BUSINESS Real Estate

Board director has no right to conceal condo's mold problem

Association director taking steps to actively conceal a condo mold problem may be liable for fraud
Is a board director who sells his unit and moves away still responsible for any prior harm to owners?
For association documents, signed snail mail's simplicity far offsets its burden compared to electronic means

Question: Does a board director of Homeowner Association "One" have the right to tell a condo owner in a completely different Homeowner Association "Two" not to let a neighbor into the unit because that neighbor is going to tell all of the other owners that there is mold in a condo?

Answer: Whether or not a board director has a right to make that statement, there is no subsequent right to participate in a mold coverup. If the director or officials at both associations are aware of a mold problem and are taking steps to actively conceal it, they may be liable for fraud, misrepresentation and intentional interference with the business activities of the association. Because such conduct could easily be construed as reckless and willful, thus outside the board director's scope of association-related duties, Association "One's" indemnification may not defend him or the association in any related litigation, nor will it pay damages if damages are awarded.

Association "One" should be extremely concerned about the character of the director and his fitness to serve the association. Whether or not he has the freedom to use his director's position to make such a comment may be up to a judge to decide. Directors who themselves are a liability to the association should be removed from the board.

Ex-directors still liable for prior harm?

Question: Where there is a lawsuit pending against a homeowner association, is that association still legally responsible for the actions of any board director or directors who have harmed any owners or residents of that same association, even if any of those directors who were responsible for the harm have sold all their separate interests and moved away?

Answer: The short answer is yes. Even though that board director or all prior directors have divested themselves of all interests in that common interest development and its homeowner association, he/they are responsible for his/their harming of any owner, and each director may also be personally liable to the association for damages in addition to the harmed owner's damages. Although ownership of a real property interest (fractional interest) in the association may be a prerequisite for election to the board, removing that interest does nothing to alleviate prior liability. Allowing directors to sell off their obligations in a lawsuit along with their property would make it virtually impossible for associations and owners to hold these individuals responsible for their unlawful activities.

Even more problematic is the case in which directors sell off their property and assets to friends and family at a discount to protect themselves from possible collection efforts following the conclusion of litigation. These types of sales are generally held to be fraudulent transfers under the California Fraudulent Transfer Act and can be reversed by judgment creditors to satisfy the debt, under Civil Code section 3439.04. Directors who attempt to avoid liability in this manner may be subject to additional civil and criminal penalties.

Using email for association documents is risky

Question: The board and management constantly confuse owners regarding receipt of our letters. To ensure the board and management have received our mail, we send it requiring a signature. This is costly. I'm skittish about communicating electronically because I rarely check emails. Are there rules about any of this?

Answer: Civil Code section 4050 governs the delivery of a document. It says:

•If a document is delivered by mail, delivery is deemed to be complete on deposit into the United States mail.

•If a document is delivered by electronic means, delivery is complete at the time of transmission.

For owners who want to use emails and "electronic delivery" methods for association-related documents, it can get tricky and risky.

First, before using electronic delivery methods, the association and the owner must each formally (in writing) "consent" to receive information by electronic delivery.

Second, when a provision of the Common Interest Development Act requires that the information be in writing, then that requirement is satisfied if the information is provided in an electronic record, capable of retention by the recipient, at the time of receipt.

Third, an electronic record is not capable of retention by the recipient if the sender or its information processing system inhibits the ability of the recipient to print or store the electronic record, according to Civil Code section 4055.

Owners should be cautious about agreeing to electronic communication and document delivery. That one missed email could constitute legal notice. Missing it is irrelevant since you consented to communicate electronically.

Moreover, if litigation arises, your email at your Internet service provider along with your hard drive could be the subject of discovery subpoenas. Many owners are lured into communicating electronically with their association by the superficial convenience. This is a mistake: An ill-considered mouse click can immortalize your email, creating potentially inconvenient evidence for legal disputes.

In the end, when you need certainty to prevent communications "hanky-panky," signed snail mail's simplicity far offsets its burden compared with electronic means.

This column was co-written by Zachary Levine, partner at Wolk & Levine, a business and intellectual property law firm, and by Michael Krieger, a Los Angeles attorney practicing technology business and intellectual property law. Vanitzian is an arbitrator and mediator. Send questions to Donie Vanitzian JD, P.O. Box 10490, Marina del Rey, CA 90295 or noexit@mindspring.com.

Copyright © 2015, Los Angeles Times
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