HOA FAQs

 

Where can I get educated about homeowner association matters?

There are several industry groups and practitioners that offer information to homeowners as well as other people involved in common interest developments and homeowner associations. The different organizations offer different types of classes and courses, and some practitioners provide their clients with specific publications and ongoing information. See our Newsletter and Resources pages for more information and some useful links.

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What are some of the most important things the board of directors is responsible to do?

The board of directors must obtain and maintain certain financial records and generally must maintain or hold owners responsible to maintain the properties and buildings. Most associations must have a reserve study prepared by someone qualified if there are improvements that must be maintained. A budget has to go out each year to the membership in a certain specified time period, including the reserve study information, or a summary of it. The association must disclose this information to the owners through a mailing each year, along with other information, including a collections policy, alternative dispute resolution (ADR), procedures under the law, information about where to obtain the minutes of the association, and specific information about insurance carried by the association. All of these responsibilities are outlined in California statutes, so failure to do those things may have consequences.

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What is fiduciary duty and how does it relate to the Board?

"Fiduciary duty" is used often in describing the responsibilities for actions of board members. The term basically means that the board has responsibility for managing someone's money or assets. It relates to protecting those assets and imparts a special responsibility upon the person who is the "fiduciary." The term is generally used in a legal context and any board member and the entire board can be sued for what is commonly called "breach of fiduciary duty," which typically means failure in their responsibility for properly managing the association's assets.

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Can a board member be sued?

Yes, like any other human being or entity, a board member can be sued for actions taken or not taken while serving on a board of directors of a homeowners association. However, likewise, a person can be sued for saying something negative about someone, hitting someone with their car, knocking them down with their bike, accidentally backing into someone, knocking something over, and just about any other daily activity where someone else feels they did wrong. There are protections for board members serving on boards of directors from individual liability, and most documents provide for the legal defense and damages on most actions the board members would normally be expected to take, so don't let it deter you from service. Failure of people being willing to put the time and effort into service on the board, or hiding out to avoid any responsibility or liability is one of the biggest problems in homeowner associations. The operations and management of the association depend upon the willingness of volunteers to come forward and serve.

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How much can a board increase assessments each year?

Generally, there is a statute (Civil Code Section 1366) that dictates how much a board of directors can raise assessments each year. That statute provides for regular increases (up to 20% without a vote of the membership), special assessments (up to 5% of the budgeted gross expenses for the fiscal year), and emergency assessments (in the event of a bona fide emergency). The statute dictates what defines an emergency situation. The limitations on raising or imposing special assessments are tied to getting the budget package out on time. It is very difficult to read the statute and try and comprehend what all the nuances might be, so it is best to consult an attorney if you are considering increasing your assessments and want to know if the board is within its legal rights to do so. The statute does say that it controls over document provisions relating to assessment increases by use of the word "notwithstanding" anything in the governing documents.

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Can the board fire a board member?

A board of directors cannot take anyone's board position away unless they go to court and get a court order related to competency, criminal activities, or gross abuse of discretion. This means the board member has to have done something awful, or be incompetent and evidence has to be available for the board to take to court. Other than a court order, a board of directors, if it wants to remove a board member, would have to go through the same processes as the homeowners, which would be to call a meeting and hold a recall election. Recalling a board member is difficult, especially if the association uses cumulative voting. There are many ways to diffuse problems caused by board members. The most common concerns are that the board member is disrupting meetings, distributing confidential information, trying to thwart the efforts of the majority of the board in taking certain actions, not showing up for board meetings, or causing physical issues. There are ways to handle all of these problems short of a recall election, and before any recall election is ever started, the board should meet with the recalcitrant or difficult board member to see if the board member is willing to resign. Boards often forget that they can ask a board member to step down and although this does not always work, it should not be left out of the processes. Also, keep in mind that there is a difference between removing a board member and an officer. Most boards have the ability to remove a director from an officer position, but this should not be done without a legal opinion on the documents for your association.

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What does the board do with a disruptive homeowner, or a serious problem in the association related to conduct (such as a suspected drug house, etc.)?

These are serious problems that also require the assistance of some professional with expertise in the matters. The association could try other things first, such as a neighborhood watch program, reports to the police (including psychiatric officer, if there is one, in the case of a serious disturbed individual). If the matter involves harassment or any potential discrimination claim, matters must be handled very delicately. There is considerable exposure to litigation in these matters and the processes must be carefully considered. The extent of the board's responsibilities in these matters is not completely determined or definitive and there is always new case law emerging on the issues so they should not be taken lightly.

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At What Point Does the HOA Board Start Assessing Members for Foreclosure Losses?

Professionals in this industry are bouncing around ideas as to how to deal with issues related to foreclosures. When a percentage of members of any HOA, whether 1% or 10%, lose their homes to foreclosure or "walk away," it leaves the rest of the homeowners "holding the bag." There is a budget for the year based on a certain anticipated income that consists of assessments collected from owners. When the Board estimates the income, it is based on the premise that all homeowners will be paying their assessments. When there is a foreclosure or multiple foreclosures by banks or lenders, most of the assessments that fell due during the foreclosure process remain unpaid. Hence, a shortfall in the budget arises. There are various schools of thought about how to best deal with this. Here are some possibilities:

  1. Plan ahead - and over or conservatively estimate costs so as to have extra cushion in the budget for possible losses;
  2. Include an account for estimated "bad debt" losses;
  3. Impose a special assessment or increase in the regular assessment mid-year to make up the extra income that is needed.

This last option may or may not be authorized in your governing documents. In California - Civil Code Section 1366 sets limits. The Board may not raise the regular assessments more than 20% in any fiscal year without approval of the members (requiring a majority of a “more than 50%" quorum). It may not impose a special assessment that exceeds 5% of the budgeted gross operating expenses without approval (same percentage requirement).

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