Better to pay escalating assessments than to risk losing home
Question: My wife and I sold our home of 13 years and purchased a condo in L.A. Seven weeks after we closed escrow, owners voted to assess each owner tens of thousands of dollars payable that same year. Two years later, we were hit with a variety of assessments totaling $63,000 per owner. Without a vote by owners, monthly assessment dues have been raised 20% each year since we moved in.
I’ve lost my job and we’ve depleted our savings. We’ve spent more money in the four years we’ve lived here than in the 13 we had our house, and we have nothing to show for it. In calculating sales commissions, escrow, inspections, reports, disclosures, association and management transfer fees and costs, we need to come up with at least $25,000 just to sell our condo. We barely have that left in our bank account and have raided our equity to stay afloat.
What will happen if we stop paying the assessments? Are the assessment increases legal, and is there a way out of this?
Answer: A residential condominium is deed-restricted, which makes it much more difficult to extricate oneself from that property than it would be from a single-family dwelling without deed restrictions. When it comes to deed-restricted properties, the buyer’s diligence is much more complicated than for a customary real estate transaction.
In addition to scrutinizing the deed restrictions, it is important to determine what assessments are pending and likely to be levied in the near future. Pay particular attention to the budgetary processes, as the association must disclose anticipated special assessments for the major components. Civil Code Section 1363(f) affords association members access to records, including accounting books and membership lists. All owners should view the records regularly as part of their ongoing due diligence as deed-restricted titleholders.
Keep paying the assessments, or the association may foreclose on your property, either judicially or nonjudicially. Either could result in the loss of your property. Unfortunately, courts have stated that the requirement to pay dues is not dependent upon the association furnishing the services it is required to provide -- a truly ridiculous circumstance when the obligations to do both are imposed by law.
Civil Code Section 1367.1(c)(3) provides an opportunity for the titleholder and the association to agree on a payment plan, but such plans do not prevent the association from filing a lien for the unpaid assessment or foreclosing on that lien if the homeowner defaults on payment. A lien may also complicate efforts to sell or refinance.
Civil Code Section 1366(b) allows homeowner association boards to raise the monthly assessments up to 20% a year or impose a special assessment of 5% of the budgeted gross expenses for that fiscal year without a homeowner vote, provided that the association has complied with the requirements of Section 1365 regarding distribution of financial documents. This does not always occur, and the only way to challenge the assessments is with a lawsuit. The Davis-Stirling Act fails to penalize boards that do not comply.
Many titleholders mistakenly fail to take action and cut their losses once a policy of escalating assessments becomes apparent, and it appears this situation has brought you to the brink of financial disaster.
Should you decide to sell, commissions and certain closing costs are negotiable; shop around for the best deal. And many of the additional fees, seemingly unnecessary, imposed by a board of directors would probably be nonnegotiable. Such association-related fees are usually open-ended and attributable to the seller. Some management company contracts might also include clauses that allow them to charge fees for work that could be done by the seller and for doing tasks that are already being performed during the normal course of escrow by a licensed escrow company.
Regrettably, the success of the modern-day deed-restricted residential commons depends on the constant replacement of those who can no longer afford to stay, so salvage what you can.
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Questions can be sent to P.O. Box 11843, Marina del Rey, CA 90295 or by e-mail to noexit@mindspring.com.
