The ABC’s of IDR & ADR

ADRDisputes between owners and associations can easily spin out of control. When those disputes result in a lawsuit, the costs, both in terms of time and money, can be significant. That is why attorneys often encourage parties to first meet and try to resolve those issues through some form of dispute resolution process before a lawsuit is filed. In fact, the law often requires that parties at least offer to meet in some form of alternative dispute resolution setting before they file a lawsuit, or they may lose the right to recover attorney’s fees even if they win the suit.

California’s Davis-Stirling Act contains several sections that address, and sometimes require, the use of the dispute resolution process before litigation can be filed. The statutory process includes (1) Internal Dispute Resolution and (2) Alternative Dispute Resolution.

Internal Dispute Resolution or “IDR” is an informal process where one or two representatives of the association (typically a board member and the association’s community manager) meet with the owner of the property at issue and try to resolve the issue informally. Civil Code section 5905 requires that associations provide a “fair, reasonable, and expeditious procedure for resolving a dispute” with members.

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HOA, for better or worse

Before you reach for your light saber, though, consider this: Homeowners associations (HOAs) often can be a force for good, cleaning up snow, maintaining the pool and ensuring that the neighborhood looks its best when potential buyers come to call

Lisa Rauschart has an interesting story in today’s Washington Times discussing living in an HOA, and pointing out some of the benefits an Association provides it’s members. An excerpt of the story is below. You can read the entire article here.

You’ve heard the horror stories: The elderly woman forced to move from her condo because she couldn’t carry her cocker spaniel across the common-room floor, the Virginia couple fined because they posted a “Happy Birthday Jesus” sign on their front lawn shortly after Thanksgiving, the California man called on the carpet for planting too many roses. There’s even an old “X-Files” episode that has the president of a homeowners association conjuring up a Tibetan monster to kill residents who broke the rules.

Before you reach for your light saber, though, consider this: Homeowners associations (HOAs) often can be a force for good, cleaning up snow, maintaining the pool and ensuring that the neighborhood looks its best when potential buyers come to call.

Homeowner Cannot Withhold Assesments in Dispute with HOA

I received a call today from a manager of an HOA telling me she had just gotten off the phone with a homeowner who was refusing to pay his assessments because he felt the association was not properly maintaining the common area in front of his residence. He stated until the HOA did its “job,” he would not be paying assessments. “Can he do that?” the manager asked.

I received a call today from a manager of an HOA telling me she had just gotten off the phone with a homeowner who was refusing to pay his assessments because he felt the association was not properly maintaining the common area in front of his residence. He stated until the HOA did its “job,” he would not be paying assessments. The manager asked, “Can he do that?” The answer, I told her, was “No!”

This issue was addressed by the court in Park Place Homeowners Association, Inc. v. Naber (1994) 29 Cal.App.4th 427. Under California law, an owner’s obligation to pay assessments is not subject to offset. As the court in Naber recognized, homeowners associations would cease to exist without the regular payment of assessment fees by its members. In fact, the need for an HOA to regularly and collect assessments from the owners is so important that the legislature has created procedures for associations to quickly and efficiently seek relief against a nonpaying owner in the form of liens and foreclosure. Permitting an owner to assert the homeowners association’s conduct as a defense or offset to an enforcement action would “seriously undermine” those rules and procedures.

That does not mean an owner is left without a remedy if the association is violating the CC&Rs. In California an owner has two options. One is the option recognized by the court in Nabor. The owner can file legal action against the association.

The other option, pursuant to California Civil Code section 1367.6, is that if an owner disagrees with the amount of an assessment, fine, penalty, late fee, collection cost, or monetary penalty imposed as a disciplinary measure, and the amount in dispute is within the jurisdictional limit of the small claims court, the owner may, in addition to pursuing dispute resolution, pay the disputed amount and all other amounts levied under protest and commence an action in the small claims court. This allows the association to meet its financial obligations by allowing for the regular payment of assessments, and still allows an owner to avoid the unpleasant option and uncertainty of facing foreclosure as a result of failing to pay their assessments while providing protection that if there is a error on the part of the association, there are several methods to bring that error to the attention of the association, or if necessary, to a judge.

Governator Terminates HOA Bill Allowing Boards to Enter into Long Term Conservation Contracts

Gov. Schwarzenegger recently vetoed California’s AB 1328. AB 1328 would have provided that a homeowners association could enter into a contract for a water or energy efficiency program, for a term of up to five years, if the board of directors reasonably anticipated that the contract would result in verifiable savings to the association.

vetoGov. Schwarzenegger recently vetoed California’s AB 1328. AB 1328 would have provided that a homeowners association could enter into a contract for a water or energy efficiency program, for a term of up to five years without owner approval, if the board of directors reasonably anticipated that the contract would result in verifiable savings to the association. This would have allowed HOAs to take advantage of long term savings and actively engage in energy conversation which is essentially mandated by California’s AB 32.  However, the Governator vetoed the bill claiming that it was unnecessary and would override the requirement that most contracts which are longer than one year obtain homeowner approval.

AB 1328 would have allowed HOAs, and by extension homeowners, the ability to obtain long term savings if they were able to locate vendors to provide extended water and energy conservation programs for their community. Boards are required to use sound business judgment and protect the assets of an Association.  Further, under the bill homeowners were to be notified of the terms of the contracts and provided an opportunity to be heard at an open meeting prior to the Board’s execution of any such contracts. It seems that there were sufficient protections in place to allow Boards to explore and enter into these types of long term contracts. Remember, Boards would not be required to enter into such contracts. The bill just would have given Boards the flexibility to enter into longer term contracts if sufficient savings could be found.

It is disappointing that while California’s State government continues to impose regulations on local entities such as HOAs, it also deprives them of tools which would allow them to meet the requirements at a reduced cost.

The California Association of Community Managers (CACM) and the California Association of Realtors (CAR) both supported the bill. The Executive Council of Homeowners (ECHO) was neutral.

Why would anyone live under those rules? Here are some good reasons for an HOA.

In researching topics for this blog, or just when I tell people that I my practice is focused on representing homeowners associations I often here some variation of “why would anyone live under those rules.

Car on LawnIn researching topics for this blog, or just when I tell people that my practice is focused on representing homeowners associations, I often hear some variation of “why would anyone live under those rules”.  Today’s Orlando Sentinel answers the same question.  Aside from the fact that in today’s market you often cannot avoid living in a homeowners association, the best reason to live in an HOA is that they protect property values by maintaining the look and aesthetics of a community.  Enforcement of CC&Rs can help when your neighbors don’t mow their lawn or let it go brown in front of their home. In addition, homeowners associations often provide social areas such as swimming pools, tennis courts and a clubhouse for socials, and are an effective alternative to calling city code enforcement when your neighbor parks his car on his front lawn. What positive experiences have you had living in an HOA?