California Condo & HOA Law

« March 2007 | Main | May 2007 »

April 30, 2007

Breach of Fiduciary Duty - Can An Ex-Board Member be Sued For it?

Here is a simple question asked by a reader: "May an HOA Association board president or member be held liable for gross fiduciary negligence (known and intended activities in violation of civil code and CC&Rs) after they are no longer a board member?"

The simple answer is: "Yes."

Posted by Beth Grimm at 9:39 PM

Assessment Increases - Are There Limits?

A common question comes to me at least a few times a month:

"Is there a California rule or law that regulates the amount an HOA can raise monthly fees? The fees when I purchased my condo were $162.00 a month. They went up to $189.00 in 2005. As of January 1, 2007 the fees went up to $310.00 a month.That calculates to an approximate 16% increase then a 64% increase. I realize they were low to begin with but isn’t that excessive?"

I cannot say whether the increases are excessive or not because I do not know what the expenses of the association are. However, California law does have some limits on the amount that the board can raise the assessments without a vote of the members. Regular assessments cannot be increased more than 20% in a fiscal year without approval of a majority of a quorum of owners. A quorum is more than half of the members, so if more than half vote, and more than half of those approve, the increase would be valid. The Board would also have the right to impose a special assessment that does not exceed 5% of the budgeted gross expenses for the fiscal year, without approval of the members and sometimes special assessments are imposed and made payable monthly over a specified period of time.

There are situations, however, where the limits may be exceeded without a vote - and that would be in an emergency situation, which is defined by the statute (Civil Code Section 1366).

Posted by Beth Grimm at 9:22 PM

April 25, 2007

Condo Conversions - Buyer Beware

Condo Conversions - I have talked about them before. ...All I can say is ... Buyer Beware!!!!

Condo conversions are big business - converting apartment buildings to condominiums is a money maker - well, it is, that is if the market is right and the units sell quickly.

However, there are some very difficult stories out there regarding conversions. Here are some of the things that you need to know about a conversion. Turnover of an old building with deferred maintenance to a homeowners association, without sufficient reserves to modernize, can leave the buyers with a big headache .... and worse, a big expense, often that few involved can afford.

Condo conversion purchasers tend to be people who have lived in the building, or similar apartment buildings, and have not yet owned a home. They tend to be very naive. They are often excited at the prospect of home ownership. The investment to get in often eats up their entire savings. There is often nothing left over for major repairs.

With a little savvy, a person may be better able to avoid a bad deal. A watchful eye is important. An inspection by a well versed inspector is very important. A good look at the reserve study is critical. A good look at the underlying regulatory documents that contain the use and maintenance requirements and assessment provisions is important too. Unanswered questions are a red flag.

In order to get these documents, you may need to get the seller to provide them, or have the seller make a written request that the Association provide them, as I have explained in earlier blogs.

Most conversions involve older buildings, often more than 20 or 30 years old. Unless the "developer" of the conversion offers a substantially (and recently) upgraded building and sufficient reserve study with a healthy percentage of funding, the owners can end up in dire straights. An older building with lots of deferred maintenance that is either hidden or not apparent and a reserve study that uses estimates for useful life and replacement costs based on the same resources used to calculate costs for a newer building are definitely bad signs. "Underfunded reserves" is definitely a red flag in condo conversions, moreso I believe than in newer buildings, because newer buildings generally provide more time for "catch up", and rarely end up with multiple major reconstruction issues coming all at the same time.

In some cases, developers' contractors, in the process of "cleaning up", have even covered up worn out components, sometimes intentionally, sometimes not. Replacing some parts of the components without replacing all could result in a big surprise when the "covering" such as the portion of a roof or siding has to be removed because of deterioration or dry rot under the surface. It is quite obvious that no one is going to replace all components in an already constructed building. That would require starting over and rebuilding the building, and that is not the point, of course. If a developer wanted to start with a new building, they would more likely start with bare land.

Condo conversions tend to be less expensive than brand new units and would seemingly tend to appeal to people who are looking for the most "affordable" housing available. However, this creates a member base that is not rich with assets to cover unanticipated special assessments. So just be careful.

To recap:

If you are considering purchasing in a converted apartment building, check out and consider these things:

1. Look closely at the reserve study. Ask a knowledgeable contractor if the useful lifes of the components, given their age, seem realistic.
2. Check the percentage of reserves that has been funded (money in the bank, not a promise or budgetary or accounting figure) per the reserve study (the percentage funded is a disclosure requirement in California)- and give thought to whether you can weather a special assessent if the percentage funded is less than 100% (which it probably is - as it is very common).
3. Have a knowledgeable inspector do a walk through and property inspection report and note for you any areas that are questionable and that might put you at risk because of hidden damage (it seems that a conservative, and perhaps realistic approach would be to assume the worst) and if there are such areas, consider that further inquiries or tests should be explored.
4. Understand that the soundproofing, or should I say the lack thereof, is likely to present noise issues, especially if there are stacked units and there is no prohibition on the installation of hard surface flooring.

And last, but not least, have a knowledgeable person explain the covenants, conditions and restrictions to you, and opine on whether they are comprehensible.

And ............ pray for a good real estate market in case you get in and cannot stand it.

Condo living is different than apartment living in a few very big ways:

**Others make the decisions for you on how much money is needed to keep the place up, and it comes out of your pocket, not the landlord's. There is no specific limit on your risk. AND
**You cannot just move out and put it all behind you if you become disillusioned or unhappy with your purchase.

Posted by Beth Grimm at 7:50 PM

Singling Out Children - What Can We Do?

The following is a somewhat common complaint ... especially common in a development that started out either being advertised as a community for seniors or mature people or a smaller community that attracted more "mature" (meaning older) residents. In 1988 the Federal Laws changed such that seniors communities have to have certain attributes to continue to prevent younger residents. Since many developments no longer qualified after the law changed, younger families began to move in to these developments and it created an uncomfortable situation for many. So here is a recent common complaint from the younger set:

"I feel as we are being targeted for having kids and the kids can't go outside with out being yelled or cursed at. There is no place to play but we live in a court so the kids want to use the street for basketball and frisbee, but the neighbors continually complain. What can we do? "

And here is a complaint from the older set:

"We have children in our neighborhood running wild. There is no place for them to play so they play in the parking lot. I pray every day that I do not run over a child - can't the Board stop this? Maybe if the rules were enforced, these families would move on - somewhere meant for kids. What can we do?

I could say "... Just learn to get along!" But it would not matter which of the above parties I said that to ... the differences do not go just fade away through logical thinking. Everyone wants to be comfortable in their living situation.

So, here are some suggestions I have made in this scenario:

If you have a clubhouse or meeting room, try to arrange some Saturday parties or activities to achieve interaction between the older and younger families, the children and adults. Put up a sign announcing the activities and make them inviting. There are many possibilities: ask for volunteers of older folks to share stories with the younger ones, have a reading hour with volunteers and children's books, set up a game afternoon for cards lor games like "Go Fish" or "Old Maid", puzzles or even charades.

If there is no place to play, but the street or parking lot, consider allowing some activities, possibly limited at times of the day when the areas are least busy, with volunteers to oversee or supervise the activities, warn of cars, blow a whistle, get everyone to the side of the street, in other words, the kinds of oversight that one might use at a pool to give everyone a break or address a situation where the pool needs to be emptied.

Look for a solution, an area in the development that might be developed into a small tot lot and explore that as a possibility - if the children of the younger variety.

Seek out and provide information about programs, parks, schools, churches or other places nearby where children can get involved in activities.

There is no easy answer - but someone needs to make an effort to find common ground between the "youngsters" and "oldsters". Otherwise, you may face "war", political stress and ongoing complaints at board meetings, demands and complaints back and forth between and among neighbors, and at the worst, a Fair Housing Complaint based on comments, actions, rules or something else going on that makes families with children feel like they are being mistreated. Real or perceived, this kind of ultimate result is painful for all involved.

Posted by Beth Grimm at 7:23 PM

April 16, 2007

Bigger is Not Always Better - Parking Next to A "Hummer"

I hate to pick on Hummers (and other giant vehicles), but they are not for everyone, and not for every homeowners association. Here is a real live dilemma from a reader:

"When I purchased my condo I did not know the parking space that came with the condo would be a compact parking space. My neighbors on each side own oversized trucks and they are also parking in compact parking spaces so I have real problems getting in and out of my car. What can I do? Should the HOA tell these owners to park their oversized trucks either in their garages or somewhere else? Is legal to park oversized truck at compact parking space?"

This is a real problem, and not an uncommon one. Developers often have a minimum number of parking spaces that have to be included in a plan before it will be approved by the City or County. In order to do so, the spaces are drawn very tight. This same thing happens in many parking garages (such as Pier 39 in San Francisco - ever been shut out of your car there because you could not get the door open?). Then, the car factories turn out bigger and bigger cars. The result - cars that are too big for the parking spaces.

It's hard to say what happens in the above circumstance. If the Association limits vehicles in the development to those that will fit in the parking spaces, it leaves open the possibility that everyone could park, but no one could get out. If the HOA limits the size of vehicles that can be parked in the development, it might run into trouble - especially when owners who have already purchased there have their vehicles and have no where else to park. If there are garages that would accomodate the bigger vehicles, it seems fair to require that owners park the larger vehicles in the garage and not the [tight] open parking spaces.

If owners have larger vehicles that do not fit into the garages or reasonably in the parking spaces, it might be time to look at expanding parking space size somewhere in the development, even if it is in an inconvenient area in the parking lot (assuming you have areas where this could be done).

If the HOA does nothing, an owner might be successful (take pictures with) in small claims court by claiming "nuisance". Most CC&Rs (and there are also laws in the state) prohibit nuisances and this might be considered one of them.

In a development in Tahoe years ago, most owners and visitors ended up with SUVs which did not fit in the single garages. There were not any parking spaces, so the residents parked the vehicles all over the complex, including in emergency fire lanes, especially when there was snow. It was a mess. The choices were to rebuild all of the garages (at a huge cost) or park off-site. The resolution was that the Association was able to lease some space next door to the development and turned the area into a parking lot where residents with vehicles that did not fit in the garages had to park (hence, the idea to utilize space - although inconvenient - in the back area of the parking areas in the HOA that no one uses because of the inconvenience).

This seems fair to me. How about you?

Posted by Beth Grimm at 9:25 PM

April 8, 2007

Compel an Owner to a Hearing - Can We?

Here is a question sent to me recently: "What can our Board do to compel an association member accused of nuisance to attend a disciplinary hearing?"

[Does this sound familiar to you? It is very common.]

"Our small association has experienced occasional problems with one owner over a decade. This owner periodically rents her unit to noisy guests. Our membership is perhaps more tolerant than others, but even we have our limits. One particularly bad recent incident roused our Board to initiate a discipline hearing via a special meeting. We have tried to set everything up to comply with California Civil Code. We are set to post notices, allow for member input of testimony, and then proceed into executive session with the "defendant" where we can discuss remedies and, if necessary, discipline. But we cannot get the owner to show up."

Here's a newsflash! The Board can hold the meeting to consider discipline whether the owner shows up or not. The key is to give the owner adequate written notice of the meeting/hearing and thereby, the "opportunity" to attend, and to provide the required written decision after the Board has made the decision on the proposed disciplinary action. And if you can, it is good to allow some leeway and perhaps one continuance or alternate date to accommodate, but it is not required by law.

So, move forward......

Posted by Beth Grimm at 7:54 PM