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FINES - AN ILLUSORY REMEDY FOR HOAs?

"Illusory" - it means maybe-not-real (although you won't find that definition in the dictionary). The question is: are fines really a viable remedy for HOAs? What if people do not pay them. Ho hum. If had a nickel for everytime that I heard a board member say: "Why fine, they don't pay them. It does no good." I'd be pretty well-to-do.

Read on to see why fining as a means of enforcement may be underrated. First, there are some pertinent questions asked by a reader that I would like to try and answer.

"My name is _________ and I live in a condo in _______________. We have several owners that have been fined over the years for non compliance of thee Association rules. Everything from parking, to disarray of their property. We have issued citations to these owners, but have not been able to collect on these fines. My question is how or can we collect on these outstanding debts? Because of the large number of foreclosures in our complex, collecting these fines would help out a lot."

Can you relate? HOAs are having a tougher time than ever, admittedly. And collection of fines would be nice and helpful. However, if one looks to it as a means of funding the association coffers in any meaningful way, one might be discouraged. Lesson 1: The real purpose of fines is to serve as a deterrent, not a funding source for the HOA. Obviously here, the idea did not work very well. If many fines have been imposed, and none paid, it sounds like it is time to get more assertive, if even more to "send a message" than to "relieve" a budget crisis.

So, as would logically follow, here is more from the same reader:

"Next and last two questions is, where can one go onto the web to locate California laws dealing with condos, and if it is possible to collect these fines, would a lawyer be more appropriate dealing with these collections?"

One can go to the California state website at www.ca.gov and navigate to California Codes - start at Civil Code Section 1351 and end at CC 1378. Or, as a not-so-tedious track, one can go to my website at http://www.californiacondoguru.com and navigate to the resource page (enter the site, click past the acknowledgement, go through the gates of the "First Time Visitor" and check out the left hand bar) and click in THE DAVIS STIRLING ACT and you will see the codes and the titles of each section, You can click on any statute and pull it up. Even even better, one can go to my website and find a book entitled THE DAVIS STIRLING ACT IN PLAIN ENGLISH as well as many other very helpful publications, at very affordable costs.

As to whether a lawyer can be helpful, a lawyer with the right kind of knowledge and experience can

1. Help set up a legal fines policy and make sure that the HOA is taking proper steps before imposing fines.
2. Write letters to owners who are not in compliance and demand compliance and payment of any fines imposed.
3. Take the HOA through the Court process to collect fines.
4. Help the HOA understand how to prepare a small claims case.

#2 and #3 may be overkill unless you are talking about thousands of dollars in fines. #1 is just a good precaution. And #4 can be helpful. The consideration of course is how much the board wants to spend on an attorney to help collect fines. It is possible that Small Claims Court could prove to be a viable remedy, Getting a good policy in place, following through with a proper hearing process (which should be part of the policy) and getting legally grounded fines is the most important thing. A Board can appoint a Board member to do the leg work, get the forms, fill them out, file and attend, if it can find a board member willing to do the work. Attorneys are not even allowed in small claims court unless they are a party to the action. Claims can be made for $5000 for the first two actions in a year (so do the big ones first!), and after that, claims are limited to $2500. These are California limits for HOAs. The limits for owners claims are higher.

The biggest judgment I ever heard of relating to fines was in a Santa Barbara case where a the court upheld $277,000 in daily fines for noncompliance. The name of the case is Hope Ranch Park Association v. William Hargar dba Mariposa Land Development Co.. Mr. Harger and his land development company were fined for making substantial changes to a 37 acre estate without approval. The attorney for the HOA said: "Mariposa did what it wanted... when it wanted." and "Mariposa is a poster child for the rationale behind monetary penalties."

It seems the judge may have agreed. There is a lot more to the story of course, and maybe in this case, the influx of judgment money in that capacity might help the budget, however, most HOAs do not have to resort to that level of fines to get the owners' attemtion.

But follow through does make sense. Fines that are legally imposed are often collected via small claims court hearings. Even if the full fine is not imposed there, some HOAs have had luck with the judge or hearing officer chiding the owner and letting them know they had better fix the problem or risk coming back imposition of a big fine. Some fines are collected when property is refinanced or sold. Boards can notify any potential purchaser of the fines by providing copies of the communications to the selling owners demanding payment, and noting any noncompliance issues. Some fines stay on the books for a long time, and most owners do not like this. They begin to feel uncomfortable eventually and try to take a stand. Some fines get resolved simply through perseverence. All fines should be supported by a fair hearing process, so that the owner has a chance to rebut any charges. I would wager that taking fines into court to collect without having offered the owner good solid notice and a chance to avoid the fine could spell trouble for the HOA's chances of success. A poor showing of the accounting that supports the fines could spell trouble as well. Disorganization, personalized retorts and anything other than business-like behavior in court could hurt the HOA. But a case that is justified, well-prepared and well-presented is more likely than not destined to be a successful one.

Last but not least, there is an entire set of Primers available on my website on the subject of Enforcment, including fines as a remedy. You are not without power to collect fines! And even so, if you have good policies at the outset outlining disciplinary actions that may be imposed for violations of the Association's documents and rules, and if you circulate information about those remedies and procedures, you will deter more misconduct than you will ever know about.

Full post as published by California Condo & HOA Law on August 22, 2008 (boomark / email).