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June 2, 2008
Take It To The Judge - What Can He or She Do With An Assessment Request
People often ask what the court can do if an HOA or Owner takes a dispute to court. Basically, a judge can make orders to do something or stop doing something, and can make an order interpreting what documents say. However, in order to make an order, even the Judge has to have some legal authority to do it. Here is a question from a reader asking what a Judge can do with a request to approve an increased assessment plan:
"Our HOA just took a vote for assessments for unit painting. The ballot asked for a graduated increase in assessments for reserve funds over the next 7 years. Some houses are two story and some are one story. The CC&Rs required 75% of all units voting positive to change to graduated assessments. Every unit had to vote. A non vote counted as a no on the issue. It did not pass. The Association board is now going to a Judge to ask for a rulling to change to vote to a positive because they want a 50% plus one to make it pass. This is without going through the process of changing the CC&Rs to get what they want. Will this work for them? Can a Judge over rule CC&R requirements and change an election? Can those of us who appose this get our say with the Judge? Do we have to hire a lawyer? The Board is currently using the Association lawyer at all of our expense."
There are a lot of questions here and giving specific answers would require a lot of presumptions about the representations made. I did not review this HOA's documents and am not providing legal advice, but will pull out what I can answer in a generic form:
May a Judge order an increase in assessments in an attempt to sufficiently fund reserves over a period of time for a specific HOA project, when the measure presented to the Owners does not pass?
A Judge could approve an assessment imposed without homeowner approval if the use for the money qualified as an emergency assessment per Civil Code Section 1366. Emergency assessments are those that do not require HO approval and that are imposed to deal with safety and hazard issues, and maintenance items that need to be addressed but which could not be foreseen, but this situation does not seem to fall into that category as the plan is for 7 years of graduated assessments. Other than that, it seems to me that the law leaves it up to owners to approve assessments and not the court. Civil Code Section 1366 says that boards can increase assessments up to 20% a year and/or impose a special assessment that does not exceed 5% of the budgeted gross operating expenses of the association without membership approval. And if the assessments exceed these limits, homeowner approval is required. The statute says that approval of a majority of a quorum is sufficient for the assessment that requires a vote. If the vote is not legally approved by members, then I would be surprised if a judge attempted to overrule the majority will on that. And IF there was a requirement of a higher percentage for approval to fund reserves or adopt a different reserve plan, I believe a judge would be even more disinclined to overrule the documents.
If by "graduated" assessments the implication is increasing assessments that would exceed the Board's authority - then the above discussion would apply. If by "graduated" assessments the reader means changing from equal to pro rata assessments based on size of unit, or the reverse, (am wondering if that is why the one-story two-story reference is raised), then it would take a document amendment to do that, for sure. Many documents do require 75% approval to amend CC&Rs. It's a high percentage and so the legislature has offered a solution when an HOA cannot achieve that high of a supermajority to amend the CC&Rs. Civil Code Section 1356 allows an HOA to go into court and ask a Judge to approve the amendment if the HOA can show that it made diligent attempts to get members to vote, could not get the higher majority, and that at least, more than half of the association members did approve the amendment.
If such a petition is filed with the court, the members who wish to can oppose, but this is a court proceeding and going in without an attorney is a daunting task. There are many procedural rules.
I hope that this information helps this reader and others concerned about what the court can do with requests to raise money through assessments and to amend the governing documents.
Posted by Beth Grimm at June 2, 2008 8:40 PM