« NOISE ISSUES, WHERE WILL LIABILITY LIE? | Main | WRITE IN CANDIDATES - ARE THEY ALLOWED? »

October 3, 2007

Who is Responsible for the Big Assessment?

Here are 2 emails I received recently:

"Hello, Our HOA has just informed us there will be a special assessment to shore up our reserves. The shortfall in reserves is caused by a $100,000 UNDER BUDGETING of utility costs in 2006. I bought in in 2007. Am I liable for my part of these fees?"

"I hope you can help me. I have lived in my condo 12 years and the assessments have remained the same. Now, all of a sudden the Board says that we have a shortfall of about $21,000 per unit because the decks are falling apart and need to be fixed? How could that happen? Who is watching the store? I had nothing to do with this mess. Do I have to pay? What are my rights?"

Many associatons are facing large assessments. There are many reasons. Many new owners new and oldtimers alike are surprised as they had no idea that the association was a "ticking time bomb". There is nothing in the disclosure documents that indicates serious trouble ahead. Or is there?

One common reason for needing a large assessment is reconstruction. The problem often is not visible, but manifests at the time or after a contractor has commenced painting, residing, refoofing, etc. The Association finds that the reserves were seriously underfunded, costs have gone out of sight, conditions were not discovered until the siding was ripped off or the roof covering was raised.

But that is not the only reason and this blog is not about trying to figure out all the reasons for all of the possible large assessments that might occur.It is about who is responsible.

There are many possible answers to this.

The initial answer is that all owners in the development are generally responsible to share in payment of the expense that is driving the special assessment. And the fact is that if the owners do not pay, or try to withhold and fight the assessment, it likely will result in extra costs and a downward spiral of serious ramifications. "Owners" means those that own at the time the special assessment is "imposed". If the assessment requires approval of members, then the owners responsible would be those who own at the time the special assessment is approved, because it cannot be "imposed" until that time. There may be a few exceptions, but this is the general premise.

Owners responsible may have recourse against any or all of the following:

The seller, if the seller failed to make disclosures about pending assessments - but do not think this is a given. Sometimes the disclosures are there, but the unsophisticated buyer does not reognize the signs.

The Board, or the Association, if the Board failed in its duty in some way and the facts are supported by evidence. Simply assuming the Board should pay because the Board made a mistake is not sufficient to make a case. Sometimes the actions of others caused the problem, and the Board gets blamed. Sometimes the board members who are responsible for the shortfall are long gone - having sold and moved on without disclosing a festering problem. And as for suing for nondisclosure, be cautious here; a buyer cannot likely successfully pursue a claim against the Association, as there is no legal relationship and the Board owes no duty to the buyer. However, the Board does owe a duty to the owners and the seller is an owner, so if a buyer goes after the seller, and the seller can prove the board did not disclose what it should have, the seller may have a case against the association.

Experts or vendors, if the experts or vendors fail in their duty to the owners, buyers, or the Board or the Association. An expert or vendor could include a manager, whomever does the budgets, a reserve study preparer, an accountant, a realtor, a lawyer, or anyone who holds themselves out to be in an expert - who tells you something that is false or misrepresents the facts, or misleads you. Again, be cautious however, because it is easy to point fingers but not so easy to prove a breach of duty. Someone doing their job may make a mistake on their own steam, or may make a mistake based on malfeasance or mistakes on the part of others, or from receiving inoorrect information.

The common first reaction of owners when a large assessment is raised is to blame someone and resist responsibility. However, often the facts, as they unfold, turn out merely to be a lack of education and understanding of how to run a complicated business, as a volunteer lacking specific expertise. Should a volunteer be sued and held responsible for making mistakes, especially honest mistakes? Should current boards or owners that have stepped up to serve and overcome mistakes of past boards be blamed for the failures of their predecessors?

The best one can do to avoid a special assessment is purchase a single family home. But that does not mean you will avoid large, unanticipated expenses. And the truth is that the common interest housing developments often have more to offer in the way of amenities than single family housing.

So, if you are hit with a large special assessment, gather all of the facts you can before you embark on a course of frustrating resistance and end up paying even more costs! And if you believe someone else caused your losses, seek out more facts and get some good a realistic advice from someone knowledgable with HOA law. There are probably lots of attorneys out there that will take your hard earned money and start writing letters pointing fingers. But you are better off from day 1 talking to a legal counselor that will consider all angles, honestly assess your situation and chances of collecting from others, and who will determine all possible courses of action, and honestly discuss the best and worst possible scenarios given the facts and evidence available if you want to try your luck at suing someone.

Posted by Beth Grimm at October 3, 2007 9:11 PM