Spending big on questionable causes
Question: My wife and I are both over 55 and live in a common interest development.
When making decisions, our board of directors ignores the growing disparity in owner incomes. Although many of the younger owners don’t seem to have money concerns, most of us older owners are watching every cent. We are struggling to make ends meet while suffering through our monthly assessments being raised 20% every year without a vote from owners.
Members have approved three special assessments each in the amount of $15,600 per owner spread over four years and recently voted to allow a special assessment of $2,600 per owner due in 60 days.
Those of us who can’t afford this kind of money are outvoted. We’ve had to make withdrawals from our retirement funds to meet these payments and now worry if we will be able to afford staying in our homes.
Our bone of contention is that the board has voted to spend funds to adopt a state highway and donate money to a local politician’s campaign. Those of us who do not feel these items are appropriate expenditures have been told by the board president, “We’re doing it anyway.” Can the board do this?
Answer: Individuals are free to participate in a political process, but associations by the nature of their nonprofit status must not. Whether there is consent by owners for the contributions, it is possible the association may be violating an individual titleholder’s rights by forcing a donation to a political candidate not supported by that member.
Because older associations often contain a mix of residents whose ages and years of ownership vary, newer owners may be in a higher income bracket and have more disposable income. Unfortunately, you are in the minority and nothing in the Davis-Stirling Act protects minority titleholders. That does not mean the board may ignore your interests, however, just to satisfy the activists who participate in meetings or dominate elections and voting procedures.
Even though the board’s duty includes representing minority titleholder interests equally, being careful to avoid disenfranchising those who are not in agreement with the majority, Civil Code section 1366(b) allows boards to raise association assessments 20% a year without a homeowner vote.
Under Civil Code sections 1366(a) and 1366.1, members can vote to impose special assessments in any amount but only for a specific purpose, and any funds not expended for that purpose must be returned to the owners.
Civil Code section 1358(a) states that an association is “created for the purpose of managing a common interest development” but says nothing about frittering away titleholder money. The board’s obligation is to repair and maintain common property with owners sharing the costs for doing so.
Adopting a highway and donating to a political campaign have nothing to do with repairing and maintaining common property. Adopting a highway also involves donating to a cause with which not all the members may agree and, since it supports a state project, could also be considered political in nature.
Should a majority choose to contribute, activities like these open the door to legal challenges, even if only in Small Claims Court, which may require the association to reimburse the per-person or per-unit cost of the mandatory payments. Any lawsuit brought by a titleholder against the association forcing a halt to these contributions or permitting members to deduct their share of the contribution may result in the association having to reimburse the member for attorney’s fees and costs.
Most homeowner associations are formed as nonprofit corporations. Under the Revenue and Taxation Code, tax exemptions apply only if those nonprofit corporations “do not participate in or intervene in any political campaign on behalf of any candidate for public office.” The same wording is found in the Internal Revenue Code section 501(c)(3), and IRS rules forbid exempt organizations from involvement in political campaigns or activities.
Cases decided in California, including one relating to the California State Bar, have required nonprofit associations to permit members to withhold the proportionate amount of their dues relating to political contributions. Associations should not risk losing their nonprofit status because of political activities and should avoid political involvement of any kind.
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Questions can be sent to P.O. Box 11843, Marina del Rey, CA 90295 or e-mailed to noexit@mindspring.com.
