Commission's Proposal Calls For A State Bureau To Help Enforce Homeowner Association Laws

February 25, 2005

By Brian Hebert - California Law Revision Commission (View author info)

Ann Roth in her article CALIFORNIA HOMEOWNER ASSOCIATION OMBUDSMAN - A Bandaid Fix on a Bleeding Carotid? lists a number of questions about the California Law Revision Commission proposal for a state bureau to help enforce Common Interest Development (Homeowner Association) law.

My answers to her questions are below. These answers are based on the current version of the Commission's DRAFT proposal (which is subject to change).

Q. Will the OMBUDSMAN's ruling of violation against an HOA board be final?
A. A finding of violation would be expressed in either an enforceable agreement to remedy the violation or a corrective citation. An agreement would be final and enforceable when signed. A citation would become final and enforceable once the opportunity for administrative and judicial review had passed (assuming the citation is not reversed on appeal).

Q. Can the OMBUDSMAN's ruling be appealed or end up in litigation anyway?
A. Yes, but the Bureau would be the party defending the citation. The original complainant would not need to bear the cost of an appeal.

Q. Could violations cause the HOA's liability insurance to increase or cancel? Like auto insurance - one too many violations and you lose your insurance?
A. I assume that an administrative finding of a violation would have the same effect as a court finding of violation. If insurance rates or availablity would be affected by a court judgment then it would probably also be affected by an administrative citation.

Q. If the HOA board doesn't pay their "ticket" can a bench warrant be issued for their arrest?
A. If a board does not comply with a negotiated conciliation agreement or a final citation, the Bureau could bring an action in superior court for enforcement. The court's judgment would then be enforceable like any other civil judgment. Failure to comply with court orders can be punished as contempt (which can include arrest).

Q. Will the HOA board be required to pay the penalty out of their OWN pockets or will it come out of "Joe Homeowner's" pockets?
A. A penalty against an association would be paid with association funds. A penalty against an individual board member would be paid by that individual.

Q. Will homeowners be able to recover damages from violator board members individually?
A. For constitutional reasons, the Bureau would not have authority to award damages. Damages would still need to be recovered in court. However, the Bureau could award restitution (i.e., the return of money improperly taken). For example, if the board collects an illegal fine, the Bureau could order reimbursement of the fine.

Q. Besides the public disclosure list on an OMBUDSMAN website - will the violations be required to be DISCLOSED directly to each prospective homebuyer?
A. No.

Q. Where will any hearings be held? States have hundreds of miles between their borders.
A. Much of the Bureau's work could be done by telephone, mail, or email. This has been successful in dozens of other programs within the Department of Consumer Affairs. Hearings probably should be held locally. Many consumer service agencies set up multiple satellite offices or have their hearing officers "ride circuit" to hold hearings closer to the parties. I would hope the Bureau would use that approach, but we aren't tying their hands on operational issues. As a general approach the Commission is trying to avoid micromanaging the Bureau, which will know better than we do what works and what doesn't work.

Q. Will the hearing information be kept confidential?
A. Communications made during mediation would be confidential. Administrative appeals would be open to the public.

Q. Who will be handling the hearings? Lawyers? or CAI lawyers?
A. An administrative appeal would be heard by an administrative law judge. The proposed law does not specify who would represent the Bureau in defending its findings.

Q. Will the parties be represented by lawyers?
A. Only the person accused in a citation would be a party to the appeal. That person would be entitled to an attorney. The Bureau itself would defend its enforcement decision.

Q. Will the "prevailing party" in a dispute settled by the OMBUDSMAN's office be reimbursed for the costs they incurred?
A. No. However, the cost to use the Bureau's enforcement process would be very small ($25) or nonexistent, depending on the Commission's pending decision on whether or not there should be a filing fee.

Q. Would lawyers fees be included? (This could be dangerous for homeowners)
A. There would be no reimbursement of costs.

Q. If the matter can't be settled by the OMBUDSMAN's office, will the parties get reimbursed for costs they may have incurred?
A. No.

Q. How is this different than the mandatory mediation requirements under the current Civil Codes?
A. The existing ADR requirement is triggered by the intention to file a lawsuit. If there is no pending lawsuit there is no requirement of ADR. The Bureau's mediation process could be used to satisfy the pre-litigation ADR requirement, but would otherwise be entirely optional. It could also be used when there is no pending lawsuit. The Bureau's law enforcement function would be very different from ADR. Anyone could start that process by filing a complaint, but cooperation with the Bureau's investigation and compliance with their orders would not be optional.

Q. Will the mandatory mediation requirements under the Civil Code be void if you agree to a hearing by the OMBUDSMAN instead?
A. Participation in the Bureau's mediation process would satisfy the pre-litigation ADR requirement.

Q. Is the OMBUDSMAN fee mandatory?
A. Yes.

Q. Will failure to pay the fee result in non-judicial foreclosure of one's home?
A. No, but the answer needs some explanation. The fee would not be imposed directly on homeowners. It would be paid by the association, which would then raise assessments to cover the cost of the fee (i.e., by $5 per unit per year). If you don't pay your assessment then you can be foreclosed on, but that's existing law. Only the amount of the assessment would be changed (by $5 per year).

Q. Who will ENFORCE collection of the fee?
A. The Secretary of State. The fee would be paid as part of the process of registering a CID and renewing corporate status every two years.

Q. Will homeowners who bought their homes prior to enactment of the fee, still be required to pay it?
A. Yes.

Q. Will homeowner's have an opportunity to VOTE on whether they want the HOA to be a "member" of the OMBUDSMAN'S OFFICE or to pay the fee?
A. No. The cost is spread to all associations. Optional participation would allow corrupt or incompetent boards to avoid law enforcement just by choosing not to participate.

Q. Will the fees be paid through the HOA dues?
A. Yes.

Q. Will the fee be tax-deductible?
A. I don't know. However, the fee is recovered as part of your regular assessments. Presumably the fee portion of your assessments would be given the same tax treatment as the non-fee portion of your assessments.

Q. Will each and every homeowner who is required to pay the fee, receive an accounting of how those fees are being spent?
A. Not directly. However, Bureau documents (including its budget and annual reports) would be publicly available.

Q. How will fee increases be handled and homeowners notified?
A. The Bureau can adjust fee amounts every two years, by adoption of a regulation (through a public comment process). An increase to assessments to cover a fee increase would go through the normal process for notification of assessment increases.

Q. Is their a cap on how much the fees can go up?
A. Yes. The fee could not be increased beyond $10 per unit per year. Of course, this would be a statutory cap that could be changed by amendment of the statute.

Q. Will any of the homeowner fees be used for "education" of OMBUDSMAN personnel and WHO or WHAT agency will provide the "educating"?
A. Obviously, the Bureau will need to train its employees. The proposed law does not specify how that will be done.

Q. Will education or training of OMBUDSMEN personnel be done by the Community Association Institute or any of its related brethren? Many homeowners view CAI and its affiliates as anti-homeowner.
A. Again, the proposed law does not specify how the Bureau would train its employees. However, it would be unconstitutional for the law to single out a particular organization and prevent it from sharing its views or providing services to government.