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Assessments

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MOVE-IN FEES

Q. 
May our homeowners association charge a $500 move-in fee whenever a new owner moves in?

A. 
No.  Under California law, an association may  not impose or collect an assessment or fee that exceeds the amount necessary to defray the costs for which it is levied. Top


DISPUTING ASSESSMENTS

Q. 
The management company for our homeowner association has billed me for assessments that I dispute.  They are constantly making errors.  How do I dispute an assessment?

A. 
The California Civil Code permits owners, under certain circumstances, to dispute the imposition of assessments by their association using alternative dispute resolution.  To challenge an assessment, an owner must:

         A.     Pay in full to the association:

1)      The amount of the assessment in dispute;

2)      Late charges;

3)      Interest; and

4)     All fees and costs associated with the preparation and filing of a notice of delinquent assessment (lien), including all mailing costs, and including attorney’s fees not to exceed four hundred twenty-five dollars ($425)

B.       State by written notice that the amount is paid under protest; and,

C.       Mail such notice and payment to the association by certified mail not more than thirty days after the recording of the notice of delinquent assessment.

Upon receipt of such notice (and payment), the association must inform the owner that the owner may resolve the dispute through alternative dispute resolution, as set fourth in Civil Code section 1354, civil action or any other procedure to resolve the dispute that may be available through the association.

The right of any owner to dispute the imposition of an assessment may not be exercised more than two times in any single year, nor more than three times within any five calendar years.  Top


LAKE MAINTENANCE ASSESSMENTS

Q. 
I live within a large homeowner association in Agoura Hills that includes a lake which is surrounded by homes. My home is not within view of the lake, nor do we use it. It seems unfair for us to be assessed for the maintenance of the lake when we can’t even see it. Do we have any recourse?

A. 
Other than moving, no. If your CC&Rs ( Covenants, Conditions and Restrictions) require that you pay a share of the maintenance, you must do so. It is a contractual obligation you agreed to when you purchased your home.

Even if you cannot see the lake or don’t use it for recreational purposes, it is a unique amenity that increases the value of your property. Top


EQUAL OR UNEQUAL ASSESSMENTS

Q. 
As the owner of a property management company, I’ve noticed that while most homeowner associations have equal monthly assessments, some have unequal assessments. How is this determined?

A. 
It is determined on the basis of the budget submitted by the developer and approved by the California Department of Real Estate (DRE).

DRE regulations allow the use of variable (unequal) assessments only if one unit will derive as much as ten percent more than another unit in the value of common goods and services supplied by the association. This calculation requires a detailed analysis which separates variable costs from fixed costs.

If you need additional information, I suggest you obtain a DRE budget worksheet from the California Department of Real Estate. Top


ASSIGNMENT OF RENTS

Q. 
We have several homeowners in our association who are severely delinquent in paying their assessments but collect rent each month from their tenants. What do you recommend?

A. 
If your CC&Rs include an "Assignment of Rents" provision, your association can collect the assessments directly from the tenants. If your associations' CC&Rs do not include this type of provision, your board should consider a simple amendment. Otherwise, your association must follow the same procedure as though the units were not rented. It is far easier to collect assessments when the CC&Rs include an assignment of rents provision. Top


NEGLIGENCE OF BOARD

Q. 
Our board of directors refuses to obtain a reserve study for our homeowner association. Can board members be held legally liable for negligence if they won't obtain a reserve-study?

A. 
Yes. Negligence is a civil wrong (tort) that has the following elements:

          (1) The defendant must owe a legal duty to conform to a certain standard of care for the protection of the plaintiff,

          (2) The defendant must have breached his duty by failing to conform his conduct to the required conduct,

          (3) The breach must be a legal cause of the plaintiff's injury, and

          (4) The plaintiff must have suffered actual harm.

The California Civil Code, with few exceptions, requires the board of directors of an association to obtain or prepare a reserve study at least once every three years. Whenever a board is required by law to do something, it owes a legal duty to act accordingly. Failing to obtain or prepare a legally required reserve study constitutes a clear breach of duty. If such a breach causes harm to members of the association, the legal elements of negligence have been satisfied and the members may successfully prevail in a suit.

Failure to obtain a serve study can result in any one or more of the following types of harm:

          (1) It may result in a large special assessment being imposed which some members of the association may find difficult or impossible to pay.

          (2) A member of the association may find it difficult to sell or refinance his or her home which may cost money or even result in a foreclosure. Buyers and lenders are becoming more knowledgeable and are often refusing to become involved with associations that do not comply with the law.

          (3) Owners may suffer the consequences of being a member of an association involved as a defendant in litigation brought by another member. Top


DISPUTE WITH DEVELOPER

Q. 
One of the members of our homeowner association in Palmdale refuses to pay her monthly assessments because the developer has not made repairs to the interior of her individual home. The developer is still in control of the association. What should the board do?

A. 
The board must enforce the established delinquency policy and should assume no responsibility in assisting the owner in her dispute with the developer. An owner's dispute with the developer is not an effective defense to the payment of assessments.Top


REQUIREMENTS OF RESERVE STUDY

Q. 
How often is a homeowners association required to obtain a reserve study?

A. 
The California Civil Code requires associations to complete reserve studies every three years and to review them for accuracy each year. Reserve studies are excellent for planning and generally eliminate the need for special assessments as well as the liability associated with special assessments. Top


DEVELOPMENT OF BUDGETS

Q. 
What are the most common errors made by homeowner association boards and management companies when preparing their HOA budgets?

A. 
Following are the most common budget errors:

Not including a realistic allowance for bad debts. This requires evaluating current receivables and examining historical financial data;
   
Updating the association's calculation of reserve contributions;
   
Omitting a contingency factor line item of 3% to 5%;
   
Making the assumption that every item in last year's budget should be the starting point for next year's budget. The prior year budget must be evaluated line by line;
   
Failing to recognize that insured claims require the payment of the deductible which must be included in the budget;
   
Not recognizing that some homeowner claims, such as water intrusion from the common areas, may not be covered by insurance. These types of claims may include interior damage to personal property for which the HOA may have liability;
   
Omitting an allowance for legal fees to cover the cost of legal advice for the board;
   
Deciding to defer necessary maintenance into the future in order to minimize the monthly assessments. This is likely to cost the members of the association far more in the long run;
   
Making the political decision not to increase the budget when reality requires an increase; and
   
Deciding to make future special assessments instead of increasing the regular monthly assessments.  Top
   

SUIT FOR DELINQUENT ASSESSMENTS

Q. 
Our board is intending to file a suit against a member for failing to pay assessments. The delinquency now exceeds $4,500. Are we required to sue in small claims court or may we sue in Superior Court?

A. 
The association may sue in either court. If it decides to use the Superior Court, it will need to be represented by an attorney. Depending on the facts, one court action may be better than the other. You should get advice from an HOA collection attorney before you decide.  Top


FINES ON FINES

Q. 
Can the board of my condominium association levy a fine on a member of our association for failure to pay a prior fine?

A. 
No. Fines may be levied only for violating the Operating Rules or CC&Rs of an association assuming they are written so as to authorize fines.

Your association can sue a member of the association in small claims court for failure to pay a fine. The likelihood of having a judgment entered against a non – paying member, which will harm their credit, may be a greater incentive to pay a fine levied by the association through its board.  Top


LIMITING WATER USE

Q. 
Our association water bills have dramatically increased over the last few years. Can our community association amend our CC&Rs to prohibit the washing of cars in the common areas?

A. 
Yes. Your HOA can prohibit members from using the common areas to wash vehicles, boats and trailers. It can also prohibit members from using common area water for such purposes. Since car washes recycle their water, utilizing a car wash saves water and it transfers the cost to the users.  Top


DELINQUENCY ANNOUNCED

Q. 
Is there ever a time when it is appropriate for the board of directors of a homeowner association to inform the membership of a serious delinquency in the payment of monthly assessments?

A. 
Yes. A board may disclose a delinquency when its collection action has reached the stage of a lawsuit. When an association becomes involved in litigation, the members are entitled to notice. The filing of a suit places the matter in the public domain and is material to the financial condition of the association. California Civil Code Section 47 protects the association as plaintiff from liability for defamation or disclosure of private information under the “litigation privilege”.  Top


BOARD REFUSES TO REPIPE

Q. 
Our condominium building in Los Angeles has old galvanized pipes that have been leaking for several years. The board makes repairs, but has refused to repipe the building because our reserves are inadequate. What is their legal duty?

A. 
The board should borrow the funds to repipe the building if possible. If a loan is not available, the board should immediately begin the process of increasing assessments so the work can be done at the earliest possible time.

Given that the board has knowledge of the deteriorating pipes, the association will probably be liable for the total cost of all repairs resulting for future leaks. Repiping will cut off the association's liability.  Top


MEMBER FILES FOR BANKRUPTCY

Q. 
I am the treasurer of our homeowners association. Recently, a member of our association filed for bankruptcy under Chapter 7. He owes the association over $6,000.00. Our management company has advised us that there is nothing we can do. What is your advice?

A. 
Section 523(a) of the Bankruptcy Code provides that dues owed to condominiums, cooperatives or other similar membership associations after the filing of a bankruptcy petition are not dischargeable, to the extent that the dues are payable while the debtor either lived in or received rent for the condominium or cooperative unit. In other words, so long as the homeowner still lives in the unit or rents it out to someone else, the dues will continue to accrue after the date of the filing of the petition. Your association management company can collect these dues.  Top






Permission to reprint our HOA Questions and Answers is granted provided Michael T. Chulak & Associates (MTCLaw.com) is credited as the source.



 

 

 

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