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Owner of Quake-Damaged Unit Unsure About Staying or Walking

SPECIAL TO THE TIMES; <i> Hickenbottom is a past president of the Greater Los Angeles chapter of the Community Associations Institute (CAI), a national nonprofit research and educational organization</i>

QUESTION: My condominium association has levied a special assessment of $4,000 to cover the cost of repairing earthquake damage to the common areas. I also must pay for damage inside my condominium unit. My unit has depreciated in value so that I now owe more on my mortgage that the unit is worth. It seems unwise to put more money into repairs.

I love my unit and the location is near my work. I don’t really want to move. However, because of the financial situation, I have been advised by some friends to simply walk away from the unit and default on my loan and association assessment payments. What can I do?

ANSWER: Walking away will have a dire, long-term affect on your credit rating and it won’t win you any friends in your association. If the bank forecloses on your unit, the bank generally is not required to pay the unpaid special assessment. The burden of your regular assessments that remain unpaid until the bank foreclosure and the special assessment will have to be shared by the other owners in the long run. There may be a way for you to get some financial assistance so that you can stay in the unit that you love. Contact the Small Business Administration to see if refinancing is a possibility. You may be able to refinance your mortgage loan at the unit’s current appraised value and obtain the assistance that you need for the special assessment and the damage to your unit.

Application to the SBA must be filed by May 15, 1994. The phone number is (800) 488-5323.

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How Can Board Hire Management Firm?

Q: We live in a 36-unit condominium association. If all of the officers want to resign from the board of directors, can they hire a management company to take over the management of the association? Do all of the owners have the right to vote on hiring a management company? How does the voting take place?

A: The board cannot stop functioning. The association must have directors who are responsible for making decisions and setting policies even if a management company is hired.

You can find out if the board has the authority to hire a management company by reading your association’s declaration of covenants, conditions and restrictions to make the decision without a vote of the owners.

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If the cost of hiring management would increase the annual budget more than 20%, then approval of the owners would be required. The board can call a special meeting of the owners.

A quorum of more than 50% must attend the meeting. The budget increase must be approved by a majority of the voters who are in attendance at the meeting.

Who Should Be Hired to Update Bylaws?

Q: I live in a small homeowner association. Some of the owners would like to update the association’s declaration and bylaws; however, there is no money in the budget for this purpose. Can we keep the cost down by hiring a paralegal?

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A: The board should adopt a budget that adequately covers legal expenses for the association. There are proper procedures that must be followed or you may find that the revised documents are unenforceable.

In my opinion, revision of the legal documents should only be done by an attorney who specializes in community association law. A community association manager or consultant would be able to assist you with the preliminary stages of the project but the attorney should review all of the documents and approve or write the sections that are being revised.

The attorney will advise you about the approval procedure for amended or revised documents and handle the recordation with the county.


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