RECENT DEVELOPMENTS IN HOMEOWNER ASSOCIATION LAW

							RECENT DEVELOPMENTS IN HOMEOWNER ASSOCIATION LAW
A shift in the balance of power By Barry Ross - June 05, 2006
Irvine, California

There are 36,000 common interest developments in, California comprising more than 3 million housing
units occupied by approximately 7 million people. This is roughly one-quarter of the state's housing. With
most of the new housing developments being common interest developments and the anticipated influx in
population, these numbers are likely to increase in the years ahead. The Legislature has recognized an
obligation to address some of the perceived abuses of common interest developments because of die large
number of people residing in them.

During the 2005 session, the Legislature enacted several, new laws designed to address the perceived
abuses; including limitations on assessment collections, limitations on the conveyance of the exclusive use
of common area, procedural safeguards for elections,changes in the architectural decisions and increased
access to homeowner association records.

LIMITATIONS ON ASSESSMENT COLLECTIONS

Incidents were reported where homeowners associations were foreclosing on homes of low income senior
citizens m order to collect thE unpaid association dues of a relatively small amount (i.e., less than. $1,000),
resulting in the loss of family homes, as well as the loss of substantial equity m their homes, in some
instances, more than $100,000. When, an incident was investigated, the Board of Directors said it was not
informed of this action by its staff and the property owners said they were not aware of what was
happening!

Senate Bill 137 became effective on January 1,2006 (see Code of Civil Procedure §§ '116.540
and 729.035). This legislation provides special protection to the property owner where the delinquent
assessments arc less than. $1,800. In such a. case, the homeowners association may file a civil action in
Small Claims Court. The homeowners association is not permitted to record a lien or initiate foreclosure
until the unpaid assessment exceeds $1,800 or the assessments are more than. 12 months delinquent.

In connection with any dispute relating to assessment collections, the homeowners association must offer
the property owner both. internal dispute resolution and alternative dispute resolution before proceeding
with foreclosure. In the even (hat the Board of Directors wishes to proceed with foreclosure, the Board of
Director must approve the decision by a majority vote and must provide written notice of this decision to
the property owner. In addition, the homeowners association must provide the property owner with an
Itemized statement of the charges owed by the property owner, Finally, the property owner has a, 90 day
right of redemption to recover the property after the foreclosure sale.

This statute will severely limit' the use of foreclosure to recover unpaid dues owed to the homeowners
association by the property owner.

LIMITATIONS ON THE CONVEYANCE OF THE EXCLUSIVE USE OF COMMON AREA

Incidents were reported where the Board of Directors of a homeowners association was granting certain
favored members the exclusive use of certain common areas, but denying this privilege to disfavored
members. It was also reported that the Board of Directors was giving certain members the exclusive use of
common areas, while the balance of fie membership was losing a valuable community asset An example is
a greenbelt area adjacent to two homes with limited access or utility to anyone other than the persons who
own the two homes.

The homeowners association conveyed the greenbelt area to the adjacent property owners for their
exclusive use, This conveyance deprived the general membership of the homeowners association access to
this greenbelt area, which, according to the governing documents, are intended to be for the benefit of all
members, not just the two adjacent members.
Civil Code § 1363.07 became effective January 1,2006. This statute prohibits a homeowners association
from granting the exclusive use of any portion of the common area to any member unless the grant is
approved by a super majority vote of 67%; however, the governing documents may specify a different
percentage.

In addition, the statute contains a variety of exceptions to the rule which would allow for a conveyance of
exclusive use of common area by the Board of Directors, without the requirement for a super-majority vote
of the members. These exceptions are: to eliminate or correct engineering errors; to eliminate or correct
encroachments due to errors m construction of any improvements; to permit changes in the plan of the
development submitted to the Commissioner of the Department of Real Estate; to fulfill the requirements of
a public agency; to transfer the burden of management and maintenance of any common area thai: is
generally inaccessible and is not of general use to the membership at large; any grant in connection with an
expressly zoned industrial or commercial development.

This statute will severely limit the circumstances under which a property owner can be granted an exclusive
use to any portion of the common area, .

PROCEDURAL SAFEGUARDS FOR ELECTIONS

Incidents were reported where homeowner associations were rigging elections so that the current Board Of
Directors could no!; be replaced by the challengers, even though the challengers might have more support
from the member's. The reported abuses Included ballot stuffing, disallowing legitimate proxies and
denying, the challengers access to homeowner association membership lists, facilities and media, In
addition, more subtle abuses concerned the adoption of voting procedures that made it more difficult for a
challenger to unseat an incumbent, such as changing the rules during the election process.

SB 6l will become effective on July 1, 2006. Civil Code § 1363.03 specifies procedural safeguards for
elections at homeowners associations. The statute states that all candidates and members advocating a point
of view must have equal access to homeowner association media, such as newspapers, websites, and the
Internet, as well as equal access to the common area meeting space.

The homeowner association is required to specify, in advance and in writing, the qualifications for
candidacy and the procedures for nomination of candidates. The homeowners association is required to
specify the qualifications for voting, the voting rules, the rules regarding proxies and the voting time
periods for the election.

In addition, the homeowners association must select independent third parties, 1 or 3, as inspectors of
elections. There are detailed rules on who may be an inspector of elections, as well as the specific duties of
the inspector of elections. An inspector may not be a member of the Board of Directors, a candidate for the
Board, or a person related to a member of the Board of Directors, or a candidate of the Board of Directors.
Persons who are under contract with the homeowners association may not be inspectors of an election
unless this is expressly permitted by the governing documents.

The balloting must be secret. Finally, detailed procedures are specified to assure that no one
knows the results until they are announced at the annual election meeting.

Civil Code § 1363-04 prohibits the use of homeowners association funds for campaign
purposes. This may prohibit the homeowners association from paying for food at a candidate's forum, even
though all the candidates are invited to participate m the forum.

Civil Code § 1363,09 specifies the remedies available to members when the homeowners
association violates the election procedures, The member may bring a civil action within one year of the
violation, The Court may void the results of the election. The court may also award the member reasonable
attorneys fees for the action, plus civil penalties of $500 per violation. If the homeowners association
prevail in such an action, the homeowners association recovers its attorneys fees and costs only if the court
finds that the member's action was frivolous, unreasonable and without foundation.

There has always been grumbling about the results of elections to the Board of Directors. With the
favorable attorneys fees provision, the grumbling is likely to be replaced with litigation.

CHANGE IN ARCHITECTURAL DECISIONS

The architectural decisions of a homeowners association, are generally based on aesthetic considerations,
such as whether the improvement is in harmony with the rest of the community. These decisions arc
generally not based on building codes or health and safety considerations which are generally determined
by the appropriate city or county that has jurisdiction over these issues.

Incidents were reported where homeowners associations were making architectural decision?which conflict
with the requirement of die building code, health and safety requirement, or other rules of the city or county
Property owners were in. a quandary when the homeowners association approved an improvement that the
city or county said was illegal, Sometimes, the Architectural Committee or the Board of Directors would
approve an improvement that was contrary to the governing document of the homeowners association.


SB 853 became effective on January 1. 2006. Civil Code § 1378 provides that a homeowners association
may not make any decision that, conflicts with any public law. This would include building codes, land use
requirements, and health and safety regulations. This statute also provides that the homeowners association
may not authorize any physical change in the common area that, is inconsistent with the governing
documents unless the change is required by law. This means mat if the governing documents specify that
there is a swimming pool in the common area, the Board of Directors cannot change the swimming pool to
a tennis court because that would be inconsistent with the governing documents.

In response- to this statute, a homeowners association may have to retain an archltect/civil
engineer in order to make sure 'that its decisions comply with the codes of the city or county.

INCREASED ACCESS TO ASSOCIATION RECORDS

II was reported that homeowners associations were not providing their members with records of the
homeowners association, Since the homeowners association is largely financed by dues paid by members,
it appeared to be abusive for the homeowners association to decline to provide its members with its
financial records so that the members could determine how well or how poorly the homeowners association
was being operated, Aside from refusing to provide the records, there have been instances where the
homeowners association has charged exorbitant fees for the records, or unduly procrastinated in producing
the records.

Civil Code § 1365.2 will become effective on July 1, 2006, This statute expands the list of documents of
the homeowners association that members are entitled to receive and describes the procedures for the
homeowners association to provide these records to members, within a reasonable time and at a reasonable
cost. The available documents include financial records such as balance sheets, income and expense
statements, budget comparisons, general ledgers, executed contracts, approved vendor or contractor
proposals or invoices, state and federal tax returns, reserve account balances and records of payments made
to or from reserve accounts. Also included are agendas and minutes of meetings of the members of the
Board of Directors and committees, the membership list, and check registers, There are a series of
exceptions to disclosure. These exceptions include documents that might lead to identity theft, fraud,
documents that are privileged such. as attorney client communications, documents that might invade the
privacy of persons, documents relating to disciplinary actions against members, personnel records, and
interior architectural plans.

As to membership lists, mere are some restrictions on access. The membership list roust be reasonably
related to the requester's interest as a member, .(whatever that means), If the homeowners association
believes that a member's request for access to the membership list is for some other purpose (whatever that
means), the homeowners association may deny the request for the membership list. Further, a member may
|choose to delete his or tier name from the membership list. The statute provides limited time periods for
the homeowners association to provide the requested records such as ten business days for records prepared
during the current, fiscal year and 30 days for records prepared during the two preceding years. The statute
also provides for the limitation on the fees. that the homeowners association may charge,for production of
records. The fees may not exceed $10 per hour for retrieving the records. Nor may the fees exceed $200 per
request.

If a member brings an action for non-disclosure of records and is the prevailing party, the member recovers
attorneys fees, However, if the homeowners association is the prevailing party, the homeowners association
recovers its attorney's fees only if the member's action is considered by the court to be frivolous,
unreasonable or without foundation,

There has always been grumbling by property owners that the homeowners association is refusing to
provide its complete financial records to its members so that the property owners can assess the
performance of the decisions of the Board of Directors of the homeowners association. With the favorable
attorney's fee provision the grumbling is likely to be replaced by litigation,

CONCLUSION

The changes enacted by the Legislature in 2005 will shift die balance of power in homeowners associations
away from the Board of Directors and in favor of the property owners, This will require an adjustment by
both the Board of Directors and the property owners, Some of the statutory modifications are unclear and
will require clarification by either the Legislature or court decisions. However, the direction of the
Legislature is unmistakable. The Legislature is moving toward providing more power to the property
owners and less power to the Board of Directors. This change is expected to continue in 2006.