Board needs to enforce fee payment evenhandedly
Question: In the last two years, our 20-unit association has gone through four management companies. They quit because we are always low on funds even though we’ve increased our fees twice during that time. Some owners pay on time while others don’t pay at all. There aren’t even enough funds to put liens on properties, and the association’s common utilities were shut off for nonpayment. How can we get every owner to pay on time? How will my association’s situation of not having enough money affect me in the long run? Will I be held liable for costs incurred by my association? What legal action can I take to protect myself and my condo?
Answer: It is the board’s duty to uphold the covenants, conditions and restrictions (CC&Rs;), including enforcing payment of association fees. When problems such as these arise, boards and owners alike can ask for a “Request for Resolution” and an offer to meet with the other to discuss remedies for payment, including initiating a payment plan.
A board that does not make an attempt to enforce the rules evenhandedly may be setting a bad precedent for future collections and may subject the association to liability.
Under the Davis-Stirling Act, homeowners who don’t pay their monthly dues are subject to liens against their units when the amount owed reaches $1,800 or it has been more than 12 months that the dues have been delinquent. If the association has to file a lien, included in the amount the association is entitled to recover is the cost of the process itself, including foreclosure. None of the costs of collection are a debt of the other owners.
Raising association fees may not be popular, but allowing the association’s utilities to be shut off because of a lack of funds is reckless. The board is obligated to pay its bills and to review a reconciliation of the association’s operating and reserve accounts on at least a quarterly basis. That is the time to compare the budget with the actual expenses.
If the association employs an independent accountant, he or she can help devise a budget and help keep track of income and expenses. In situations like yours, failure to curb the board’s spending is a breach of the duty owed as directors and could result in liability on the part of the association.
The board’s statutory duty is to repair, replace and maintain items that make up the common areas. If those duties are neglected or performed poorly, property values could be affected.
Homeowners are the ultimate bankers for any association, and when a board makes a valid decision to incur expenses, all the owners are liable to pay them through their assessments. Part of protecting your assets requires active participation in your association’s affairs, from attending meetings to serving on the board. Staying informed and keeping appraised on association matters and board decisions are vital to owning property in a common interest development and to protecting one’s personal assets.
Read and understand your association’s CC&Rs;, bylaws and rules and regulations. Become familiar with laws that govern homeowners associations, especially the Davis-Stirling Act, in California Civil Code Sections 1350 to 1378.
Nominate yourself for a position on the board. Once you become a board director, the association’s directors and officers (D&O;) insurance will include indemnification coverage. D&O; insurance requires directors to act in good faith, in accordance with their fiduciary duties, and in the best interests of the association. The insurance coverage is designed to encourage volunteers to serve on their association boards.
Discuss additional protections that might be covered by your individual homeowner’s policy with your licensed insurance broker.
Meet with a California-licensed certified financial planner to discuss other ways to protect your personal assets.
--
Send questions to P.O. Box 11843, Marina del Rey, CA 90295, or e-mail noexit@mindspring.com.
