Question: Our board and management are highly skilled at circumventing laws by using delay tactics for owner requests. Our association's accounting consists of nothing more than unverifiable summaries presented as fact. Management even announced they shredded everything before 2006 per board instructions; management and directors boast of attending seminars where they're taught these tricks. Last month, we were told we breached the CCRs [covenants, conditions and restrictions of the homeowner association], but no one told us these documents changed since we bought our home! How are we supposed to protect our assets if we can't get records?
Answer: It has become exceedingly difficult for owners to protect assets located in common interest developments, such as condo buildings and town home developments. Incredibly, there is no mandate that homeowner associations retain all records, let alone indefinitely. Worse, there is no per se liability for an association that fails to maintain and retain records created prior to Jan.1, 2006, as required by in Civil Code section 5210(a).
The board must distribute an annual or pro forma budget report and annual policy statement providing owners with association policy information within 30 to 90 days before its fiscal year end, according to Civil Code sections 5300 and 5310. But no law mandates a specific format or level of accuracy or that supporting documents be attached.
These reports typically consist of mere summaries, estimates and board or management-created statements. Such statements are designed to avoid raising any red flags. They're churned out by computer programs created for rote paint-by-numbers distribution, hence conveying little useful information. These reports are meaningless without corresponding raw data and cash accounting to substantiate the representations. In other words, reports and statements like these are unreliable for titleholders wanting serious reassurances in protecting their personal assets. Consider using such reports as outlines for making your own requests for documents.
Responsible owners must start collecting and stockpiling association documents the day after escrow closes. Access to requested records may be limited, so don't procrastinate, but do be concerned if requested items are not forthcoming.
When an association prepares a report, it has the option of delivering either the full report or a summary of the report to owners. If an owner requests to receive all reports in full, the association shall deliver the full report to that owner, not a summary, under Civil Code section 5320. But keep in mind that you must request full reports if you want to receive full reports.
The terms "pro forma operating budget" and "annual budget report" are interchangeable. There's no mandate that boards provide more than a guesstimate, or other flimsy types of accounting methods, for such budgets and reports. Because there are no per se statutory penalties for associations that fail to follow the law, there is no incentive for unscrupulous boards and managers to provide owners with timely, accurate, up-to-date information. The burden is placed on each individual owner to keep up with the document chase and to do so quickly or the documents, accurate or not, may no longer be available.
Under Civil Code section 4530, copies of requested documents may be made only with a "proper written" request. When an owner properly requests access, copies or inspection to association records, the request shall be granted within time periods stated in Civil Code section 5210. The association can be faced with a civil penalty of up to $500 for denial of each document request.
Owners should have final minutes that are signed for every regular board meeting since the day they moved in. As a precautionary measure, owners should request these documents every year. You can't protect your home, assets and investment unless you are aware of all contracts, proceedings and decisions potentially affecting your property and the development's financial health.
With tens of thousands of dollars in assets at risk, owners who went to small-claims court to recover the paltry civil penalty reported such awards were few. The $500 penalty is not a viable incentive for boards to comply with the law. The machinations needed for owners to qualify prior to filing an action also delays recovery of items requested. Some associations would rather pay the $500 penalty and still never produce the requested items.
Titleholders do not have to sell their property to get the same documents potential buyers ask for, such as transfer disclosures. These disclosures include the latest governing documents. Each year, ask your association for the documents noted in Civil Code section 4530 and ask for all "enhanced association records" noted under Civil Code section 5200.
Owners who have the foresight to begin collecting these vital documents when escrow closes, and thereafter without gaps, may be able to stave off expensive and time-consuming litigation, better defend an action if sued or allege with particularity their own complaint.