstances) with the owner. I suggest contacting the lender to see what the plan is with regard to foreclosure (although many lenders will not communicate with the association until it owns the property).
If these things lead to a dead end, then the HOA may be left with the difficult (but probably reasonable under this scenario) position of taking the property back at its own scheduled sale and collecting rent from the current occupant, or legally evicting them and getting a rent-paying tenant in there.
Once the HOA becomes the owner of the property, then I would suggest communicating with the bank and encouraging it to move forward with foreclosure if the debt is in arrears (which it most certainly would be), or to consider looking at a short sale. If the HOA has exhausted all avenues considering pursuing the owner, and notified the bank encouraging them to move on the property, it seems really that any party that might pursue the HOA under the rent skimming law would have a lot of explaining to do, and difficulty characterizing themselves as any kind of "victim" of the HOA's action.
These measures are suggested as a way to potentially minimize the possible ramifications under the statute that was designed to punish people who take advantage of the downtrodden and then skim the rents instead of taking proper ownership responsibilities with regard to the property. There are no guarantees of course.
The law was not designed to punish HOAs that have fallen victim of owners who no longer take responsibility and banks that are unreasonably delaying foreclosures to protect themselves and hopefully, if any HOA is pursued under this law, the judge would take into consideration the lack of willful or malicious intent. I know of no cases where the HOA has been pursued and know that attorneys have presented this as an option to consider when all else fails.
Posted by Beth Grimm at 10:52 AM
July 5, 2010
HOA Fees for This and That - What is Legal?
What can boards charge for?
Maintenance? Probably. This is generally described in the CC&Rs assessment section.
Insurance Premiums? Probably yes, for the common area. The documents will describe whether the HOA or Condo Association can charge for insurance for the homes in the development.
Move In-Move Out Fees? It depends on what the governing documents say (should appear in the CC&Rs if it appears at all.)
Security Deposit for Tenants? Same answer.
Damage to the common area? There may be a reimbursement assessment allowed in the CC&Rs and that would usually describe it if the association can charge, and also if the association can lien for the charges if not paid. Associations commonly can lien or foreclose for nonpayment of assessments. This one is one for which someone should seek legal advice as it is complicated.
Failure to maintain a townhome (by an owner)? Probably, and again, the documents would dictate whether the board could collect any charges or reimbursement costs if the association did the work like an assessment or would instead have to treat it as a personal debt.
Pool fee? Depends, the bylaws or CC&Rs may allow for a fee. Commonly everyone in a condo association or HOA shares the cost of maintaining the pool equally, even if some people to not use the pool. However, issuing pool keys or passes may involve a fee or charge or even security deposit paid back upon return of the key, or a key replacement charge.
Fine? There are a myriad of requirements to charge a fine such as the requirement of circulating and adopting a fine schedule and a hearing. Most HOAs have some kind of warning letter first, before the hearing.
Fee for a having a pet? Probably not, but there might be a provision in the documents that allows for it. It is better to treat costs related to having a pet as a reimbursement cost for any damage rather than a set fee for having a pet. This would probably not pass muster with the courts, unless there was justification through some fee or cost to the association in allowing pets.
Fee for having teenagers or small children? (No, would be discriminatory.)
Extra fees for extra vehicles? Depends on the governing documents.
Did I cover everything?
Probably not, but its a start. The bottom line is that the governing documents provide authorization for what the board can and cannot do and what obligations it has, and if a fee is not described in any of them as being authorized, there is probably a problem if the board charges.
Posted by Beth Grimm at 8:25 PM
