If board attempts an end run around owners, tackle them

Question: Since 1988, our homeowners association fee has gone up 10% to 20% yearly and is now $700 per month. Three years ago, each of the 154 unit owners had to pay a $40,000 special assessment totaling more than $6 million for “maintenance.”

Today, owners were notified that a new law allows the board to make big emergency assessments without a homeowner vote. Board directors made a fancy presentation announcing that the association had a “life safety emergency.” They claimed the original rebar used to build the development is defective or deteriorated and imposed a special assessment of more than $17 million. The board appointed a project coordinator who has never done a project before. The contractor who did the work three years ago says he doesn’t really know how he missed these problems, but he’s also involved.

What new law allows such emergency assessments without owners voting? How can owners stop this project?

Answer: No “new law” allows boards to unilaterally impose emergency assessments without providing notice, an explanation and a titleholder vote of approval.

An emergency is an “unforeseeable” event defined in Civil Code Section 1366(b) as an extraordinary expense that is “required by an order of a court,” is “necessary to repair or maintain the common interest development or any part of it for which the association is responsible where a threat to personal safety on the property is discovered” or is “necessary to repair or maintain the common interest development or any part of it for which the association is responsible that could not have been reasonably foreseen by the board in preparing and distributing the pro forma operating budget under Civil Code Section 1365.”

Any assessments that are labeled “emergency” must meet that definition before being levied. Before imposing or collecting such an assessment, the law states that the board shall pass a resolution containing written findings as to the necessity of the extraordinary expense involved and why the expense was not or could not have been reasonably foreseen in the budgeting process. The law mandates that the resolution be distributed to all titleholders along with the notice of assessment.

The board’s duty in performing its due diligence includes understanding that projects of this magnitude require an experienced project coordinator with the expertise to perform competently. Hiring an inexperienced project coordinator, coupled with a contractor who failed to recognize major problems during the maintenance project three years earlier, suggests that the board may have been derelict in its duties. An extensive investigation should have been performed before implementing the first $6-million assessment, and one should be conducted before entering into a contract for the $17-million project.

To determine if there is an emergency safety issue, the board should hire an independent California-licensed structural engineer to reinspect the development and evaluate the original drawings and calculations under existing building codes.

The engineer should be able to find these documents at the local Department of Building and Safety. This individual should be independent from any contractor or investor. If the board is unwilling to do this, an independent examination still can take place. Titleholders do not need permission from the board to hire and pay for their own engineer.

Without a vote of all titleholders, the board may not impose a regular assessment that is more than 20% greater than the current monthly assessment for the association’s preceding fiscal year, so your association appears to have been within the limits for annual increases. And the board may not impose special assessments that in the aggregate exceed 5% of the budgeted gross expenses of the association for that fiscal year without a vote of titleholders.

To stop or slow down the project until a satisfactory investigation occurs, a titleholder may serve the board with a “Request for Resolution” -- follow the guidelines set forth under Civil Code Section 1369.530. Although mediation and arbitration methods may be utilized at any point, owners may still have to be prepared to file a lawsuit.

Among actions to take: Obtain copies of all board meeting minutes, looking for director motions, votes and passage of resolutions regarding the assessments. Be certain “rule changes” agree with Civil Code Section 1357.130. Scrutinize association insurance policies to learn if any of the damage is insured and verify coverage for breach of fiduciary duty. Obtain copies of bids, contracts and insurance information pertaining to contractors.. Balance special-assessment accounts receivable with accounts payable to verify expenditures.

--

Write to P.O. Box 11843, Marina del Rey, CA 90295, noexit@mindspring.com.