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Homeowner Association Law and Small Claims Court: A Mixed Bag

California Conference on Self-Represented Litigants

San Francisco, June 2011

Center for California Homeowner Association LawOakland, California: http://www.calhomelaw.orgCopyright 2011, All Rights ReservedJune 9, 2011

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CID: WHAT DOES IT LOOK LIKE? Planned unit development of single-family

detached/attached homes Condominium Mobile home park Stock cooperative Community apartment project Key feature of the CID: “Separate interest

coupled with undivided interest” [Civil Code §1351]

WHAT DOES IT DO? Provides many services formerly provided

only by local government Levies “taxes,” i.e. assessments, adopts

budgets, spends the money*** Can foreclose, like a bank, in order to force

payment of assessments Is run by an elected board with legislative,

executive, judicial powers i.e. behaves like government but with limited

statutory restraints on its powers.

CALIFORNIA LAWS GOVERNING CIDS

Davis-Stirling Act [Civil Code §§1350-1375.05]

Nonprofit Corporation Law [Corp. Code §§7110 et seq.]

Subdivided Lands Act [Sections 11000-11202 of the Business and Professions Code]

Local Codes: Cities and Counties

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Facts to Keep in Mind About 9 million Californians live in HOAs 49,000 HOAs in California in 2010 HOAs are home to all income groups, including

low-income California HOAs now control $10B – in cash Terms: HOA v CID Local governments tend to build affordable

ownership housing in CIDs, because of the high cost of land and/or high cost of labor; but state laws make affordability difficult to maintain

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Three Most Common Disputes Getting access to association records,

especially financial records Challenging election procedures and

election results Disputing assessments or other charges Convergence of all three issues: records,

elections, and assessments/charges

Association Industry Infrastructure Players: HOA board with corporate powers and

attorney on retainer Interlocking industry of property managers,

debt collectors, trustees and their attorneys Law firms or subdivisions of law firms

specializing in assessment collection and foreclosure; role of the debt collector

Typical homeowner has no attorney and is unaware of his/her consumer rights

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Small Claims Court as a HOA Dispute Resolution Tool: Legislative History

Access to records: AB 104/Lowenthal/2003; AB 1098/Jones; SB 1560/Battin Elections: SB 61/Battin; SB 1560/Battin Paying under protest: AB 2846/Feuer and

SB 137/Ducheny AB712/ Evans Internal dispute resolution: AB 1836/Harman

Why Use Small Claims Court? Affordable for homeowner. (HOA has

attorney and dollars) Relatively quick response by the court Statutes provide for both injunctive &

declaratory relief HOA has no internal dispute resolution

(IDR) program as required by Civil Code 1363.810 or refuses to participate in dispute resolution. Homeowner is forced to take dispute to the courts.

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Successful Small Claims Suits Chaney v Sun City Roseville (association

records/Placer County) Cooke v The Ranch (elections/Sacramento

County) Santaella v The Bridges HOA (disputed

assessments/Contra Costa County) Franz et al v Golden Rain Foundation

(association records/Orange County) Hurt v North Vine HOA (disputed

assessments/Solano County)10

What Are the Laws?

Access to records: Civil Code §§1365.2 and the Leisure World case

Paying disputed charges under protest and recovering them in small claims court: Civil Code §§ 1367.6 (a); assessments: Civil Code §§1366 and 1367.1 and 1367.4

Elections: Civil Code §§1363.03 and Civil Code §§1357.100

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Association Records

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Association Records: Civil Code §§1365.02

Members have a longstanding right under Corp. Code §§8333 to INSPECT and TO COPY association records Defines “records” Applies to community service organizations or (CSOs), e.g. the Golden Rain Foundation Lays out process for requesting records and a timeframe for getting access to them Places specific limits on the use of records

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Association Records, cont’d

Defines “enhanced” association records HOA may NOT charge “babysitting” fees; only

allowable fees are “direct and actual copying costs” and mailing costs

Directors have 24/7 right to INSPECT/COPY Specific limits on specific types of records that

homeowner can INSPECT and COPY Salary information is an HOA record

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Association Records, cont’d Redacting HOA records:

topics for redaction are limited charges to redact are limited to $10 per hour and a

maximum of $200 An HOA may sue if the homeowner misuses the

records and may recover reasonable costs/expenses

Membership lists: alternatives Homeowner may sue in small claims court if HOA

does not comply with Civil Code §§1363.03 Small claims court may award up to $500 for each

violation by the HOA and may order other kinds of relief

Paying Disputed Charges

Under Protest

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Paying Charges Under Protest

1367.6. (a) If a dispute exists between the owner of a separate interest and the association regarding any disputed charge or sum levied by the association, including, but not limited to, an assessment, fine, penalty, late fee, collection cost, or monetary penalty imposed as a disciplinary measure…the owner may pay under protest…and commence and action in small claims court…”

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TYPES OF ASSESSMENTS; LIMITS ON THE HOA’S POWER TO LEVY THEM

HOA has power to levy regular, special, and emergency assessments. Limits of this power: Civil Code §§ 1366 (a) et seq.

1. Regular assessments: paid on a periodic basis (monthly, quarterly, annually.) HOA can raise them up to 20% annually over the prior year’s assessment w/o consent of owners. Thus, dues can double in four years and triple in six.

ASSESSMENTS, cont’d 2. Special assessment: only if it exceeds 5% of the current

year’s budgeted expenses, does it require the consent of owners through a vote.

3. Emergency assessment: as its name implies, requires no consent of the owners. “Emergency”

defined in Civil Code 1366(b)(1)(2)(3)4 Elections to limit assessments must comply with Civil

Code §§1363.03 et seq. and Civil Code §§1357.100

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FORECLOSURE IN THECID ENVIRONMENT

HOA has the power to foreclose to force payment of assessments (of any type) and ALL collection costs: Civil Code §§1367, et seq.

HOA typically uses nonjudicial foreclosure Foreclosure can be used ONLY to collect

assessments and NOT fines or penalties. Assessments owed must be a minimum of $1800

excluding collection costs for HOA to foreclose Assessment figure can be less if owed for 12+ months

[see foreclosure handout for more details]

Foreclosure, cont’d Players: HOA board, property manager, debt

collector, trustee and their attorneys; and homeowner, who typically has no attorney

Foreclosure is not an absolute right: it must be preceded by multiple disclosure and noticing requirements executed by HOA board

Decision to foreclose must be made by the HOA board; it can’t be delegated to a HOA agent, e.g. property manager or debt collector

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Consumer Rights During Assessment Collection

Assessments as consumer debt. Thies v Wyman , 969 F. Supp. 604 (S.D. Calif. 1997 and Newman v Boehm, Pearlstein, and Bright, Ltd., 119 F.3d 477, 481 (7th Cir. 1997).

Rosenthal Fair Debt Collection Practices Act (Civil Code §§1788 et seq. and Federal Fair Debt Collection Practices Act (15 USC 1692).

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Elections

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Elections: Civil Code §§1363.03 Board and owners together to devise and adopt

certain specified election rules using Civil Code §§1357.100

Rules to specify how Inspector – neutral third party -- is to be chosen

Rules to specify other procedures consistent with the law and with HOA governing documents

HOA cannot use HOA money to promote a candidate or ballot proposition

Ballots shall be secret; procedures for maintaining secrecy are specified

Inspector shall retain custody of ballots prior to tabulation

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Rules for Writing Election Rules

Definition of election operating rule Rules must be in writing Board must deliver draft rules to every

homeowner Homeowners have 30 days to comment Rules to include a rule for choosing the Inspector

of Elections Board shall adopt the elections rules at a

properly-noticed board meeting

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Rules for Writing Election Rules Rules cannot prohibit self-nomination Board shall notify owners of election rules 15

days after board adopts them Owners with 5% of the voting power in the

HOA may call a special meeting to reverse the election rules

Election rules reversed by owners cannot be re-adopted for 1 year

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Elections, cont’d

Proxies are “permission slips” and not ballots. [See Corp Code §7613 (a)]

Inspector to tabulate the ballots publicly at a properly-noticed meeting: board or annual or special meeting

Any HOA member may witness the Inspector’s tabulation of ballots

Board to notify HOA members in 15 days of election results

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Elections, cont’d

Elections Inspector may appoint additional neutral persons for certain specified tasks

Allows member to revoke a proxy vote only if Inspector has not yet received it

Inspector may verify signatures prior to public tabulation of votes

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Elections, cont’d

HOA to preserve ballots for 1-year; custody and location of ballots to be determined under operating rules

Any re-count shall preserve confidentiality of the vote

HOA funds shall not be used to promote a candidate or issue

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What Can the Court Do? Order a re-count of the ballots Order a new election or order that

owner’s

name be put on the ballot Void the election Levy fines or penalties; award court costs

and attorney fees to homeowner Take custody of the ballots

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Liability Risks for HOA Homeowner may sue for violations of Civil

Code 1363.03 including HOA failure to comply with rulemaking procedures.

If owner wins, s/he may recover fees/costs. If HOA prevails, it may not recover any costs or attorney fees unless it can prove the suit was frivolous.

Preparing & Presenting Your Case

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Deciding Whether to Sue Factors:

Have all other remedies been tried? Are you ready to be your own lawyer? Do you

understand the laws under which you are thinking of suing?

Do you have the resources (time, money, political/emotional support, records/evidence; legal support)?

Long-term impacts of lawsuits on the HOA community/members – and you

Resources, cont’d

August 8, “Protecting Homeowners from Association Debt Collectors and Foreclosure,” San Diego County Law Library, 10-12:30.

To register, go to https://www.calhomelaw.org/workshopreg.asp

Future CCHAL workshops to be announced on the CCHAL website

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Resources Center for California Homeowner Association Law:

www.calhomelaw.org http://www.lsnc.net/?page_id=76 [for a comprehensive

list of Fair Housing resources on the website of Legal Services of North California.]

June 8, Practising Law Institute (PLI): “Using Limited Scope Representation to Protect the Rights of Homeowners.” Live webcast; 3 CLE credits.

http://www.pli.edu/product/clenow_detail.asp?id=56670 June 13, CCHAL workshop, “Discrimination and Fair

Housing Issues in California HOAs,” UC Davis. Visit www.calhomelaw.org to register.

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