Smart Buyers Ask More Questions
Question: Ten years ago we bought a home in a common interest development. Now that we want to sell, potential buyers are asking us for detailed information, such as minutes and financial records for the past five years, proof of the large maintenance items for the last 10 years and pending common area problems.
The board reluctantly provided copies of minutes for one year but would not provide other information unless it was vague and summary in nature. What can we do?
Answer: Here is the reason your board was reluctant to provide that information. Civil Code Section 1365, part of the Davis-Stirling Act (DSA), says a board only need give the purchaser copies of seven documents: the pro forma budget; the master insurance policy showing earthquake coverage; the association’s lien enforcement policy; the Covenants, Conditions and Restrictions of the common interest development and any restrictions relating to the unit being purchased; a statement of the association’s current regular and special assessments and fees; any assessments levied upon the owner’s interest that are unpaid on the date of the statement, along with any monetary fines or penalties levied upon the owner’s interest and unpaid on the date of the statement; and any notice previously sent to the owner that sets forth any alleged violation of the governing documents that remains unresolved at the time of the request.
The buyer and the seller are not entitled to minutes or financials for the last five years or proof of the large maintenance items, such as the roof, the plumbing or exterior paint.
The DSA controls homeowner associations. Although buyers are free to make requests for documents and information before purchasing, the board does not have to provide them. And because management companies take their direction from the board, they are even less likely to cooperate with the homeowner or purchaser. Buyers today are smarter when it comes to understanding the impact some HOAs and management companies have on their lives. The homeowner, therefore, should ask the board and management company questions that a buyer would ask before the buyers ask.
Homeowners need to keep everything they get from their HOA, including minutes, financial statements, invoices and notices of any kind.
There are two reasons for this: First, you will be able to provide this to a prospective purchaser. Second, you may need it for evidence. Boards are required by the Davis-Stirling Act to keep minutes of their meetings, and their meetings are supposed to be open to the homeowners. A board’s unwillingness to provide minutes is an indication that there may be serious problems in this HOA.
Is Board Overzealous in Taking Precautions?
Q: I live in a 21-unit association in Los Angeles. Our monthly fees keep growing because our board is so petrified that the homeowners association will be sued that it keeps doing things three, four and five times over. The board hired a management company, and now the cost of some items has tripled. One or two estimates used to be enough; now at least five are required. A 10-minute hinge replacement that used to cost $5 when purchased from a hardware store and installed by volunteers now costs homeowners more than $450, including parts, labor and attorneys’ fees.
I have complained to the board and other homeowners about this. The board said it was none of my business, and the other homeowners tell me to forget about it. This is so ridiculous I can hardly contain myself. Is there any way I can stop this absurdity?
A: Even if your HOA was sued before the board adopted this overly cautious approach, it may not be realistic for it to be taking such expensive precautions.
Under the Davis-Stirling Act (DSA), your association is required to carry insurance. If you are sued, the insurance company should provide and pay for a lawyer to defend the HOA. Although management companies can add to the problems, it is the board that makes the decision whether to adopt their suggestions. Management companies are not essential or mandatory to running a CID or having an HOA, since many HOAs function well without them. So, if you don’t need their services, get rid of them.
If your board and the management company’s reaction is silence, open the phone book and find a nearby law school that offers a free legal clinic. Although many are staffed by law students, they are monitored by attorneys. Write down your concerns and take the board’s response, or lack of one, to the clinic. Have someone at the clinic review it and outline options. This is far less costly than hiring an attorney, arbitrator or mediator and may be quicker.
The solution is to elect responsible board members, but even if you cannot, those you do elect should be using common sense. Acting reasonably in the performance of its duties will usually insulate the board from liability.
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Stephen Glassman is a writer and an attorney in private practice specializing in corporate and business law. Donie Vanitzian has authored articles on American Civil Liberties, has a J.D. and is an arbitrator. Both live in common interest developments and have served on various association boards. Please send questions to: Common Interest Living, P.O. Box 451278, Los Angeles, CA 90045 or e-mail: CID CommonSense@aol.com.
