The Fall Out of An Unfinished Community

I recently made the following presentation to the Capistrano Unified School District regarding lowering an outragousely high Mello Roos Tax on the members of one of my HOA clients.

I recently made the following presentation to the Capistrano Unified School District regarding lowering an outrageously high Mello Roos Tax on the members of one of my HOA clients.  The local press covered the issue, and posted the presentation here and here.


Good evening. My name is Robert DeNichilo, and I am corporate counsel for the Pacific San Juan Community Association. I have been asked by residents of Pacifica San Juan to address you this evening, and I thank you for your time and attention.

First let me address the question of why are we here.  Pacifica San Juan comprises Community Facilities district 98-1 of the Capistrano Unified School District.  When the district was originally formed, the economy was in a very different state than it is today.  It was an era we now recognize as a housing bubble, and where demand far outstripped supply.  At that time, Pacifica San Juan was envisioned to be a community of 416 homes.  It was anticipated that such a community would have a large and real impact on the city, and in particular the school district and the services it provides its residents.

That was the environment where the rate of special tax to be levied was calculated.  An environment where it was envisioned that a 20 million dollar bond would be required to offset the impact of Pacifica San Juan on the school district, a number that was increased to 45 million dollars a few years later.  However, as we all know, we are in a very different situation today.

Rather than a community of 416 homes, Pacifica San Juan today, and for the foreseeable future, is comprised of 61 homes, only 54 of which have been sold and have families living in them.  Of these 54 homes, there are only 10 children attending school in the district.  Clearly this is a very different level of impact on the district than that which was envisioned when the CFD was created, and no one would have envisioned that it would take over 26 thousand dollars per student per year the residents have been taxed, or the 46 thousand dollars per student per year that I understand is being proposed, to offset the impact of the 10 children from Pacifica San Juan on the Capistrano Unified School District.

Despite the change in circumstances from what was anticipated at the time that the rate of special tax was determined, there has been no review of the real impact of Pacifica San Juan on the school district.

One impact is that there has not been any need for bonds to be issued.  In fact, until there is a significant change in circumstances it is unlikely any bonds will be issued. Further, once things do change, and development begins again, it is highly likely that any new developer will seek to change or eliminate the CFD, as the current rate of special tax negatively impacts on the marketability of the property.  In fact, it is my understanding that this may already be occurring in another community in the district.

We are in a unique situation here in light of the fact that no bonds have been issued in this CFD.  The Board is not hamstrung with debt that must be repaid by the special tax.  Rather, pursuant to Government code section 53330.5, this Board has the authority and power to reduce the rate of special tax currently being levied on the properties in Pacifica San Juan.  It is my understanding that this has been done by other districts where development in a community comes to a halt, as has happened in Pacifica San Juan.

The residents of Pacifica San Juan would like to work collaboratively with the Board to lower the rate of special tax on this CFD, with flexibility that may be required as circumstances change and development resumes.  In this light, pursuant to government code 53332, the residents will be filing petitions requesting that the Board adopt a resolution reducing the rate of special tax on Pacifica San Juan.  We look forward to working with you on this issue in the coming days.

When is a Family a “Family”?

One of the issues that HOAs are facing with increasing frequency in light of the current economic climate is the complaint that too many people are living in a particular unit. This often comes with complaints about noise, and the hot button: parking. The question is, what can an HOA do when it receives such a complaint?

familyOne of the issues that many Associations are facing with increasing frequency, is the complaint that too many people are living in a particular unit. This often comes with complaints about noise, as well as the hot button: parking. The question is, what can an HOA do when it receives such a complaint?

Long ago, the California Supreme Court invalidated a numerical occupancy limitation which invaded the constitutional right of privacy of the owner and tenants. Similarly, a California Appellate court has held that an occupancy restriction limiting the number of persons over 18 who could live in non-owner occupied residences in particular areas of the city violated the equal protection clause because the ordinance irrationally distinguished between owner and non-owner occupied residences. Although these cases dealt with zoning ordinances and not covenants, similar reasoning applies to covenants that unreasonably discriminate against tenants.

In Colony Hill v. Ghamaty, the court recognized that use and occupancy restrictions are an inherent part of any common interest development and are crucial to the stable, planned environment of any shared ownership arrangements. Unless a homeowner association’s practice with regard to the occupancy and use of its members’ units violates federal and state anti-discrimination limitations, the association is given a great deal of latitude in regulating the use of residential units in its development. For example, in Colony Hill, the covenants and restrictions prohibited any use of the residential units for purposes other than single-family dwelling. The homeowner’s association successfully defended its enforcement of the restrictions when one of its homeowners engaged in serial rentals of rooms in his unit to multiple renters. In upholding the restrictions, the court held that the association’s use restrictions were not unreasonable, and therefore were enforceable.

Colony Hill was decided based upon the definition of the word “family”. The Colony Hill definition of “family” did not contain any numerical limitations. Rather, a “family” was defined as any “unrelated persons who jointly occupy and have equal access to all areas of a dwelling unit and who function together as an integrated economic unit.” In ruling in favor of the association, the court held that promoting family style living was a stated goal that could be achieved by redefining “family” to specify “a concept substantially related to the legitimate aim of maintaining a family style of living.” This was achieved by defining “family” to include unrelated individuals who “function together as an integrated economic unit.” While the court ultimately found that the renters in Colony Hill did not constitute an “integrated economic unit,” their  determination required a discussion of the unique factual circumstances of the case. Therefore, in order to determine whether renters in an HOA are in violation of the single “family” residence provisions of the CC&Rs, an investigation is required into the particular facts of each specific case in order to determine if the occupants of the residence are either related, or maintain a common household.

Because an Association has the obligation to enforce its CC&Rs, it must determine whether enforcement action against any Owner accused of leasing their residence is warranted and appropriate. In California, making such a determination requires evidence that the occupants of the residence are not functioning as a “common household.” It is not clear what exactly the term means, and how the association would establish that fact. In Colony Hill, this was accomplished by introducing evidence that the residents each entered into separate leases and had different lease terms. However, an association typically has limited investigative ability prior to filing a lawsuit. In such cases, the local city may provide some limited assistance. Often times a city will investigate complaints regarding rental units. However, generally a city will only cite owners who are renting to more than five people who are not related or operating as a common household. The five person threshold is based on what the building code defines as a boarding house. If the city determines that a residence is being used as a boarding house, they will require the owner to obtain the proper permits, provide on-site parking, and come into compliance with any other requirements the city has on boarding houses. It is often impossible for the owner to comply with all the requirements, and in such cases the city code enforcement may prove to be an effective alternative to attempting to enforce the associations’ CC&Rs.

One additional tool that can help in providing the Board with information in such cases is if the association has a enacted a rule which requires all owners to provide the association with any leases relating to residences within the association, and that all leases require the tenant to acknowledge that all tenants are jointly and severally liable for any violations of the CC&Rs. This may have the effect of dissuading individuals who are not acting as part of a common household from entering into such leases as they will be responsible for the acts of their housemates. In addition, it will provide the association with an additional ground to sanction the owner if they fail to comply with the rule; violation of the rule would be easier to establish since all that would be required is that the owner failed to provide copies of the leases.

While there is no easy answer to the issue of occupancy restrictions, associations should know what tools they have available to provide as much information as possible in order to allow the Board to make an educated decision on enforcement of the CC&Rs.

California HOAs can be notified when bank Forecloses on a Property

One of the issues many homeowners associations are dealing with in light of the recent rise in foreclosure is not knowing when a bank takes over ownership of a property following foreclosure. Without this information, associations often go months without knowing who is liable for the payment of monthly assessments, and where to send monthly assessment bills.

The California legislature provided some limited assistance to California homeowners associations earlier this year . . .

One of the issues many homeowners associations are dealing with in light of the recent rise in foreclosure is not knowing when a bank takes over ownership of a property following foreclosure.  Without this information, associations often go months without knowing who is liable for the payment of monthly assessments, and where to send monthly assessment bills.

The California legislature provided some limited assistance to California homeowners associations earlier this year when it amended Civil Code Section 2924b(f) to permit homeowners associations in California to record a document requesting a copy of a Trustee’s Deed Upon Sale recorded by anyone authorized to record a Notice of Default against real property. Once an HOA records the request, a lender is supposed to provide notice to the address contained in the request within 15 days after recording the deed.

While an association that files the proper form may receive earlier of a bank having taken over a property, unfortunately no penalties for not providing the required notice to the association. Nevertheless, homeowners associations in California should avial themselves of this relatively cost effective option to improve the likelihood they will receive timely notice when a bank takes over a property within the development.

California Bill Which Would Void CC&Rs Gathers Steam

Assembly Bill 1061 bill sailed through its first test Tuesday with unanimous approval from the Assembly Water, Parks and Wildlife Committee. Under the bill, homeowner association rules would be “void and unenforceable” if they restrict compliance with local landscaping ordinances or conservation measures.

low-water-landscapeAssembly Bill 1061 bill sailed through its first test Tuesday with unanimous approval from the Assembly Water, Parks and Wildlife Committee. Under the bill (previously covered here), homeowner association rules would be “void and unenforceable” if they restrict compliance with local landscaping ordinances or conservation measures.

While the goals of the bill may be admirable, it is written so broadly it could disrupt homeowner groups’ authority to review an individual homeowner’s landscaping plans that spell out the type, number and placement of plants.

Many people chose to live in developments with association rules because they like the appearance of common landscaping, architectural design and colors.  While the state may have an interest in conservation, it is hoped that the legislature will amend the bill to need to protect the interests of homeowners who purchase in a common interest development because they like the fact that the uniform rules help preserve property values, and improve the general appearance of a community.

I still suspect that the bill is largely unnecessary and disputes over the installation of drought tolerant plants are rare.  I would love to hear if anyone has been involved or is aware of such disputes within their association.

Proposed California Bill Lets Water Agency Trump Homeowners Association Rules

California’s AB 1061, introduced on February 27 by Assemblyman Ted Lieu would repeal a portion of the Davis-Stirling Act as it relates to water efficient plants.

landscaping-with-drought-tolerant-plants-2California’s AB 1061, introduced on February 27 by Assemblyman Ted Lieu would repeal a portion of the Davis-Stirling Act as it relates to water efficient plants.  Currently, the Davis-Stirling Act provides that the architectural guidelines of a common interest development shall not prohibit or include conditions that have the effect of prohibiting the use of low water-using plants as a group.  AB 1061 would enforce a model conservation ordinance that state officials plan to complete next year. Local water districts would be able to use the model ordinance as a blueprint for their own conservation rules.  As long as the water districts obey the model ordinance guidelines, anything in the rules of a community association development that conflicts with local water district’s regulations or restrictions would be “void and unenforceable.”

Water wholesaler Metropolitan Water District is sponsoring the legislation claiming the bill clarifies how homeowners can install water-efficient landscaping without running afoul of association rules. With California in a drought and rationing under way or looming in many districts, the agency claims it is looking for any way to stretch out its supplies. However, one has to wonder whether the bill is even necessary since there have only been isolated instances of conflicts between homeowner members eager to save water and associations that outlawed particular types of water-efficient landscaping.