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Daily Pilot

A misbehaving homeowner association board can be removed

By Donie Vanitzian

5:00 AM PDT, July 20, 2014

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Question: I am the owner of a home in the San Diego area with a homeowners association. Our monthly dues just keep going up. We don't understand the many types of assessments that are constantly being incurred to keep money in the accounts and pay expenditures that never stop. Our association's manager makes an incredible salary along with numerous benefits. I and other owners don't believe we should be paying for the manager's benefits and high salary. Can a group of more than two-thirds of homeowners vote to remove our board directors and the manager, vote to not allow assessment increases and demand audits as to the handling of money collection?

Answer: Fees and expenditures in homeowner associations invariably rise. Generally there are three types of assessments: regular (yearly/monthly), special and emergency assessments. Civil Code section 5605 sets forth the statutory limitation on assessment increases and states the voting "quorum" required is more than 50% of the owners.

Within 30 to 90 days before the association's fiscal year end, the board shall distribute an annual policy statement providing its assessment collection policies as required by Civil Code section 5730.

Failure to pay any assessment could result in a lien being filed against the titleholder's property. Even where an owner suspects that assessments levied by the association are improper, he or she must pay any disputed charges as a "payment under protest" and then challenge them through the appropriate channels. That's according to Civil Code section 5658.

There are different rules for different types of assessments.

•Regular: Annual increases in regular assessments for any fiscal year shall not be imposed unless the board has complied with the requirements of Civil Code section 5300(b), paragraphs 1 through 8 with respect to that fiscal year, or the board has obtained the approval of a majority of a quorum of titleholders pursuant to Civil Code section 4070 at a regular board meeting or election.

Notwithstanding more restrictive limitations in the association's governing documents, the board may not impose a regular assessment that is more than 20% greater than the regular assessment for the association's preceding fiscal year.

•Special: The board may not impose special assessments that, in the aggregate, exceed 5% of the association's budgeted gross expenses for that fiscal year without approval of a majority of a quorum of titleholders pursuant to Civil Code section 4070 at a regular board meeting or election.

•Emergency: Civil Code section 5610 does not limit assessment increases necessary for emergency situations. An emergency situation could be one that results from a court order, or it could be an extraordinary expense that is necessary to repair or maintain the common interest development or address a threat to personal safety on the property. An emergency might also pertain to a common area repair that the association is responsible for that could not have been reasonably foreseen by the board in preparing and distributing the annual budget report, according to Civil Code section 5300.

Before imposing an emergency assessment, the board must pass a resolution containing written findings as to the necessity of the extraordinary expense and why it was not foreseen in the budgeting process. The resolution must be distributed to all titleholders along with notice of the emergency assessment.

Boards must follow the law when imposing any assessments. Accordingly, depending on the type of increases and assessments being levied, titleholders should not need to vote to block increases and special assessments because boards must seek owner agreement via the voting process for certain non-emergency assessments that are above the amounts set forth by statute.

A management company can be terminated only by the board. The board has a duty to supervise and monitor activities of the manager and an obligation to conserve and manage association resources. Failing to do so should have been regularly documented in the meeting minutes and should be addressed again at a board meeting for termination of the management company (and documented in those minutes as well).

The manager's "incredible salary" and "numerous benefits" are attributed to the board's contracting acumen, or lack thereof. Titleholders who don't believe they should be paying for the manager's benefits and high salary can always remove a misbehaving or poorly performing board. Serve directors with a petition (bearing the requisite owner signatures) requesting a special meeting for their removal and subsequent election of new directors. Through the petition process, such special meetings can be called by 5% or more of the titleholders, according to Corporations Code section 7510(e). The rules governing such elections can be found in Civil Code sections 5100 to 5145.

Once a new board is elected that is representative of the owners, a vote that the association operate within its budget and curtail assessment increases can take place. Titleholders can demand audits regarding the association's books and records, including the handling of its money collection procedures.

Zachary Levine, partner at Wolk & Levine, a business and intellectual property law firm, co-wrote this column. Vanitzian is an arbitrator and mediator. Send questions to Donie Vanitzian JD, P.O. Box 10490, Marina del Rey, CA 90295 or noexit@mindspring.com.