Owner Is Troubled by Board’s Handling of Fees

Question: I bought my unit in Santa Monica three years ago because it is not in a luxury building, there are only eight units and there is no management company. Last year our monthly fees increased from $110 to $150, and they are about to be raised again without an adequate reason.

Before I bought, I had no way of knowing there is a clique of homeowners that controls everything.

To date, our homeowners association has not complied with California’s 1994 earthquake retrofitting requirements. Retrofitting plans were drawn up several times before my purchase but no one followed through. When I purchased, funding to retrofit was readily available, but because of the domination of this clique of homeowners, their board buddies failed to secure that funding.

We have no reserves. All homeowners are now hit with three large special assessments. Though this doesn’t seem to bother the clique, it is a tremendous hardship for me.

When I bought, my real estate agent requested only a year’s worth of minutes. Despite the board’s knowledge and prior discussions, there was no mention of retrofitting in the minutes given to me. I have reason to believe the minutes were contrived for my benefit so I would purchase the unit.

I have phoned mediators, arbitrators and lawyers. They all want payment, and I can’t afford their fees. The board said they will not cooperate with a mediator or arbitrator and they know I can’t afford to file a lawsuit.

What am I supposed to do about these problems?

Answer: Your board’s obligation to repair, replace and maintain the common property, as stated in the Davis-Stirling Act, gives it the right to specially assess for that purpose, although the money raised must be used for those specific repairs.

Special assessments require the approval of a majority of the owner-members of the association unless the special assessment is less than 5% of the homeowner association’s operating budget. Then no vote is required.

In the case of your monthly assessments, the increase you experienced was more than allowed by law without a homeowner vote. If there was no vote, the increase, 36%, would be invalid under the law and may not have to be paid.

There is no requirement that homeowners associations maintain a reserve account under the Davis-Stirling Act, only that if there is one, an accounting of it be provided.

Though it should, the Davis-Stirling Act does not give buyers the right to inspect minutes of the association, and there is nothing in the law that states minutes must be “accurate.” This means there is no way for you to verify accuracy. You are relying on the board’s “good faith” to provide accurate reporting in the minutes.

Falsifying minutes is a breach of a board’s fiduciary duties to all homeowners and, if proven, could subject the association to liability for damages you suffered in relying on those minutes. The difficulties lie in proving your assertion and the cost of litigation. Saving the minutes you were given may prove vital should you become involved in a lawsuit with your board and would counter efforts by them to introduce different minutes.

Mediation and arbitration offer no real solution since, in most cases, the process is not free and the decisions are not binding on the parties. The informality of the process can also be unjust, as arbitrators and mediators are not “required” to rely on legal precedents or the evidence code in reaching their decisions. Some boards rely on the fact that most homeowners do not have a ready stash of excess cash on hand to litigate protecting their rights and interests.

If your building is one that was ordered retrofitted by a city, county or state agency, your board has the obligation to comply but it also has an obligation to notify the owners that a special assessment will be necessary.

Depending on the statute of limitations, if the retrofit order was issued before your purchase and noncompliance exists, you may have recourse against the seller of your unit or the real estate broker for failing to disclose the retrofitting requirement, your board’s noncompliance and the fact that a special assessment was necessary. Any assessment made before your owning the unit is the obligation of the prior owner, and you may be able to recover from that owner or avoid paying that portion of the assessment as it is not your responsibility.

If your association assesses for retrofitting now, you will have to pay that assessment. Check your homeowner’s insurance policy to see if it contains an “excess assessment” rider. If it does, this will often cover a special assessment levied against the homeowner-policyholder. If you don’t carry this coverage, contact your insurance agent.

Stephen Glassman is a writer and an attorney in private practice specializing in corporate and business law. Donie Vanitzian, J.D., is a writer and arbitrator and manages commercial property. Both live in common interest developments and have served on various association boards. Mail questions to Common Interest Living, P.O. Box 451278, Los Angeles, CA 90045 or e-mail to cidcommonsense@aol.com.