A House Divided : Increasingly, residents are battling their homeowners associations over defects, maintenance and fees. 'It's a real explosive area,' an Irvine lawyer says.

By JAMES S. GRANELLI

May 5, 1996 12 AM PT

TIMES STAFF WRITER

NEWPORT BEACH —

Tall pine and alder trees give Big Canyon Townhouses a woodsy atmosphere, and the cozy homes with their shake-shingle roofs, natural wood siding and balconies complete the rustic look.

But the forest-like allure also is the latest bane of 83-unit complex. Termites, left unchecked since the first buildings were erected 19 years ago, have devoured one balcony and supporting beams and chewed into other areas.

Facing another in a long list of woes that has pitted neighbor against neighbor, the association’s five-member board hired an extermination company last December and, without a vote of members, assessed every unit $2,000 to pay for the termite work.

The assessment temporarily doubled monthly fees for some to $667.25. Worse, residents fear future assessments or higher fees will be required to boost inadequate cash reserves, despite assurances from board members that neither will be needed.

“I’ve had to borrow money to make these payments,” said resident Fred Askari, who bought his Big Canyon Townhouses unit in 1990 and wants to sell it because he no longer can afford the high dues. “I’m afraid of future assessments. If we have another major problem, we could be wiped out.”

Askari and others angry with what they say is the board’s previous neglect of the upscale condominium complex are talking to lawyers about a possible lawsuit.

In fact, throughout the state, more and more residents governed by homeowners groups are battling what they contend are lax or recalcitrant associations.

No one keeps score, lawyers say, mainly because few fights result in lawsuits. Many are resolved in negotiation or in mediation and arbitration, and others die as residents give up.

“Homeowners are getting more vocal,” said Pleasant Hill lawyer Beth Anne Grimm, who has written a book about buying into homeowners associations. She believes owners are becoming more aggressive mainly because they are more educated about their rights--”and a lot of real nasty people are coming out of the woodwork.”

The disputes are going far beyond the neighbor’s bothersome cat or a car parked in the wrong place. They go to the foundation of home ownership: building defects, lax security, poor maintenance and rising fees.

“It’s a real explosive area,” said Lance La Belle, an Irvine insurance lawyer who represents homeowners associations.

* In Mill Valley, pervasive dry rot at Shelter Bay Condominiums led to a $5.2-million special assessment--about $50,000 for each resident--in 1991. The builder had neglected to install flashing around windows, doors and roofs during construction in 1964. Some gave up their homes because they couldn’t afford repairs.

* In Santa Monica, residents of the El Patio condos fought over whether to repair or replace their 30-unit building damaged in the 1994 Northridge earthquake. They finally decided to tear down and rebuild, but now they don’t have enough money for construction. The property, three lots wide, sits vacant on 12th Street north of Wilshire Boulevard.

* In Coto de Caza, two residents beaten by teens in separate Halloween night attacks in 1994 sued the homeowners group, among others, alleging it failed to correct problems with the private security force. One resident has since settled.

More infighting is a certainty. By 2000, as many as a third of all Americans will live in communities governed by homeowners associations, said Cliff Treese, who compiles such statistics for the Community Assns. Institute in Washington.

About 170,000 such groups exist nationwide. California is one of the leaders with 28,000 associations, about two-thirds of which are in Southern California, according to HOA-Info in Oakland. During the 1980s, more than 1,800 residential projects governed by homeowners groups were built annually in California. In the last five years, during the real estate slowdown, about 700 homeowners groups statewide were created each year.

Once buyers join those communities, they may find it tough to leave. Already confronted by a sluggish real estate market, they face the requirement of telling would-be buyers about problems not only with their own units but also with their complexes and their homeowners associations.

At Big Canyon Townhouses, for instance, cash reserves for foreseeable repairs are short $70,000, minor but costly defects continue to appear and the specter of higher fees looms. Last week, with the termite job nearly done, the contractor halted work after two residents questioned a waiver of their rights against it. It is little wonder that some feel trapped.

“I’m a prisoner here,” complains Barbara Lee, 59, who accuses the homeowners group of ruining her financially. “They’ve destroyed my life.”

Sea Island Drive is the only street in Big Canyon Townhouses. It bends around the inside corner on the southeast side of Jamboree Boulevard and Ford Road. It also provides the name for the homeowners group, the Sea Island Community Assn.

Built in 1977-78 by McLain Development Co. in Newport Beach, the townhouses are little more than a mile from the Newport Center office complex and Fashion Island shopping mall and less than two miles from the Corona del Mar Freeway.

“It’s a terrific location for professional people who live and work in the area. It’s in the heart of everything,” said Elynn Kemp-Allen, a ReMax real estate broker who lived in one of the townhouses for five years.

Prices also are dropping. Five years ago, the lowest price paid for a unit was $300,000. Last year, it was $155,000. Two units sold twice in that period, one dropping in price from $377,000 five years ago to $282,000 in 1994, while the other fell from $300,000 five years ago to $232,000 in 1993.

Location and low prices, however, aren’t attracting many buyers. Three owners sold their units last month, but at what residents consider bargain prices of $187,000 to $239,000. Two others took their homes off the market.

Kemp-Allen pointed out that special assessments, in particular, make the townhouses hard to sell, especially when the monthly dues exceed amounts paid in pricier projects nearby. “It also makes a difference on what the assessment is for,” she said.

The $2,000-a-unit tax for termite work came only two years after the association billed residents $3,000 each, payable over five years, to fix an unexpected discovery: The builder never installed concrete footings under Barbara Lee’s building. The repair bill to stop the building from sinking came to $450,000 and nearly wiped out the association’s cash reserve.

Some residents now worry about future soil subsidence and construction defect problems--and how much the board failed to find or neglected to fix in the 1980s.

“Our condo associations are learning by experience that there are going to be special assessments as the buildings get older,” Kemp-Allen said, “if they have not kept up with periodic maintenance.”

The anger is evident among Sea Island Drive residents, said Bill Cote, a Newport Beach real estate agent who specializes in selling high-priced estates. “They’ve been very acidic with each other.”

Lee, especially, has been incessant with her complaints and her efforts to sue both the association and McLain over construction defects. But she never accused the board of negligence, which even current managers say she should have done, and she filed too late against McLain.

Lee acknowledges that she has become obsessed with her travails. Tensions with some neighbors have exploded in public shouting matches. They accuse her, she said, of fostering discontent and causing property values to drop.

“Why are they after me?” she wonders. “I am a victim. My house was sinking, and they would not fix the house. I had to sue them to get them to fix it.”

Desiree Tarman of Villageway Management Inc., which now manages the complex, agreed with Lee.

“She kept going to the board saying there’s something wrong, but the board said go away,” Tarman said. “The board that was there at the time should have listened.”

Former board President Philip D. Wiltse, however, contends that the serious problems simply weren’t evident during the 1980s. The board filed a claim against McLain for water damage and dry rot, and the company agreed in 1985 to pay $35,000 for repairs.

But that agreement also released McLain three years early from the normal 10-year statute of limitations, the period within which construction defect suits must be filed. Board members soon regretted it.

One staircase later collapsed from dry rot, said Wiltse, then the board’s president, and the association had to pay $12,000 for a new one. Wiltse said he was told by a McLain executive that the association was supposed to treat the steps with preservatives. “Well,” he said, “I didn’t know we had to.”

Residents became increasingly upset with the board’s inaction. “People were throwing junk off their balconies because there was no cleanup,” Tarman said. “They didn’t hire anyone for routine maintenance.”

New board members were elected in 1990. They got rid of the old management company, which now is in bankruptcy, and hired Villageway. Inheriting a “box of junk” for records, Tarman said, new board members put repair projects on a long priority list.

The foundation repairs dropped Sea Island Community’s reserve to about $70,000, well below the required level of $250,000, residents said. The reserve has since climbed to about $180,000.

The board’s president, Robert A. Zoller, said the board ditched ideas to raise fees or add a special assessment to increase reserves. By cutting back on expenses for a while, he said, the board could build the reserve with surplus dues.

Tarman, though, gave residents reason to worry about future problems that could prove costly.

“It’s an older property and we’re making discoveries every day,” she said. The spa leaked because it wasn’t installed properly, and repairs cost $4,000. Gates in subterranean garages hadn’t been working properly because the wrong chains were installed, and repairs cost $2,000. And the plumbing is getting old, she said.

“We’ve been trying to build up the reserves, but we’re still spending money on repairs,” said resident Timothy Brown, who recently stepped down after four years on the board, the last two as president. “The board has made a commitment to improving homeowner equity, and these are the things we have to do.”

Associations usually are insured against members’ claims for, among other things, failing to pursue builders for shoddy construction and failing to maintain the properties. But insurers are likely to drop coverage if claims are filed.

Sea Island Community, for example, warned its members in a newsletter that its policy was “in jeopardy” because of claims being made on the insurer.

For former board members, the situation may be worse because insurance policies are more often excluding them from coverage, lawyer La Belle said. “They’re sitting on a powder keg.”

Homeowners associations, though, often have the upper hand in disputes with members because they hold the purse strings. Residents often can’t afford to sue or pay for private judges.

“There’s no good forum for homeowners to go to get a resolution of disputes, unless they can get their homeowners association to go to mediation and pay for it,” lawyer Beth Grimm said. Some of her clients, she said, pay the freight.

Homeowners, she said, “often get more sympathy from small claims courts than anywhere else.” Small claims limits recoveries to $5,000, but that’s usually big money for a homeowner, she said.

State law defines a slew of rights in homeowners associations, and boards generally are charged with maintaining common areas, keeping reserves at mandated levels, properly accounting for their expenditures and enforcing the covenants, conditions and restrictions--the sometimes onerous CC&Rs; that govern the minutia of daily life in association-controlled communities.

But laws are subject to challenge, and California doesn’t have a very well-defined set of appeals court decisions to govern the parties, La Belle said. The area of law is too new, and cases rarely get to court, much less appealed.

In lawsuits challenging CC&Rs; or other association rules, he said, courts typically look first to see if a restriction, such as one on satellite dishes, is generally fair and then whether the rule is being applied fairly.

“Any time you have a collective group setting rules that are supposed to be for the mutual benefit of everyone,” he said, “there are going to be disputes.”

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Homes By Association

California has 16.5% of the nation’s 170,000 homeowners associations, two-thirds of which are in Southern California. An overview of homeowner associations:

Association Split

More than half the associations in California cover condominiums and condo conversions. How all associations are split:

Condominiums/condo conversions 66%

Planned unit developments* 30%

Cooperatives 2%

Specialty developments** 2%

* Includes single-family homes

** Includes time shares and mobile homes

California counties with the most homeowner associations

Los Angeles: 9,400

San Diego: 4,000

Orange: 3,300