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December 30, 2007
Getting Relief in Small Claims Court
I receive many many emails every week from individuals who have a story to tell about their boards, and board members who have a story to tell about other board members or owner misconduct. Some are continuing sagas of perceived misdeeds for many years. Sometimes the person writing to me is right. Sometimes an association has been very poorly managed. Sometimes there actually is theft, misuse of funds, embezzlement etc. Sometimes to get there an owner has to be persistent and enforce their rights to review records via authority in the Civil Code (Section 1365.2 to be specific in California). Likewise, sometimes a resident or owner has engaged in misconduct that is actionable under the law.
Some incidents are one time "fouls". I tend to see this with elections issues. Watch for a blog on this subject in the near future. Elections issues can be brought to small claims court. There are things to know and understand about the processes and ultimate remedies are not yet established as the law has some more or less "open ended" language.
I have had many telephone consultations with individuals (homeowners and board members who find themselves unable to cope with what other board members are doing) and Boards as well, to help them get their arms around problems and have advised many to try their luck in small claims court. Some of the reasons I send people in that direction are: (1) that they cannot really afford to hire an attorney to pursue the issue (and I know of no legal aid society to help them, (2) that I do not know where else to send them; (3) that I feel that they may get help there, if they are willing to do the actual footwork to get there; (4) that their claims are resolvable in small claims court and the remedies are clearly available in the law, and/or (5) that I do not believe they have a good case or are willing to do the footwork necessary to seek out facts that support what they say, and they do not want to believe me, and so I think that "testing" their theories there (in small claims) is the cheapest and least painful way for them to get a reality check.
In California, an individual can ask for damages of up to $7500 in small claims court. An individual can ask for fines of up to $500 each for many violations in the HOA arena, if they can provide proof or adequate information to support their allegations, and an individual can ask for reimbursement of attorneys fees in getting help to prepare a case. A Board can ask for up to $5000 in damages ($2500 if more than 2 claims are filed in a year). An individual or individuals can ask for certain relief with regard to elections that they believe are mishandled.
I am not making any guarantees about success. Success depends on clearly being right, being organized, having believable evidence and/or testimony available, and, I believe, being courteous and respectful of the hearing officer and the other party (no matter how much you might despise them).
Each district small claims court has an advisor that a person can call for free assistance in getting the correct forms completed and preparing a case to take to small claims. The advisors are not advisors on the law itself. But they can help immensely in explaining the process and how to organize the information you want to present. You will need a lawyer to provide you legal opinions and feedback on the pros and cons of your case.
Many boards believe that small claims court judges and hearing officers are biased toward owners. I have seen some "miscarriages" of justice in small claims courts, but not often. Likewise, I have seen serious "miscarriages" of justice in arbitrations. In both procedures, the hearing officer/decisionmaker is not locked into the law. Small claims officers can give orders based on equity or law. Arbitrators can make mistakes that are irreversible. Mostly, I think the hearing officers and judges try to be fair and just need to be properly educated on the subject matter. Plaintiffs and defendants need to provide sufficient backup information and/or testimony to support a cause of action, not just disatisfaction. This rings true for both sides. Being right is not enough. A rambling party can easily lose the hearing officer's attention, or piss them off. Many claimants are simply dissatisfied with their associations or an owner's conduct.
Many owners complain about continuing dire financial straights or large special assessments to pay for shortfalls, underestimation of costs, or deferred maintenance. But that does not mean that they "have a case". Associations are run by volunteers. And mistakes are made, but whether they are "actionable" under the law depends on the extent of the evidence of misdoings, and "proving it up" in court.
I do believe owners are at a disadvantage in that there is no identifiable "plaintiffs' bar" (group of attorneys that exclusively represent owners). That I think is why the legislature in California keeps crafting small claims remedies.
But small claims court is not a place to go and "rag on the judge" about how much you hate the Board, or from the Board perspective, what a pesky troublemaking resident a person is. Its a "mini court" of sorts where decorum, truth, and respect should reside. It's not a legal aid society, and it's not a "split the baby" forum, at least most of the time it is not. I would guess that the party that is "in the right" and that is organized, prepared, on time, respectful, and ready to offer proof of their "cause" has a very good chance of succeeding.
Watch for more blogs on use of small claims for elections issues and collections issues.
Posted by Beth Grimm at 2:30 PM
December 24, 2007
What if You Find Out That Assessments Are Not Being Allocated Correctly?
If an HOA is notified that it is not allocating assessments correctly, what should it do?
Some HOAs assess all owners equally and some allocate assessments on a pro rata basis based on exterior surface size or square footage of a unit. Some allocate operating expenses equally but assess insurance costs, water costs, painting or other costs on a pro rata basis based on square footage.
First and foremost, a Board should check the governing documents for the HOA to make sure it is allocating assessments properly. Improper assessment allocation can continue from year to year, from board to board, and from management to management incorrectly, and then someone comes along and says "Oops". And then what.
If an HOA is allocating assessments improperly according to the governing documents (usually the allocations appear in the CC&Rs, in the assessment, insurance and/or damage and destruction sections) and it is brought to light, a decision needs to be made about what to do. How far back do you go to try and correct a situation? Do you have to go back at all?
I believe these things matter, in California anyway:
The governing documents control on the allocation of assessments. CHECK ALL SECTIONS IN THE GOVERNING DOCUMENTS. If they are clear, they rule! If the allocation is not specified, then it probably should be equal (but this is not legal advice, only information, so consult with an attorney if you think your governing documents are silent on the subject).
A Board of Directors does not have authority to change the allocation without proposing a document amendment to the members and getting membership approval. Boards are not the almightly. They may have assessment authority to raise assessments or impose special assessments, within the statutory authority (Civil Code Section 1366), but they do not have authority to change the allocation, at least not without member approval or a court order. Thus, if the change occurred somewhere along the way and the allocation differs from what the governing documents say, legal advice is important (good legal advice from a knowledgeable HOA attorney).
Reliance of Owners (in paying an assessment contrary to what is required) is not a basis for continuing with improperly allocated assessments. Arguing that owners relied on the assessment allocation for years as a defense to misallocating the assessments and ignoring the governing document requirements or prescribed assessments probably won't fly, but again, get legal advice on this if you think it will. This is just my belief.
Recovering more than 4 years of misallocated assessments from any party may be an unrealistic expectation. 4 years is the outside statute of limitations on enforcing many debt types of contracts in California, and this time frame has been used to cut off recovery going back more than 4 years in assessment cases. So don't get your expectations up on this one, consult a knowledgeable attorney. If you base a collection process, and including lien and foreclosure, you may see it unravel before your very eyes, at considerable cost.
If you have been misallocating assessments for years and are called on it, or you do not believe you are misallocating, but have been accused of it, get help now! It is a situation that will probably fester into a much bigger problem if left unattended or ignored. Think about it. Say that an owner raises the question and at the time you have a special assessment that is being voted on by members that is misallocated according to the governing documents. You sign contracts. You move forward. You try to collect the improper assessment, and one or more owners resist. You could find yourself in a whole heap of a mess.
I know of at least one case where an arbitration that went against an association (a small one) resulted in a loss of attorneys fees of over $60,000 (for the other side), not to mention their own costs in defending a claim of misallocated assessments.
Get thee help!
Posted by Beth Grimm at 10:00 PM
December 20, 2007
What Do You Do About Board Infighting?
Board infighting is disastrous. And it usually occurs because board members let emotions prevail over good sense. This is a message I sent to a board today that constitutes the leadership of an association client of mine (for more than 10 years). I kid you not when I say this (board infighting) seems to be a fairly common problem. This was my message:
"I received 3 emails today from board members asking me to "go forward" with a project of some kind, all emails were different, and one had a set of minutes attached. Neither the emails nor the minutes were clear on what the message was. This uncoordinated approach indicates to me that there is considerable confusion and more going among board members. There are two projects on the table that have been discussed and for which I provided estimates over a month ago. I feel the need to clarify things for the board and management, in order to assist you in moving them off your table and on to mine, if that is your wish. Clarity and business-like approaches to association matters are the keys here to your future success.
It is hard for me to tell from your emails just what the problem is, and what it is that you want me to do. The meetings minutes reflect more than anyone needs to know about comments and derogatory remarks being slung about by each board member about another, and less than I need to know about what motions were passed relating to the work that needs to be done. No one seems to agree with anyone else. To be clear about the proposals that are on the table:"
[I then explained the projects, the cost estimates, and gave the Board blanks to check as to specific projects that the board was authorizing and provided a date and signature blank for the person authorized to give me direction and authority for the projects.]
And then I could not resist (maybe its the mother in me, or the desire to see everyone get along, or the mediator, meditator or problem solving attorney/counselor in me) to go on with a bit of a lecture:
"I will tell you all this. I see a lot of discussion here exhibiting personal frustration and things that do not need to be presented to each other or to me - and that is the discussion about why each of you feels the way you do - family issues, illnesses, stress, history, and what you think the other board members are suffering from, etc. I think at this point it would be wise to just agree that you do not all agree on processes, procedures, or the history or the future of the Board and association. Then you can just get down to business in a more business-like manner. That means raise proposals or issues without the explanatory "fluff", discuss them as if you were sitting at a corporate table, or if another visualization is better, as if a judge or decision making body were reading your emails (they do not like the fluff or emotional positioning when it comes to decision making, and every email is probably discoverable in a court of law).
Do not think that you can make decisions over the email either, it is not acceptable. Business has to be done at meetings. You all have to be civilized, follow parliamentary procedure, raise motions, discuss them, define them and vote on them. Majority rules when it comes to board decisions. I wonder if you need a "referee" for the meetings? I imagine that you may be putting undue pressure on management to "referee" when that is not his job. If you get to the point where you cannot hold a civilized meeting, either business will come to a halt or you could wind up in a serious situation, maybe even litigation. That is costly, so the best thing to do is to get down to business and help me help you all. I intend to remain objective and neutral in all things, and will not take sides. I will provide advice based on what the law says and what practically is good for the association and its members, not any individual board member.Your comments and criticisms of each other are unnecessary. To quote a famous detective: 'Just the facts m'am.' That's all I need.
I see you all as a "body" that needs to function more efficiently to get business done. I hope this message not only clarifies what is on the table, but also gives you the shot in the arm that you need to move forward and get business done in a rational, pragmatic fashion. I trust you will pass this message on to those board members who do not have email."
Maybe I went a bit overboard, but the point needs to be made. Board infighting is a cancer that needs a cure. Help should be sought if your association board suffers from this serious condition.
Posted by Beth Grimm at 8:34 PM
December 17, 2007
Are You Being Defamed? You Don't Have to Stand For It.
I earlier posted a blog that said boards and owners had no right to exert or threaten physical violence against each other - using the axiom "Sticks and stones may break my bones but words may never hurt me."
I feel that I should take this a step further because words can actually hurt a person. I stand by my earlier post that physical violence or threats are not the answer to words that hurt, damage the reputation, or misstate someone's intentions. But a decision does need to be made about whether to do something about such words, or "turn the other cheek."
In our world of homeowner association living, associations generally have access to legal counsel, and the funds to pay for it collected through assessments from all owners. Individual owners do not enjoy this kind of access. First of all, at least in California, most lawyers with considerable HOA knowledge and experience will only represent HOAs and not homeowners. There are many reasons for this, fiscal and otherwise, but that is not the purpose of this blog. The fact is that this creates a lot of stress for the owner-public that is unhappy with its homeowners association and cannot get help. And so, owners tend to be a lot more critical of the Board and individual directors, and the Association vendors, than the board is of the individuals.
Some owners go overboard in their frustration and defame the board members, the Association and sometimes the Association vendors, managers and attorneys in particular. How far overboard can they go without risk?
In California there are statutes that define defamation and guarantee certain rights. Civil Code Section 43 is one. It says:
"Besides the personal rights mentioned or recognized in the Government Code, every person has, subject to the qualifications and restrictions provided by law, the right of protection from bodily restraint or harm, from personal insult, from defamation, and from injury to his personal relations." Defamation includes libel and slander (Civil Code Sectiion 44)
Civil Code Section 45 and 45a define and explain libel which is "a false and unprivileged publication by writing, printing, picture, effigy, or other fixed representation to the eye, which exposes any person to hatred, contempt, ridicule, or obloquy, or which causes him to be shunned or avoided, or which has a tendency to injure him in his occupation."
Civil Code Sections 46 and 47 define and explain slander which is "a false and unprivileged publication, orally uttered, and also communications by radio or any mechanical or other means which:
1. Charges any person with crime, or with having been indicted,
convicted, or punished for crime;
2. Imputes in him the present existence of an infectious, contagious, or loathsome disease;
3. Tends directly to injure him in respect to his office, profession, trade or business, either by imputing to him general disqualification in those respects which the office or other occupation peculiarly requires, or by imputing something with reference to his office, profession, trade, or business that has a natural tendency to lessen its profits;
4. Imputes to him impotence or a want of chastity; or
5. Which, by natural consequence, causes actual damage.
With regard to defamation, 1, 2 and 3 above are important because if a person says or publishes something that says another person is a thief or embezzler (for example), is mentally ill, or is incompetent in serving the association, the subject of the comments may be able to sue for slander and get a monetary damages award without having to prove monetary losses.
This happened in a case in Colorado and an HOA and Board members received a judgment in the amount of $10,000 because of an owners comments published on two websites that publish a lot of criticism about homeowner associations, boards and vendors that serve them, especially attorneys. The Judge also issued an injunction that prevented the owner from (quoted from order of judge):
"1. Publication in any manner or forum, including, but not limited to, the news media, letters to editors, community newsletters, and internet and blog postings of the name of the B Lazy M Ranch Owners Association, the names of its property owners, or the names of its past and present board members;
2. Publication in any manner or forum, including, but not limited to, the news media, letters to editors, community newsletters, and internet and blog postings alleging criminal conduct, civil wrongs, and mental and/or psychiatric conditions, which refer directly or indirectly to the B Lazy M Ranch, the B Lazy M Ranch Owners Association, its property owners, or its past and present board members;
3. Communication by any means, including but not limited to, e-mail, letter, telephone, or in person with any member of the B Lazy M Ranch Owners Association, its property owners, and its past and present board members which in any way alleges criminal conduct, civil wrongs, or mental or psychiatric conditions by any past or present board member of the B Lazy M Ranch Owners Association."
Furthermore, the judge found that enjoining future conduct would not remedy the fact that there were communications published on the two websites that were defamatory and issued this order as well:
"Within 15 days of this Order, the Plaintiff shall contact the American Homeowners Resource Center, the Gazette YourHub, and any other internet website or blog on which she has posted contributions and shall request that all postings made by her which identify or name the B Lazy M Ranch Owners Association, the names of its property owners, or the names of its past and present board members, be removed from said website or blog. Within 30 days of this Order, the Plaintiff shall file with the Court and provide copies to opposing counsel proof of compliance with this Order."
The judgment in this case may be affected by an appeal, if one is filed, and so I will try to follow it and let you know of changes. I will also be posting more information on addressing defamation, as it is a "tort" (civil wrong) and there are remedies.
In all cases where I have been called upon to advise boards, or groups of concerned owners, I have always recommended that the best defense to any defamation claim is to publish facts, and not innuendos, accusations, suppositions, hypotheticals, or assumptions. "Just the facts, M'am." I always say that if you are going to publish something derogatory, that you need evidentiary support for the truth of what you are publishing. If I am asked to draft a communication, I require that the backup information be produced for me so I can verify the truth.
It is interesting to find, as I do in my experience, that the more outrageous or offensive the allegations about HOAs, boards, or even owners when the tables are turned are, the less believable the allegations are. The conduct of producing unfettered criticism without any substantiation with facts can generally be fairly easily countered with a subsequent publication of the facts, if the audience is contained enough. The other thing I see a lot of is someone says something unflattering about another, or, criticizes the other person by sending them (the target person) a communication, and the person assumes they have a defamation claim. The item or comment or statement has to be said or publishes to "someone else" to be defamation. Criticising a person to his or her face is not defamation, unless there are others in earshot and the comments are defamatory.
One last suggestion. If a person feels they are defamed and cannot afford an attorney, he or she can test his or her theory in small claims court in California for a filing fee of about $25, a service fee of $10-$30 or so, and a court appearance. Say an entire board is accused of stealing or embezzling funds through a publication by an owner. I believe that each board member could file a small claims complaint alleging defamation and seek up to $7500.00 (the small claims upper limit) in damages. If a plaintiff is successful there, the perpetrator (defendant) should be deterred from continuing to publish defamatory materials. In fact, based on whether the conduct is so eggregious it could make the"six o'clock news" [a "test" conceived, I believe, by Mary Howell, an attorney in Southern California], the hearing officer is likely to issue fair warning that future publication could result in subsequent multiple damage awards. The more offensive the text, the more likely it is to get the judge's attention and evoke sympathies for the person that is the subject of the derogatory comments.
The small claims remedy is often overlooked but in the hypothetical described, it seems very possible the small claims venue could be an affordable means of addressing defamation. It may not offer the "injunctive" relief (although I believe a hearing officer could issue sufficient warnings to practically effect an order to do or stop doing something), but it is an available venue. In the Colorado case, the HOA and board members were given a $10,000 judgment but I do not believe they recovered attorney fees and I suspect the fees probably equalled or exceeded the award. One has to consider the economic feasibility of pursuing litigation if one does not have the funds to fight based on "principal."
Posted by Beth Grimm at 9:52 PM
December 14, 2007
Would You Like To Win The Next Argument - Or At Least Be Heard?
If you want to win an argument with someone, you may need to try some real tactics - in order to be heard - because that is what it is about - being heard. I am going to concentrate a few messages on this topic, because I expect to be teaching and writing on this subject often in the months ahead. Here are some tactics that tend to work, if there is any chance of having a decent exchange.
One: Let the other person spout off some during the discourse. You cannot get through to someone who is filled with anger, righteousness, indignation, or a burning desire to be "heard"! Once that someone has had a chance to rant (no punching or slapping allowed though), they are as maleable as they are ever going to be and while they are coming up for air - it's your turn.
Two: If you begin to sound like a broken record, you need to STOP IT! - even if you feel you are 100% RIGHT AND THE OTHER PERSON OR EVERYONE ELSE IS 100% WRONG. People will simply become immune to your message. If you shake up your message or your approach, or both, that will probably take the someone you are fighting with or the everyone who disagrees with you by surprise, and may even result in getting someone to listen.
These tips are not for my edification - they really work! You can develop your own listening skills, but if the person on the other side of the table has none, then you have to help them out. It's that simple.
Posted by Beth Grimm at 1:59 PM
December 13, 2007
Cold is Relative - Making Do In Challenging Circumstances
It's cold outside! In California, in Iowa, and especially all across the midwest. When I tell my friends and relatives in Iowa that I think it is too cold, I am sure they feel like saying "poor baby". 30 or 40 degrees seems like a heat wave when you are experiencing temperatures down around zero or below.
The point is - it's all relative - to your surroundings, your state of mind, to your attitude, to the perceptions of those around you, and last but not least, in this case, toward your willingness to layer on the clothes.
You may wonder where I am going with this. Life is full of experiences. I attended an evening board meeting the other night to discuss a document amendment project. The heater in the clubhouse was not working - the pilot light was out, maybe among other things. When I walked in three board members were there and it was really cold in there - and since we were going to be sitting for about 2 hours to discuss documents, it was not likely to feel any warmer as time went on. First, I offered to light the pilot light (yes, I have done that, and being a "midwestern girl", its something you just need to know). The Board President, a male, in a kilt (this is no lie) did not take me seriously and just kind of laughed it off - or pretended he didn't hear me, I was not sure which. I honestly thought about leaving. It was probably around 35 degrees outside and maybe 50 inside (no lie!). I thought to myself ... "a kilt and a jeans jacket... haven't seen that in awhile", and ... "I guess if he can take it, I should be able to, wiith my warm pants, warm sweater, sweater jacket, uggs, and warm scarf." So I, along with the others, powered through it until finally, one of the handyman owners came in and fixed the heater. Then it got very warm very fast (it was a small clubhouse) and we all started to yawn, feel toasty, and tired ... I was glad to get out in the cold.
Then, I got home and there was an email from my 80+ year old mother in Iowa. She is in the middle of one of the worst ice storms of the century.
She told me that about 45,000 people in the Iowa City area lost power when ice covered all trees and wires and branches. Whole trees crashed down with the weight of the ice. She was without power from 11 A.M. to 7 P.M. one of the days. She reminded me that she lived on a farm with no electricity when she was young, and that thought kept her content with what she had - her gas fireplace worked, and she keeps a battery operated radio and camping lantern and candles on hand because of the possibility of tornados. She got ready for bed piling on the warm clothes and blankets prepared to weather the night, but her power outage ended by 7 P.M. She said that after sleeping in an unheated bedroom in N.W. Iowa during her teen years on the farm, she remembered how they took heated bricks wrapped in newspapers to bed with them, and she was not frightened of a minor storm in the Iowa City area. She closed with this: "At least is not boring here."
Ice storms, sub-zero temperatures, non-working heaters, kilts for goodness sake ... should I continue to whine about a little drop in temperature to freezing and a cold clubhouse once in awhile? It is all relative isn't it?
Posted by Beth Grimm at 8:41 PM
December 10, 2007
Bah Humbug - Don't Be A Scrooge, Now or the Rest of the Year!
"T'is the Season - Help Owners Figure Out What They Can Do - Rather Than Focusing On What They Cannot"
That is the theme of my latest E-Newsletter. It relates to "Holiday Displays" and other means of expression.
My feeling is that ... "If Boards would just stop with the jerk "bah humbug" reaction and think about it, there must be a feasible proposal for holiday and other displays in any type of HOA that is fair to all residents. People need a reservoir of joy. There is not enough of that going around."
The E-Newsletter focuses some on the law on "Signs, Flags and Banners … and the Like" - in California, which says (Civil Code Section 1353.6) that “... governing documents, including the operating rules, may not prohibit posting or displaying of noncommercial signs, posters, flags, or banners on or in an owner’s separate interest, except as required for the protection of public health or safety or if the posting or display would violate a local, state, or federal law.”
The law goes on to say that “… a noncommercial sign, poster, flag, or banner may be made of paper, cardboard, cloth, plastic, or fabric, and may be posted or displayed from the yard, window, door, balcony, or outside wall of the separate interest, but may not be made of lights, roofing, siding, paving materials, flora, or balloons, or any other similar building, landscaping, or decorative component, or include the painting of architectural surfaces.”
Okay, it is true that the statute says signs, flags and banners may not be made of lights or, basically, other things that are tacky or may cause damage to the buildings. But I provide a reasonable suggestion that could be refined for most any association that has common area buildings: “Non-twinkle lights may be strung on the balconies so long as they are not nailed, stapled, or glued to the building surface in any manner, and so long as they are not left on past 10 pm. All lighting must be supported by proper outdoor and GFI protected cords.”
This offers protection along with the opportunity to express joy for the season.
So consider telling owners what they can do and see what happens. You can go through the rules process to refine this, and include everything they can't, which sometimes makes the Board look like a scrooge is among them, or simply provide a catchall that says, if you don't see it here, don't do it!
And read the E-News, sign up so that you can get it on a regular basis, and enjoy! ... Just visit me at www.californiacondoguru.com, enter the site, and click on E-Newsletter Archive for the December edition and much more.
Posted by Beth Grimm at 11:12 AM
Ballot Revocation - Is it Legal in California?
Here is an elections question commonly asked: "Based on the new [California] election law, how can a homeowner change his ballot selection AFTER it was mailed?"
The new law found at Civil Code Section 1363.03(f) which states: "Once a secret ballot is received by the inspector of elections, it shall be irrevocable."
However, that is not necessarily the end of the inquiry. If the governing documents allow for proxies, and a proxy giver revokes the proxy before the election, then there is a dilemma that needs to be solved, because proxies are revocable. So I think at that point the issue is whether the proxy holder obtained a ballot for the proxy and sent it in, or not. Civil Code Section 1363.03(3) on proxies says: "The proxy may be revoked by the member prior to the receipt of the ballot by the inspector of elections as described in Section 7613 of the Corporations Code." So there is a period where the proxy giver can revoke the proxy (although it should be done in writing) and obtain and send in their ballot or deliver it as specified by the Board.
This is not revoking a ballot, but needs to be explained because of confusion in the new law relating to proxy use and how it fits with the new double envelope secret ballot procedures.
And there are other pertinent questions that might be appropriate. Were the owners mislead or was incorrect or inadequate information provided on the measure when they got their ballots? Is that why they want to revoke?
Maybe there is a good reason to consider allowing owners a second chance at the apple. If "damage control" is needed to head off an election challenge or additional steps are needed in the election process to be fair to those who are voting, then I say, consider the facts and circumstances before giving an opinion as to what to do in any given situation.
Posted by Beth Grimm at 10:52 AM
Who Fixes What When There Is A Common Area Landslide Into A Townhouse?
Here is a not-so-uncommon question of a nature that involves figuring out who is responsible when a problem starts in the common area and "flows" into the private areas of a townhome development.
I own a small lot in a PUD. A landslide occurred in the common area that resulted in damage to the structures. The soil in the common area of the Association gave way and that resulted in a landslide that slid into the townhouses. I am very concerned about the stability of the soil and also want to know who fixes what. The hill behind our complex is very steep. This slope is owned by the association and is part of the common area. Does the Association have legal responsibility to clean up the townhouses, repair the soil in the common area and stabilize the hill behind my lot?
This is obviously a complicated question and there are many factors that may come into play. Any owner or association that finds itself in this situation needs the assistance of some good experts in soil and in legal responsibility aspects. The parties may need coverage counsel to sort out responsibility of another party such as the insurance carriers.
These are the documents that need to be examined as they will dictate (for the most part, and hopefully) who is responsible for what portion of such an event:
The governing documents of the association: In California, the Bylaws, CC&Rs, Articles of Incorporation and any rules or policies related to repairs and maintenance responsibilities need to be examined. One would be looking for areas of responsibility with regard to repairs, insurance required, and maintenance responsibilities.
The insurance policies: The HOA and each individual owner should have insurance coverage for events like this. The HOA policies would generally cover the structures and the owner's policies would generally cover the belongings and often the fixtures and decorations, possibly the flooring and wall covering. One would be looking for primary coverage vs. secondary language, exclusions that may apply to the situation, covered items, and language relating to litigation defense (and whether the limits include defense costs or they are outside the coverage limits).
Expert reports: The cleanup, repair and stabilization efforts are all very involved, too involved for a board member or contractor without hillside stabilization, geological and/or engineering education and experience.
The Board of the HOA will probably direct efforts related to the hillside cleanup, repair, and stabilization. My guess is in most cases the documents will require it. The owners may have responsibility entirely for the inside of their dwellings and any personal property that was damaged (patio furniture, backyard pool equipment, etc.). The question of ultimate responsibility depends on the document review and expert opinions noted above. If any of the parties feels the other is more responsible or responsible for a portion of the development or private townhome than the documents say, then the next question is: was there negligence or intentional conduct that caused the landslide, or did any party fail in a duty or obligation to do their part to protect the hillside stability or the private yard and home areas?
As you can see, this is not an uncomplicated issue and there are many factors that need to be considered. Boards members can get some protection from liability for the decisions that need to be made by consulting the right kind of experts. In legal terms, this is a component of "good faith" that is required in order for the Board member to get some legal "insulation" from liabiity needed to minimize their risks in making decisions.
Posted by Beth Grimm at 10:24 AM
December 2, 2007
If Your CC&Rs Require EQ Insurance - What Should You Do?
I get asked to amend CC&Rs to require the purchase of earthquake insurance, and requests to amend to eliminate the requirement. I give similar remarks in either case. It is not good to have a duty imposed, without the ability to carry it out.
If a board wants to eliminate the requirement because it can't raise the money without an owner vote for a special assessment (under California requirements), I can understand that. I generally suggest though the importance of at least retaining the discretionary authority to purchase it, and explaining to members that the purpose of the amendment is to eliminate a legal quandary. I generally suggest that a Board explain why it is proposing what it is. Why? You can be sure that there will be members vehemently opposed to any measure that suggests the Board will not ever again consider purchasing earthquake insurance.
I would think any Board would still continue to at least review and offer to the members information each year, in order to bring the owners' interests into the fold in determining whether to purchase it, based on current conditions, including cost and availability factors, as well as available funds for purchase. And Owners being presented with a ballot to eliminate the requirement of purchase, need to know if the Board is still going to continue to address the question each year of whether and how much, if any, coverage to get, so they do not dispose of the ballot in disgust, assuming that is the end of the inquiry.
I get that the requirement to purchase earthquake insurance could hurt the association and board - it could lead to a lawsuit against the board members if they do not buy the insurance, or if they buy it and usurp funds from some other category of need to do it. But I do not care for the casual dismissal, when it is based solely on cost factors. Without a doubt, EQ insurance should be looked at each year, as it is such an important consideration.
And as to the purchase of it, even when the documents do not require it, I believe that Boards can get owner “buy-in” in many cases if the pros, cons, and options with regard to coverage are explored and are presented completely. I am certainly not in favor of keeping the language that creates the problem of having a duty to fulfill without the funds to do it, but I am always concerned if I believe that the idea of getting or keeping earthquake insurance has been dismissed too lightly.
In any situation where the Board wants to consider adding the requirement to purchase the EQ coverage each year so that future boards cannot drop it, I have to caution the Board that it not necessarily a good idea to write in a requirement that may place the Board in the position of having a duty without the funds to carry it out. When California sets limits on expenditures boards can make by limiting assessment increases - it leads to conflicts with documents that require boards to charge more in assessments (without a vote of the members) than is allowed to do legally. If the Board cannot get membership approval to raise the funds, it is thrown into a bad situation that could lead to a lawsuit, for failure to fulfill its duty. That would hurt all owners.
So, when considering proposing an amendment to the documents, either to remove the requirement to purchase earthquake insurance, or to add it, keep in mind that the inquiries are all the same, i.e., if a board wants to be prudent, i.e., there is a need each time the question comes up to consider what is available, what the costs are, what monies might be available, what the affect on the property values might be or what the difficulty in rebuilding might be if there is no level of coverage at all, what the financial hit might be if owners are not able to protect their investment individually, and whether it is fair for the oldtimers with equity let the newtimers with none decide that the risk is not worth it. And ... etc. etc. etc. - see the other articles on my website and blogs here for a lot more.
Posted by Beth Grimm at 6:56 PM
December 1, 2007
The Effect of the Mortgage Crisis on California HOAs
I received this email from my local Assemblymember (Mark DeSaulnier) via email, today.
"Homeownership is a source of tremendous pride and an important milestone on the road to achieving the American Dream. Unfortunately, many Californians are facing the possibility of home foreclosure due to unforeseen circumstances and events. During this crisis, my office is committed to providing you with the most up-to-date information and resources.
The Assembly Democrats are working on legislation to address the current mortgage crisis. For more information, please visit http://adc.asm.ca.gov/issues/MortgageCrisis. The information and organizations listed on the website may help you, your family and friends through these difficult times.
If you have any questions, please feel free to contact my district office at (925) 372-7990.
Sincerely,
Assemblymember Mark DeSaulnier"
This was my response to him:
"Dear Assemblymember DeSaulnier: I work in the HOA industry and the mortgage crisis is creating a homeowners association crisis as well. The delinquency rate in HOAs is increasing drastically, which makes it very hard for an HOA to operate without collecting extra money from those that are able to scrape by to make up the deficits.
What is being done to protect homeowner associations? You know that they support the infrastructure in California by bearing much of the burden for streets, sidewalks, parks, drainage systems and recreational facilities passed on to them by the municipalities.
Beth Grimm,
HOA Attorney and Resource Partner
www.californiacondoguru.com"
It's very scary folks. The subprime lending fiascos trickle down to the entire populace, including those signing on for loans that are able otherwise to bear the brunt of their own debt. If the burden created by overencumbering property with debt remains on the debtors and lenders and others that are trying to find compromises and workouts on the difficult loans, that is one thing. But we all know that as Californians, we are going to have to pay. In HOAs, it is very likely that all owners, assessment paying or those ducking the debt, are going to be hurt by the times.
So a fair question it is certainly fair to ask: What is being done for the HOAs that are suffering because of purchasers who hold no equity and can't afford to pay their loans?
Posted by Beth Grimm at 3:39 PM