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Charging Assessments With No Backup - Can the HO Withhold Payment?

I have written several blogs about what an HOA can do if a homeowner does not pay assessments on time. It's brutal. Most documents and the law allow HOAs with the document authority to resort to nonjudicial foreclosure if homeowners don't pay. And if that does not work the HOA in most cases can pursue a personal debt action against the owner. This blog is not to argue the merits of that, but rather to answer a question/comment that was written about one of those blogs. The gist of the blog was that HOAs have to work to diligently collect assessments as a matter of their fiducuary duty, or the innocent who do pay their assessments suffer since they have to pick up the slack. But this commenter has a point. Read on.

"Does this situation apply to Special Assesment. We have had three Special Assesment in the last 5 years and not once will they give us an accounting of the funds and the work completed. I have been holding back my last special Assessment because it was over $3500.00 and I still have not accounting of what was done with prior monies..Management has elections, but they keep holding on to their seats, since they are the ones who make the decision on who can serve on the board after the election."

Aside from the comment about management having elections (because while many feel that management has too much control - I do not know of any association that elects management or management that chooses who serves on the board), I feel this reader's pain.

Owners should get information on the backup for assessments. What happens when an owner asks for backup information for the assessment and does not get it? Does it matter whether it is an increase in the regular assessments, a special assessment, or an emergency assessment? Does the board have to give it?

I would say yes. Now, how do you get it if the Board refuses to give it? Here are some options:

1. Sue the B _ _ _ _ _ _ _s! Of course, I abhor this remedy. And I would only ever suggest it as a last resort, but if it were to come to fruition, the owner would be asking for a court order to provide the information, and would probably get it, and would probably be able to recover attorney fees, if, that is, the request was legitimate (meaning that the owner did not simply ignore the information that was sent out by the Association or fail to keep the mailing address current to receive Association communications).

2. Make a written demand for information. Written demands tend to engender more accountability than phone calls or gripes behind the Board's back.

3. Run for the Board. If elected, you would have access to all of the HOA information. If you can get like thinking folks elected too, perhaps the HOA management would improve.

So - a little more information.

A Board cannot increase the regular assessments legally if it has not provided the required budget and reserve study information to the members for the prior year, unless the members approve the increase.

A Board cannot impose an emergency assessment without notifying the members of it, and of the grounds for it, and certain grounds (reasons) require certain findings. For example, covering a safety issue may not require findings, but it does need to be explained to owners, but imposing for a repair that came up, needs to be done, and which was not apparent at the time the budget was completed requires findings about the urgency, the need and the reason the Board did not know about it before.

For special assessments that exceed 5% of the budgeted gross expenses, the special assessment requires owner approval and it is hard to understand how owners would approve something if they did not know what it was for. (Pretty dumb if they do.)

Still, I can understand how it happens that an owner might get a notice of a special assessment or special assessments, and does not have any backup. Some boards, still operating pre the 2006 HOA election rules changes, call meetings, get the owners present to approve an assessment, and fail to notify any of the other owners in the development about what went on at the meeting, and fail to give them a chance to vote yes or no. And then, refuse to provide any of the backup information to boot! They may have their own reasons for not putting anything in writing. But it is not right.

Owners are entitled to know what they are paying for. Failure to inform does not absolve the board of anything. While it is true that owners are not entitled to withhold assessments, and that they can end up in a quagmire of added costs and threats if they do not pay, they are not prevented from taking action to get them back if the Board acts improperly. California offers a small claims remedy of up to $7500 if an owner brings in a good case. The owner would have to show that the Board actually did something wrong to get a judgment for a special assessment (but would have to pay it first in order to even establish a claim for damages), "Wrong" might encompass any of these:

1. The Board did not follow the California election laws and send out a double envelope secret ballot for voting.

2. The Board did not seek owner approval at all when it was required.

3. The Board did not send out the budget and reserve study information and did not get owner approval.

4. The Board did not make any findings justifying an emergemcy assessment.

****

And even then, in some cases the Board might be able to go back, do things right, and get the money that way.

Working with a tightlipped or uninformed board is frustrating, that is for sure. Owning a unit in an association that seems to be poorly run, hit with assessment after assessment, can also be very frustrating. The less educated or informed the board is, the more closed they tend to be, so sometimes it takes drastic action to get the board to be accountable. Sometimes it requires a new board, and sometimes it requires a lawsuit (small claims or superior court). Sometimes getting other owners involved to work for board turnover can work. Getting involved and doing something is the key to results. But withholding assessments is not, in my view, the recommended way to go - as it just ups the ante of risk and problems for the homeowner.

Full post as published by California Condo & HOA Law on July 04, 2008 (boomark / email).