Associations Control You and Infringe Upon Your Inalienable Rights!

February 16, 2006

By Sharon Bush JD (View author info)

They can dictate the color of your home. They can place a lien on your property and foreclose on it. They can tell you the type and height of your fence and when to repair your roof. Imagine an invasive private form of government that can do all of the above and can also tell you whether you can have a basketball hoop over your garage, or even how long you can keep your garage door open. "They" exist. "They" are called homeowners' associations. They are alive and their presence threatens homeowners everywhere.

There are approximately 231,000 homeowners' associations in the United States, which is an increase from a mere 500 in 1965[fn1]. Homeowners' associations control the housing of some 47 million Americans across the country.[fn2] In California, there are more than 32,000 homeowners associations.[fn3] Approximately fifty percent of all new homes built in major metropolitan areas fall within homeowners' associations. [fn4] In south Orange County, located on the coast of California, that number is even higher. There, more than eighty percent of new housing is under association control.[fn5]

Homeowners' associations sprung up in the 1970s in California. They became increasingly abundant following the passage in 1978 of a revolutionary initiative commonly known as Proposition 13, legally known as Article XIII A of the California Constitution.[fn6]

Proposition 13 cut deeply into property taxes,[fn7] resulting in less funding for parks, swimming pools and other features of residential areas. To entice homebuyers and boost sales, developers began adding swimming pools, clubhouses and other attractive features to their developments.

The developers formed associations to oversee maintenance and care of the amenities. Associations were created for the purpose of managing a "common interest development" (CID).[fn8] A "common interest development" can be any one of the following the following: (1) a community apartment project; (2) a condominium project; (3) a planned development; or (4) a stock cooperative.[fn9] Homeowners have ownership in all of the common areas of the development as tenants in common, in equal shares, one per each lot.[fn10]

Cities and developers saw associations as an instant fix to the financial burdens of servicing a community. Once the developers built tracts and added some amenities the responsibilities for the maintenance were turned over to the homeowners' association.[fn11] Because the homeowners' associations pay for the landscaping, gardeners, utilities or other cost of maintenance, cities are not responsible for paying for them. Cities receive property taxes and then assess the associations [fn13]

The homeowners' association concept provides a country club atmosphere with swimming pools, parks, tennis courts and lakes to persons who would not otherwise be able to afford these amenities. A community under association control provides attractive well-maintained common areas without the responsibility of maintenance. This can benefit the owners by maintaining property values if the board of directors is reasonable and uses common sense regarding the use of the association's money.

Supporters of homeowners' associations argue that associations help maintain order in the community and serve the best interest of owners and the association in general.[fn14] They are convinced that association rules help prevent potential chaos such as motor homes in driveways, oddly painted units, dilapidated pickup trucks, and poorly maintained landscaping.[fn15]

The Dark Side of Paradise

According to dissenters, nowhere else are private property rights restricted more than in homeowners' associations across the nation. "The entrepreneurship, creativity, sense of individuality that we prize is being ground down relentlessly under the conformity and regimentation that has been foisted on people's homes."[fn16] California based consumer organizations such as the San Juan Capistrano, California American Homeowners Resource Center[fn17] liken the associations to "giant bulldozers that ravage the rights of homeowners' in this state and across the country and now the world."[fn18]

For some owners, a disadvantage of living in an association is the requirement of mandatory membership in the owners' association, with the accompanying financial burdens of dues and assessments, and the possibility of having to abide by majority decisions contrary to the owner's interests or wishes. The financial obligations increase the cost of housing whether or not the owner uses the extra amenities or agrees with the financial decisions made by the association.

Living in association-controlled property subjects homeowners to total control of the decisions of boards of directors who have responsibility for assessing, collecting and expending fees to carry out operations of CID. Because there is a contractual obligation between owners and the association to pay assessments through the covenants, conditions, and restrictions (CC&Rs),[fn19] the association has the power to lien homes[fn20] and to foreclose on property for non-payment of assessments.[fn21] Owners, however, have no right of "offset" for claims the owner has against the association for its wrongful acts such as breach of the association CC&Rs.[fn22]

Emotionally entrenched board members may indulge themselves in heavy-handed erratic enforcement of the governing documents and make up their own rules, thus violating homeowners' rights. Association boards of directors can take the position of wielding a big stick and conducting themselves unfairly and sometimes outrageously.

An extreme example of outrageous behavior on the part of a homeowners' association was found in Fountain Valley Chateau Blanc Homeowner's Ass'n v. Dep't of Veteran Affairs, which involved a Fountain Valley association, the Chateau Blanc Management Association.[fn23] The Fountain Valley decision demonstrates the outer limits of an association's intrusion into the private life of a unit owner.

In Fountain Valley, the homeowners' association's unfounded belief that internal unit clutter created a fire hazard led to the association's intimidating demand that the owner submit to internal unit inspection.[fn24] Following inspection the association issued orders to the property owner to "clear his bed of all papers and books, discard "outdated clothing" and not to use his bathroom for storage."[fn25]

The Court of Appeal found it "virtually impossible" to say that the association acted reasonably.[fn26] Presiding Justice David G. Sills wrote for the court:

[T]he association's rather high-handed attempt to micromanage Cunningham's personal housekeeping--telling him how he could and could not use the interior rooms of his own house--clearly crossed the line and was beyond the purview of any legitimate interest it had in preventing undesirable external effects or maintaining property values.

. . . Particularly galling to us--and clearly to the jury as well--was the presumptuous attempt to lecture Cunningham about getting rid of his old clothes, the way he kept his own bedroom, and the kind of reading material he could have. To obtain some perspective here, we have the spectacle of a homeowners association telling a senior citizen suffering from Hodgkin's disease that, in effect, he could not read in his own bed! When Cunningham bought his unit, we seriously doubt that he contemplated the association would ever tell him to clean up his own bedroom like some parent nagging an errant teenager.[fn27]

Associations are Like 'Mini' Governments With Few Checks and Balances

Associations are frequently incorporated and are run like private corporations, but in actuality they are "mini governments"[fn28] with few checks and balances. Dissatisfied homeowners find that complaining is often futile. Militant boards of directors with unreasonable ideas can make for unpleasant and costly results for those who challenge them. Boards have the option of imposing fines and other sanctions against owners without resorting to the legal system.[fn29] Homeowners who feel their rights have been violated or who want to challenge boards of directors frequently have no recourse other than to resort to the courts.

There is a tremendous opportunity for attorneys, insurance companies, management companies, and contractors to take advantage of homeowner associations. Homeowners' association attorneys have a ready source of income from the associations, and the homeowners are forced to pay for it through their monthly assessments. Some CAI member attorneys have repeatedly filed lawsuits against homeowners and have drained association reserves for their legal fees.[fn30]

For the owner suing a homeowners' association or defending against a homeowners' association lawsuit, litigation can be a costly endeavor, and not for the faint of heart. Homeowners also pay insurance premiums for the liability policies that can be used to defend a corrupt board of directors. They also pay for association attorneys who can then turn around and sue the homeowners. While associations can assess members for legal fees, the legal files for those assessments are off limits to residents.[fn31] Because the "client" is the association, individual homeowners lack legal standing to review the files.[fn32]

Condominium Owners Pay a Disproportionate Amount of Property Taxes Without Receiving Their Share of Benefits

Single-family groups of homes receive more benefits per tax-dollar, as their streets are beautified with parkways and landscaping and illuminated by city maintained streetlights. Of the amenities purchased with tax dollars, few benefit condominium owners.

Condominium owners pay equivalent taxes for fewer services.[fn33] They are required to beautify their own streets and maintain landscaping along their streets. Additionally, police will tag and tow a vehicle abandoned on a city street but will take no action to tow an abandoned vehicle on condominium property.[fn34]

This article seeks to provide insight into the background and development of the homeowners' associations and how they are governed. It also discusses recent law affecting homeowners' associations, their members, and the movements in California and across the nation to challenge the power of homeowners' associations.

How Associations Are Governed

Homeowners' associations in California are governed by various California Civil Code sections, California Corporations Code sections, and their own governing documents, including the articles of incorporation, by-laws, and the declaration of CC&Rs. They are operated under a board of directors. Increasingly, homeowners pay dues for the association to be managed by property management companies.[fn35] These companies routinely restrict owners' rights to use their property as they desire. No license or certification is required of the people who manage the property management companies.[fn36]

Community associations are usually organized as nonprofit mutual benefit corporations with the powers and duties of such corporations.[fn37] Unless the governing documents state otherwise, the directors have authority that includes:

1) the powers granted to a non-profit mutual corporation, except as specified; and
2) standing to enforce governing documents and bring suit to recover damages to the common areas and separate interests.[fn38]

On January 1, 1986, the Davis-Stirling Common Interest Development Act became the primary governing law over homeowners' associations. The purpose of the Act was to consolidate all statutory law governing common interest developments into one area of the Civil Code, from section 1350 through 1376.[fn39]

The Davis-Stirling Common Interest Development Act contains an extensive definition of the terms in section 1351 of the California Civil Code.[fn40] "Common interest development" ("CID") encompasses four different types of developments: common interest subdivisions, condominiums, planned developments and stock cooperatives. Because condominiums and planned developments are more prevalent, the discussion in this article will be limited to them.[fn41]

The Davis-Stirling Act was the outgrowth of the California Assembly Select Committee on Common Interest Subdivisions, chaired by Assemblyman Larry Stirling (R-San Diego) during the 1983-1985 legislative session. It was co-authored by Assemblyman (now Governor) Gray Davis, signed into law in October 1985,[fn42] and became effective January 1, 1986.[fn43]

The Act gave homeowners' associations the standing to sue for CC&R enforcement, and the standing to sue individual owners for failure to maintain their units if damage attributed to a unit impacted on common areas or is "integrally related to the common area.[fn44]

The Act empowered associations with the right to defend and settle lawsuits as well as to be a party to arbitration and mediation.[fn45] It gave associations the power to levy regular and special assessments sufficient to perform their obligations under the governing documents.[fn46 ] It authorized associations to lien property for unpaid assessments and the right to buy and sell personal property.[fn47] The Act also authorized associations to obtain attorney fees and the costs of collecting assessments from homeowners.[fn48] Those costs include the amount in default, late charges, interest, and all reasonable costs of collection, including title company charges and attorney fees.[fn49] The association also has the right to claim prevailing party attorney fees and costs in an action to enforce the governing documents.[fn50]

The Act also provided authority for associations or owners of separate property interests to amend outdated CC&Rs through court intervention.[fn51]

Association Boards Of Directors HAVE a Fiduciary Duty to the Owners

In 1986 the California Supreme Court held that the directors of a corporation owe a duty to third persons, such as employees or complete strangers, to exercise due care to not bring harm to such persons. They clarified, however, that the only directors who face personal liability are those who actually vote for an action that causes injury, even though the wrongful act is performed in the name of the corporation.[fn52]

In Cohen v. Kite Hill Community Ass'n,[fn53] the Fourth District Court of Appeal ruled that homeowners' associations are "quasi governmental" and that they are "mini-governments" paralleling in almost every case the powers, duties, and responsibilities of a municipal government."[fn54] The Cohen court aligned itself with a well-established body of decisions that warrant against associations using their decision-making powers arbitrarily or capriciously.[fn55] Recognizing the mini-government status of homeowners' associations, the court gave more than parenthetical affirmation to those decisions saying, "With power, of course, comes the power for abuse. Therefore, the Association must be held to a high standard of responsibility," thereby holding that exculpatory clauses in the CC&Rs intended to immunize the associations from lawsuits fail to block homeowner suits.[fn56]

In disputes between owners and associations, courts look to governing documents for guidance to see if the association has acted within the scope of its powers.[fn57] Actions taken in excess of power are not enforceable.[fn58] Where it has been found that an association's recorded CC&Rs contained provisions that were unconscionable and characteristic of an adhesion contract, the offending clauses were struck down.[fn59] When circumstances arise where CC&Rs do not adequately cover the matter, the remedy is to amend the CC&Rs.[fn60]

When courts are called upon to assess the validity of a rule made by a board of directors courts look to see if: 1) the board acted within scope of authority and 2) the rule reflects reasoned or arbitrary and capricious decision making.[fn61] In Ward v Superior Court, the court found that it was unreasonable for an association to record a notice of non-compliance with the CC&Rs.[fn62] The court's rationale was that instruments should be recorded only if some statute authorizes the recording or if section 27280 of the California Government Code authorizes their recording.[fn63] The court reasoned that since section 27280 of the California Government Code authorized the recording of interests that have a legal effect on title or possession of real property and the notice of noncompliance had no legal effect on title or possession of real property, that the notice of noncompliance could not be recorded.[fn64]

If there is a conflict between the condominium CC&Rs and the Davis Sterling Common Development Act, the Act prevails as a matter of law.[fn65]

In Associations, Regular and Special Assessments Loom As An Ever Present Threat to a Homeowner's Pocketbook

Boards can levy regular assessments (monthly dues) each year without a vote of the members.[fn66] Regular assessments are generally levied annually and collected monthly. They are used to meet the association's normal operating expenses and to establish necessary reserves.67 Annual increases in assessments may not be imposed unless the board has complied with subdivision (a) of California Civil Code section 1365, relating to a pro forma budget being in place or a majority of owners approving the assessment.[fn68] A regular assessment may not be greater than 20% of the regular assessment for the previous year.[fn69]

Boards may levy special assessments that may not exceed 5% of the budgeted gross expenses of the association for that fiscal year with a vote of the majority of the members.[fn70]

Boards can also make a "Special Assessment" for emergency purposes such as: a) an extraordinary expense required by an order of the court; b) an extraordinary expense necessary to repair or maintain the common interest development or any part of it, and c) an extraordinary expense necessary to repair or maintain the common interest development or any part of it for which the association is responsible that could not be reasonably foreseen by the board when it was preparing its pro forma budget to distribute to the members.[fn71]

An owner who disagrees with an assessment has the right to pay the assessment under protest by providing written notice and paying the amount of the disputed assessment, late charges, interest, and all reasonable fees and costs associated with the preparation and filing of the notice, including reasonable attorney's fees.[fn72] The association is required to inform the owner that the matter may be resolved through alternative dispute resolution pursuant to section 1354 of the California Civil Code, a civil action, or any other procedures offered by the association.[fn73]

If an association is required to enforce the payment of assessments, the assessment is considered a personal debt of the homeowner at the time the assessment is levied, and includes late charges, reasonable costs of collection, and interest.[fn74] Delinquent assessments may be enforced by a judicial or non-judicial sale of the property.[fn75] New law signed in 2002 requires that the association give 30 days notice to the owners prior to recording a lien against a property for late payments.[fn76] With the passage of AB 2289 new civil codes were passed including California Civil Code sections 1365.1, 1361.5 and 1367.1. Amended Civil Code sections include sections 1363.05 and 1366.[fn77]

While associations can lien homes and foreclose on the property to recover assessments, a bankruptcy court held that assessments levied by a homeowners' association after a petition in bankruptcy was filed were dischargeable in bankruptcy.[fn78]

Unless Arbitrary, Capricious or Unreasonable, Courts Will Uphold a Homeowners' Association's Use of the "Business Judgment Rule"

The plaintiffs in a south Orange County, California lawsuit involving two homeowners' associations discovered that the associations could legally use their assessments for political purposes.[fn79] The lawsuit involved a challenge by members of several related homeowners' associations against the associations because the associations used homeowner assessments to fund a local Orange County ballot measure, the fight against the El Toro Airport.[fn80] If approved by voters, the airport would have been constructed on the site of the El Toro Marine Corps Air Station.[fn81]

The court upheld the Associations' use of the Business Judgment Rule to use assessments to support political measures.[fn82] The court's rationale was that under the business judgment rule a director of a corporation cannot be held liable for acts taken in good faith, after reasonable inquiry, to be in the best interest of the corporation.[fn83]

The Use of the "Business Deference Rule" Can Actually Obstruct Owners' Efforts to Protect Their Property

The California Supreme Court's exercise of the "Business Deference Rule" actually interfered with a condominium owner's efforts to protect her property from termite damage. In Lamden, Gertrude Lamden sued her homeowners' association claiming that she suffered diminution in the value of her condominium unit and incurred repair expenses and fees and costs associated with the litigation because of her association's decision to spot treat for termites rather than to fumigate.[fn84] She filed several causes of action against the association and several members of the Board for continued breach of contract (the governing declaration of restrictions CC&Rs), breach of fiduciary duty, and negligence.[fn85] Ms. Lamden argued that for a number of years the association failed to use fumigation to treat the condominiums for termites after numerous termite inspection reports over the years had recommended fumigation. Termite treatment companies had made repeated property inspections followed by recommendations to fumigate the property.[fn86]

Despite the fact that the California Structural Pest Control Board states that spot treating is ineffective for "whole house" treatment for termites, Lamden is still good law. It is time to challenge a law that allows a homeowners' association to select an inferior method of maintenance and hide behind the "business deference rule."

The Manner in Which Associations are Governed Stacks Against the Homeowner

A Rancho Santa Fe Association homeowner discovered that her homeowners' association architectural committee could use subjective discretion in denying her application for improvements to her residence.[fn87] In Dolan-King v Rancho Santa Fe Association, the owner submitted an architectural application for a new perimeter fence and a turret style addition to her living and family rooms.[fn88[ The association's "Art Jury" (architectural committee) denied her applications on the basis that the proposed improvements were inconsistent with both the unrecorded architectural guidelines and the recorded covenants.[fn89]

On appeal Dolan-King did not challenge the board's power or authority, or its duty to interpret and enforce the CC&Rs.[fn90] She argued that the CC&Rs authorized the architectural committee to make only general suggestions to the home's exterior design. The court rejected this argument saying that the CC&Rs empowered the architectural committee and the board to make judgments "based upon subjective as well as objective criteria."[fn91] Upon reviewing the covenant's stated goals of "'uniform and reasonably high stand of artistic result and attractiveness in exterior and physical appearance of said property and improvements . . ."[fn92] the court rendered a decision that was nearly as artistic as Ms. Dolan's proposed blueprints. Touting the covenant's mission and purpose of protecting the attractiveness and value of the area as "a high class place of residence," the court said it "imputed a broad, albeit not unbridled authority [upon the board and the architectural committee] to apply standards which are inherently subjective, and by their nature cannot be measured or qualified."[fn93] Now there is an evanescent standard for homeowners to keep in mind. These mini governments, with the blessing of the courts, can reign supreme with the judicially conferred power to impose subjective, immeasurable, and unqualified standards.

Association Records Are a Well-Guarded Secret; Some Can Be Obtained While Others Cannot.

Owners who think that they can get all of the records from their association need to think again! Take an example where owners receive a letter from their homeowners' association stating that the association is imposing a special assessment for landscaping, or that the association is spending money for new pool furniture or for tot lot improvements. The owners individually write the association asking for records of purchases saying, "I think we are paying too much for landscaping. I want to see the contract. I want to see every check paid to this vendor for the past 15 years." Another owner may write the board saying: "I want a breakdown of all legal fees spent this year." Can these owners obtain the records they seek?

Under California law, members' inspection rights are limited.[fn94] Here is what boards of directors consider when they receive a request from a member. First, the member must make a written demand that states the purpose for the request. The purpose must be "reasonably related to the person's interests as a member."[fn95] Second, there is an issue of whether the member has the right to obtain the records.[fn96] Without a subpoena the member's inspection rights are usually limited to:

1. Accounting books and records.[fn97] Any documents showing legal fees (i.e.) bills, other than the total sum shown on financials and audit, are privileged.[fn98]

2. Minutes of the Board and Committees.[fn99] Such minutes do not include executive sessions.[fn100] Amended Civil Code section 1363.05 adds to newly enacted AB 2289 that matters discussed in executive session be noted in the minutes of the immediately following meeting, which is open to the membership.[fn101] Contracts or other records are not for members' inspection.[fn102]

3. List of members' names, addresses and voting rights.[fn103]

Unless the Association provides a "reasonable alternative," a member may inspect a copy of such list within five days, or the Board may charge a member for a copy within ten days of the request. If the member rejects the reasonable request, the rejection must be in writing, stating the reasons.[fn104]

In a court challenge to the withholding of records, the court may award reasonable costs and attorney fees if the court finds that the failure of the corporation to comply with a proper demand by members or directors was without justification.[fn105]

In Moran v Oso Valley Greenbelt Ass'n[fn106} a homeowner sued the association for failing to produce its minutes for inspection under Corporations Code section 8333 and Civil Code section 1363(f).[fn107] While the trial court found that the association had wrongfully withheld the minutes, it denied the homeowner her fees and costs.[fn108[

The California Court of Appeal reversed, stating that while Corporations Code section 8337 does not require a written order explaining the trial court's decision denying attorney fees or require an award of attorney fees, "there was no explanation for the trial court's reasoning, and it thus could not be concluded that this aspect of its decision had any reasonable basis."[fn109] A trial court must examine all the circumstances of a given case to determine whether awarding fees under the statute would be unjust."[fn110] The court stated that the defendants had the burden of showing inequity and that the trial court should articulate the reasons for its decision on the record or in open court.[fn111]

Insurance Coverage For Associations is Costly and Hard to Obtain and in Some Cases the Individual Owners Can Be Liable For Injuries Suffered in Common Areas

Insurance is one of the largest expense items for homeowners' associations and has become an increasing burden for homeowners. Fire, general liability, directors and officers, and Errors and Omissions are required items covered by an association's insurance.[fn112] Premiums are escalating, driven by large numbers of claims, a significant number of them attributed to water damage and losses. Mold cases have also become costly and prevalent[fn113]. Higher premium costs are also caused by fewer carriers writing coverage for homeowners' associations.[fn114]

Because of court decisions classifying homeowners' associations as landlords, the association is exposed to legal liability for torts committed on the common areas.[fn115] Volunteer officers and directors are shielded from personal liability for tortious acts and omissions, provided that the insurance coverage meets the statutory minimum standards, and that the acts or omissions are committed within the officer's or directors scope of duties, were committed in good faith, and were not willful, wanton or grossly negligent.[fn116]

The decision in Ruoff v Harbor Creek Community Association is one that could make any association member nervous.[fn117] When an elderly guest of an association member fell down the stairs in the common area of a condominium complex and sustained injuries, the plaintiff's attorneys named not only the association but each of the individual unit owners because the plaintiff's injuries exceeded the one million dollars liability limits of the association's insurance policies.[fn118] Individual owners were held jointly and severally liable for the injuries even though the CC&Rs imposed an obligation on the association to maintain and repair the common areas.[fn119]

Following the Ruoff decision, the California legislature added and later amended Civil Code section 1365.9.[fn120] Section 1365.9 provides that in any tort cause of action against an owner of a separate interest, arising solely because of the unit owner's ownership interest as a tenant in common of a common interest development, the action shall be brought only against the association and not against the individual owners of the separate interests.[fn121]

While section 1365.9 limits the liability exposure of individual unit owners, there is not complete tort liability immunity. If there is a judgment that exceeds the association's policy limits, there is still a question of the association's assessing the members for the uninsured losses.[fn122] This could pose a problem if homeowner insurance policies do not cover the assessments.

Amending Outdated CC&Rs Is Not Easy Despite Legislation that Enables Court in Intervention to Overcome Supermajority Approval Requirements. Difficult Board Members and Association Politics Can Derail a Good Amendment

In an older association, changes in the condition of the property, the mix of owners, and new laws may make the time ripe for an amendment to the declarations. An update in the declarations may become problematic, however, when the declarations require a supermajority voter approval to amend the declarations.

It is not uncommon among associations 25 years old or over to find declarations that require a 75% pass rate. The requirement of a supermajority vote coupled with voter apathy or other adverse conditions can result in the failure of even good amendments to gain voter approval, therefore hamstringing an association's ability to adopt amendments that reflect the changing times.[fn123] It is virtually impossible to adopt new amendments in projects with supermajority approval requirements.

Such a seemingly important task as getting a termite amendment through a homeowners' association to allow residents to fumigate townhouses can result in tremendous hurdles for an owner bucking a seemingly cooperative board and groups of dissidents. Boards of directors can sabotage the voting process and illegally solicit proxies to overturn a vote. Then, through the use of their attorneys, the boards can withhold the proxies from inspection by the owners under the auspices of Corporations Code section 8334.[fn124]

In Chantiles v. Lake Forest II Master Homeowners' Ass'n the Fourth District Court of Appeal in Santa Ana, California affirmed the lower court's decision refusing a director of a homeowners' association proxy inspection based upon the association's assertion of members' privacy interests.

Dissidents can spread factual (and legal) inaccuracies throughout the community. If the voter pass rate is supermajority, even a good amendment can fail.

To counteract this situation, the Davis-Stirling Act includes a provision whereby the association or any owner may seek the assistance of the court to amend declarations. If the declaration requires a supermajority vote to adopt an amendment, and more than fifty percent of the votes are cast in favor of the amendment, either the association or the owner of any separate interest may petition the court for an order reducing the percentage of affirmative votes needed for the amendment.[fn125]

The petition must also state the number of affirmative and negative votes received, the effort that has been made to solicit approval of the association members in the manner provided in the declaration, the number of affirmative votes required to amend the declaration according to the existing declaration and any other matters the petitioner believes relevant.[fn126] The petition must also contain a copy of the governing documents, a text of the amendment, copies of notices used to seek owner approval, and a short explanation of the reason for the amendment.[fn127] The petition must also show that more than fifty percent of all owners voted in favor of the amendment and that the amendment is reasonable.[fn128]

A court may order a meeting under Corporations Code section 7515 in situations where it is unduly difficult or impractical for a corporation to call or conduct a meeting of its members. Pursuant to Corporations Code section 7515, the court order may modify a quorum or dispense with any requirement relating to the holding of and voting at meetings.[fn129] Owners seeking court intervention through the petition process may proceed without incurring the risk of paying opposing party attorney fees should the petition be denied.[fn130] Neither Civil Code section 1356 nor Corporations Code section 7515 provide for prevailing party fees.

Prevailing Party Fee Provisions in the Governing Documents Provide Effective Deterrents to Legal Actions Against Associations

In any action to enforce a declaration of covenants and restrictions, the prevailing party is entitled to recover reasonable attorney fees and costs even though there is no express provision in the declaration for the payment of fees.[fn131] The provisions of Civil Code sections 1717 and 1354 are applied retroactively for the enforcement of restrictions executed before the effective date of the statutes.[fn132]

In April 2002, a decision of the appellate court in Santa Ana, California noted that the prevailing party attorney fee provision in Civil Code section 1354(f) includes the term "governing documents."[fn133] Before 1993 the statute read, '"In any action to enforce the declaration the prevailing party shall be awarded reasonable attorney fees and costs."'[fn134] The latter, broader term "governing documents" includes the declaration, the "by-laws, operating rules of the association, articles of incorporation, or articles of association which govern the operation of the common interest development."[fn135]

The impact of the Kaplan ruling can strike fear and trepidation into the heart of owners seeking to right an injustice involving their homeowners' association. The Kaplan decision should alert plaintiffs of the necessity to thoroughly read attorney fee statutes to note any changes in the statutes that could potentially make them liable for attorneys fees should they not prevail.

A Carefully Structured Lawsuit Can Result in Attorney Fees For the Homeowner

With care, an owner can prevail in actions against a homeowner association. An award of attorney fees is authorized under the private attorney general statute[fn136] where the outcome: 1) results in the enforcement of an important right affecting public interest; 2) confers significant pecuniary or non-pecuniary benefits on the public or a large class of persons; and 3) requires such an award because of the necessity and financial burden of private enforcement.[fn137] Attorney fees are also available under the "substantial benefit" rule, a non-statutory equitable basis for an award.[fn138] A word of caution is appropriate here. Because of the Kaplan decision and its awarding of prevailing party fees in any action on the "governing documents," persons who seek to bring a lawsuit against an association should be very confident that they have a winning argument on any action on those documents. Otherwise, it is wise to frame the lawsuit on causes of action not based directly on the governing documents.

Appellate Court Struck Down Binding Arbitration in CC&Rs as an Unconscionable Contract

In 2000 the Court of Appeal affirmed an Orange County Superior Court ruling that invalidated a binding arbitration provision in a condominium declaration.[fn139] In that case, the binding arbitration provision required construction defect disputes between the developer and homeowners or the homeowners' association to be submitted to binding arbitration.[fn140] The court ruled that the arbitration clause constituted an unconscionable contract because it was buried near the end of the 70-page declaration.[fn141] Because of its location in the declaration and the very real possibility that it would not be noted, homeowners were inadvertently relinquishing their right to have a construction defect claim heard in court.[fn142]

The arbitration clause also violates public policy as Code of Civil Procedure section 1298.7 provides homeowners with the right to bring a court action on construction defects despite a purchase agreement containing a binding arbitration clause.

To Prevail on an Action to Enforce its CC&Rs the Association Must Establish that it Followed its Own Rules and Procedures of Architectural Control

The court in Ironwood Owners Ass'n v Solomon[fn143] held that an association that failed to establish that it followed its own rules and procedures regarding enforcement of architectural control provisions was not entitled to a mandatory injunction requiring the removal of trees allegedly planted in violation of the restrictions.[fn144] The court emphasized that when an association seeks to enforce its CC&Rs, it must proceed in good faith and in accordance with uniformly applied enforcement procedures.[fn145] In Ironwood, a CC&R provision had been clearly violated.[fn146] The association's enforcement procedures were struck down, however, because the board failed to pursue the proper procedures.[fn147]

Homeowners' Associations Laws Passed in 2002 Purport to Include Some Protection for Homeowners Against the Association

Assembly Bill 2289[fn148] was signed in 2002, and was effective as of January 1, 2003. Prior to the enactment of AB 2289, Civil Code section 1367 gave associations a remedy against delinquent homeowners in the form of a non-judicial foreclosure.[fn149] Initially, the bill created protections for homeowners against losing their homes to non-judicial foreclosure actions by associations that use this process to collect small amounts of overdue assessments and restricted the associations from taking action on a non-judicial foreclosure only when the overdue assessments exceeded five thousand dollars.[fn150] The bill as passed has deleted the "$5,000" language but still allows the associations to continue to use non-judicial foreclosure measures "as the most effective means to enforce payments of delinquent assessments."[fn151] The bill also allows homeowners' associations to circumvent the California state usury law of ten percent interest to twelve percent interest on the legal fees the association charges to the homeowners.[fn152]

Assembly Bill 555-Signed Into Law 2002, Effective January 1, 2003

This bill creates a new certification program for a "Certified Common Interest Development Manager" as specified under a new Business and Professions Code sections 11500 et seq. It specifies certain educational requirements necessary to use that designation.[fn153] The bill also requires that the articles of incorporation of a common interest development state whether or not the association's managing agent is certified.[fn154]

The bill amends Civil Code section 1363.5 and Civil Code 1365. Civil Code 1363.5 requires filing a statement in the Articles of Incorporation filed with the Secretary of State as to whether the association's manager is certified pursuant to Section 11502 of the Business and Professions Code. Civil Code section 1365 requires that the association's policies and practices as to enforcing lien rights or other legal remedies for collection of unpaid assessments and the association's collection policy be distributed with a summary of the association's fidelity insurance within sixty days preceding the start of the association's fiscal year.

There is a Growing Group of Organizations Rising in Opposition to Homeowners' Associations

In efforts to uphold what they believe are drastic intrusions into the rights of homeowners, there has been a consumer movement to contend with homeowners' associations. The San Juan Capistrano, California American Homeowners Resources Center (AHRC) listed 55 different references to homeowners' association issues in its regularly published "News" section on its internet website.[fn155] These articles range from one dealing with the eviction of a widower for not cutting shrubs, to one questioning whether the AARP[fn156] is a friend or foe of association owners.

One advocate against homeowners' associations is Joni Greenwalt, author of the book Homeowner Associations A Nightmare or a Dream Come True.[fn157] Ms. Greenwalt is an active realtor who has lived in a covenant controlled community and served as president of its association. Other helpful homeowner advocacy organizations, accessible on the web include, Common Interest Consumer Project,[fn158] Consumer Advocacy Network,[fn159] HOA Network,[fn160] Homeowners Supporting Homeowners in Associations,[fn161] On The Commons,[fn162] and Nolo Law For All.[fn163]

Conclusion

The preamble to the California constitution has but 34 words: "All people are by nature free and independent and have inalienable rights. Among these are enjoying and defending life and liberty, acquiring, possessing and protecting property, and pursuing and obtaining safety, happiness and privacy."[fn164]

Living in a homeowners' association impinges on inalienable personal rights. People who live in associations are not free and independent of the association. Their rights are subject to the control of the association. A word to the wise: When buying into association-controlled property, educate yourself about the advantages and disadvantages of association living. Be careful, investigate, think, and read any governing documents prior to committing to any homeowners' association!

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About author Sharon Bush:. JD 1985, Western State University College of Law, Fullerton, California; Member, Law Review, BS Home Economics Journalism, Ohio University, Athens, Ohio. Worked in public relations for advertising agencies and non-profit organizations prior to admission to the California Bar.
1. Community Associations Institute, Data on U.S. Community Association, at http://www.caionline.org/about/facts.cfm. Community Associations Institute ("CAI"), 225 Reinekers Lane, Suite 300, Alexandria, VA 22314, is a Virginia-based industry lobby group founded in 1973. It is comprised of lawyers, managers, and other service personnel. It lobbies nationwide for laws that benefit its members.
2. Id.
3. See A.B. 555, Reg. Sess. (Cal. 2002), 2002 Cal. Stat. ch. 1116 §1(a).
4. Community Associations Institute Data on Community Associations, at http://www.caionline.org/about/facts.cfm.
5. American Homeowners Resource Center, Proposed Reforms for California Homeowner Associations: Proposal Made to California Senator Jim Battin, Feb. 14, 2003 at http://ahrc.com/new/index.php/src/news/sub/ legis/action/ShowMedia/id/415.
6. Cal. Const. art. XIII A.
7. Id.
8. Cal. Civ. Code §1351.
9. Id.
10. Id. § 1362.
11.Richard C. Smith, Nature and Characteristics of Condominiums and Planned Development, in California Condominium and Planned Development Practice § 1.20 at 27 (Gordon Graham et al. eds.,1984); Curtis C. Sproul & Katherine N. Rosenberry, Advising California Condominium And Homeowners Associations § 1.1, at 2-4 (Gordon Graham & Craig H. Scott eds., 1991).
12. City of Irvine, California Landscape, Lighting and Park Maintenance ("LLPM") 2002 Assessment Ballot passed April 9, 2002, based on the provisions of Proposition 218. On November 5, 1996 the electorate approved Proposition 218, the "Right to Vote on Taxes Act," requiring property owner approval for any special assessments levied against their property. Consequently, the Irvine City Council approved an ordinance authorizing maintenance assessments in February 1997. The LLPM assessment was approved by a majority of Assessment ballots cast by property owners on July 8, 1997 to extend for a period of five years. Irvine's most recent (2002) LLPM ballot has no "sunset clause" and provides for annual adjustments in the assessment rates indexed to annual inflationary increases at December 31st of each year. To meet the provisions of Proposition 218 the assessed properties must derive a "special benefit" over and above the benefit received by the general public. An incorporated homeowners' association, a separate legal entity, receives no "special benefit". Assessment ballots of this nature are not done on the "one-man, one vote" principle but instead are conducted based upon the property held by each property owner. In Irvine, the Irvine Company, the City of Irvine, the Irvine Unified School District, and the Irvine Ranch Water District can control the vote in this type of voting.
13. University Community Association, Irvine, California. This is the author's own homeowners' association in University Park, Irvine, California. The association is the owner of 18 parcels and was assessed by the City of Irvine for the LLPM.
14. Village Property Management, Why Association Living? It Comes With the House, Irvine World News, April 6, 2002.
15. Julie Bawden-Davis, Orderly or Oppressive? Some Endure While Others Extol the Association-run Lifestyle, L.A. Times, August 25, 2002, at K1.
16. American Homeowners Resource Center, Proposed Reforms for California Homeowner Associations: Proposal Made to California Senator Jim Battin, February 14, 2003, at http://ahrc.com/new/index.php/src/news/sub/legis/action/ShowMedia/id/415.
17. America Homeowners Resource Center, The Oath, the Lie, the Tie, the CAI: How and Why California Politicians Steal Homes, Life Savings & Rights, Nov. 20, 2003, at http://www.ahrc.com/new/index.php/src/news/sub/legis/action/ShowMedia/ id/284.
18. Id.
19. Cal. Civ. Code § 1366.
20. Cal. Civ. Code § 1367.
21. Id. §1367(e).
22. Park Place Estate Homeowners Ass'n v. Naber, 29 Cal. App. 4th 427, 432 (1994).
23. Fountain Valley Chateau Blanc Homeowner's Ass'n v. Dep't of Veteran Affairs, 67 Cal App. 4th 743 (1998). A petition for rehearing was denied November 30, 1998, and the petition for review of Real Party in interest was denied by the California Supreme Court on January 27, 1999. Cunningham v. Superior Court, No S075233, 1999 Cal. LEXIS 644 (Cal. Jan. 27, 1999) Kennard, J. was of the opinion that the petition should be granted. Id. at *1.
24. Fountain Valley, 67 Cal. App. 4th at 747.
25. Fountain Valley Chateau Blanc Homeowner's Ass'n v. Dep't of Veteran Affairs, 67 Cal App. 4th 743, 748 (1998).
26. Id. at 754.
27. Id. at 756.
28. See Cohen v. Kite Hill Cmty. Ass'n, 142 Cal. App. 3d 642 (1983).
29. Curtis C. Sproul & Katherine N. Rosenberry, Advising California Condominium And Homeowners Associations § 7.12 (Gordon Graham & Craig H. Scott eds., 1991).
30. American Homeowners Resource Center, Judge Compares Homeowner Association to "BANANA REPUBLIC" and "SPANISH INQUISTION": Orders Homeowner Association to Pay Fees and Costs to Homeowners Who Seek a Recall of Board, Mar. 11, 2003 at http://www.ahrc.com/new/index.php/src/news/sub/article/ action/ShowMedia/id/444.
31. See Smith v. Laguna Sur Villas Cmty. Ass'n, 79 Cal. App. 4th 639, 643-44 (2000).
32. Id.
33. California Association of Homeowners Associations, Inc., Condominium and Townhome Owners Pay Disproportionate Amount of Property Taxes!, at http://www.calassoc-hoa.com/01_geninfoproperty_taxes.html.
34. California Association of Homeowners Associations, Inc., Insurance Coverage and the Civil Code, at http://www.calassoc-hoa.com.
35.Richard C. Smith, Financing Condominiums and Planned Developments, in California Condominium And Planned Development Practice § 5.30 (Gordon Graham et al eds., 1984).
36. Cal. Bus. & Prof. Code § 11501.
37. See Cal. Corp. Code § 7140 (describing the powers of a corporation).
38. See Cal. Civ. Code § 1363.
39. Id. § 1350 et seq.
40. Id. § 1351.
41. Id.
42. A.B. 555, Reg. Sess. (Cal. 2002), 1985 Cal. Stat. ch. 874.
43.See Katherine Rosenberry, The Davis-Stirling Common Interest Development Act, 8 Real Property Law Reporter 172 (1985).
44. Cal. Civ. Proc. Code. § 383.
45. Id.
46. Cal. Civ. Code § 1366.
47. Id. § 1367(b); Cal. Corp. Code § 7140.
48. Cal. Civ. Code § 1367(a).
49. Id. § 1366(e).
50. Id. § 1354(f); see also Kaplan v. Fairway Oaks Homeowners Ass'n, 98 Cal. App. 4th 715 (2002).
51. Cal. Civ. Code §1356; see also Cal. Corp. Code § 7512.
52. Frances T. v. Village Green Owners Ass'n, 42 Cal. 3d 490 (1986).
53. 142 Cal App. 3d 642 (1983).
54.Id. at 651 (citing Wayne S. Hyatt, Concepts of Liability in the Development and Administration of Condominium and Homeowner Associations, 12 Wake Forest L. Rev. 915 (1976).
55.See,e.g. Hannula v Hacienda Homes Inc., 34 Cal. 2d 442 (1949); Bramwell v. Kuhle, 183 Cal. App. 2d 767, 779 (1960); Norris v. Phillips, 626 P.2d 717 (Colo. App. 1980).
56. Cohen, 142 Cal. App. 3d at 654.
57. Major v. Miravere Homeowners Ass'n, 7 Cal. App. 4th 618 (1992).
58. Major v. Miravere Homeowners Ass'n, 7 Cal. App. 4th 618, 628 (1992).
59. Villa Milano Homeowners Ass'n v. Il Davorge, 84 Cal App. 4th 819, 828-29 (2000).
60. Major, 7 Cal. App.4th at 628.
61. Id. at 627-28.
62. 55 Cal. App. 4th 60 (1997).
63. Id. at 65.
64. Id.
65. Thaler v. Household Finance Corp., 80 Cal. App. 4th 1093, 1102 (2000).
66. Cal. Civ. Code §1366(a).
67. Id.
68. Id. §1366(a).
69. Id. §1366(b).
70. Id.
71. Id. § 1366(b)(1)-(3).
72. Cal. Civ. Code § 1366.3.
73. Id. § 1366.3(b).
74. Id. § 1366.3.
75. Id. § 1367(e); See also Cal. Civ. Code §2924.
76. A.B. 2289, Reg. Sess. (Cal. 2002), 2002 Cal. Stat. ch. 1111.
77. Cal. Civ. Code §§1363.5, 1366.
78. Cohen v. North Park Parkside Cmty. Ass'n, 122 B.R. 755, 758 (S.D.Cal. 1991).
79. Finley v. Superior Court, 80 Cal. App. 4th 1152 (2000).
80. Finley v. Superior Court, 80 Cal. App. 4th 1152, 1155 (2000).
81. Id.
82. Id. at 1157.
83. Id.
84.Lamden v. La Jolla Shores Clubdominium Homeowners Ass'n, 21 Cal. 4th 249, 255 (1999).
85. Id. at 254.
86. Lamden v. La Jolla Shores Clubdominium Homeowners Ass'n, 21 Cal. 4th 249, 254 (1999).
87. Dolan-King v. Rancho Santa Fe Ass'n, 81 Cal. App. 4th 965, 981 (2000).
88. Id. at 971.
89. Id. at 972.
90. Id. at 976.
91. Id.
92. Dolan-King v. Rancho Santa Fe Ass'n, 81 Cal. App. 4th 965, 976 (2000).
93. Id. (referencing its former decision in Clark v. Rancho Santa Fe Assn. 216 Cal. App. 3d 606, 618-619 (1989), ironically involving the same homeowners' association and its Art Jury).
94. Cal. Civ. Code § 1363(f); Cal. Corp. Code § 8330.
95. Cal. Corp. Code §§ 8330, 8333, 8325, 8328.
96. Id. § 8338.
97. Id. § 8333.
98. Smith v. Laguna Sur Villas Cmty. Ass'n, 79 Cal. App. 4th 639 (2000).
99. Cal. Corp. Code § 8333.
100. Cal. Civ. Code §§ 1363.05(a)-(b).
101. Id. § 1363.05(c).
102.Id. § 1363.05(b).
103. Cal. Corp. Code §§ 8330-8332.
104. Id. § 8330.
105. Id. § 8337.
106. 92 Cal App 4th 156, 158 (2001).
107. Id. at 160.
108. Id.
109. Id. at 160-61.
110. Id. at 161.
111. Id. at 157.
112. California Ass'n of Homeowners Ass'ns, Inc., at http://www.calassoc-hoa.com (2002).
113.Terri Morgan, Mercury News, Mold Concerns Confront Insurers, California Law Online, available at http://www.bayarea.com/mld/mercurynews/classifieds/ real_estate/2920635 (2003).
114. California Ass'n of Homeowners Ass'ns, Inc., at http://www.calassoc-hoa.com (2002).
115. Francis T. v. Village Green Owners Ass'n, 42 Cal.3d. 490 (1986).
116. Cal. Civ. Code § 1365.7.
117. Ruoff v Harbor Creek Community Ass'n, 10 Cal App. 4th 1624 (1992).
118. Id. at 1627.
119. Id. at 1630.
120. Cal. Civ. Code § 1365.9.
121. Cal. Civ. Code § 1365.9.
122. Id. § 1365.9 historical and statutory note (c) (West Supp. 2003).
123. Blue Lagoon Community Ass'n v. Mitchell, 55 Cal. App. 4th 472 (1997).
124.Chantiles v. Lake Forest II Master Homeowners' Ass'n, 37 Cal. App. 4th 914, 926 (1995).
125. Cal. Civ. Code § 1356 (a); see also Blue Lagoon Community Ass'n v. Mitchell, 55 Cal. App. 4th 472, 477 (1997).
126. Cal. Civ. Code § 1356.
127. Id.
128. Id.
129. Greenback Townhomes Homeowners Ass'n v. Rizan, 166 Cal. App. 3d 843, 845 (1985).
130. Blue Lagoon Community Ass'n v. Mitchell, 55 Cal App. 4th 472, 474 (1997).
131. Cal. Civ. Code § 1354.
132. Harbor View Hills Cmty. Ass'n v. Torley, 5 Cal. App. 4th 343, 348-50 (1992).
133. Kaplan v. Fairway Oaks Homeowners' Ass'n, 98 Cal. App. 4th 715, 718 (2002).
134. Id.
135. Cal Civ Code § 1351(j)
136. Cal. Civ. Proc. Code § 1021.5.
137. Woodland Hills Residents Ass'n v. City Council, 23 Cal 3d 917, 925 (1979). While the Woodland Hills court concluded that the benefits supposedly accrued to the general city populace did not warrant award of fees under the 'substantial benefit' doctrine, it does offer a good discussion of the doctrine. Due to the timing when the Woodland appeal was pending, the court did find that the then newly-enacted provisions of Code of Civil Procedure section 1021.5 'private attorney general' doctrine was the appropriate basis for evaluating the attorney fee request.
138. Friends of "B" Street v. City of Hayward, 106 Cal. App. 3d 988, 994 (1980); see also Serrano v. Unruh, 32 Cal. 3d. 621, 643 (1982).
139. Villa Milano Homeowners' Ass'n v. Il Davorge, 84 Cal. App. 4th 819, 836 (2000).
140. Id. at 824.
141. Id. at 829-30.
142. Id. at 829.
143. Ironwood Owners Ass'n v. Solomon, 178 Cal App 3d 766 (1986).
144. Id. at 773.
145. Ironwood Owners Ass'n v. Solomon, 178 Cal App 3d 766, 772 (1986).
146. Id. at 769.
147. Id. at 772.
148. A.B. 2289, Reg. Sess. (Cal. 2002), 2002 Cal. Stat. ch. 1111.
149. Cal. Civ. Code §1367.
150. Id.
151. A.B. 2289, Reg. Sess. (Cal. 2002), 2002 Cal. Stat. ch. 1111.
152. Id.
153. A.B. 555, Reg. Sess. (Cal. 2002), 2002 Cal. Stat. ch. 1116.
154. Id.
155. American Homeowners Resource Center at http://www.ahrc.com/new/ index.php/src/news (2003).
156.AARP, Facts and Figures, at http://www.aarp.org/press/facts.html. Founded in 1958 by retired California educator, Dr. Ethel Percy Andrus, AARP (formerly known as the American Association of Retired Persons) today represents more than 35 million members. Id.
157. Joni Greenwalt, Homeowner Associations: A Nightmare or a Dream Come True? (1998).
158. Common Interest Consumer Project at http://ahrc.com/old/HOAorg/ HOAdata/hoadata.html (2003).
159. Consumer Advocacy Network at http://www.angelfire.com/fl3/ consumeradvocacy/ (2003) (whose web site is dedicated to "an effort to provide consumers with educational material and advocate for meaningful reform, if necessary).
160. HOA Network at http://www.starman.com/HOA/ (2003) (a website dedicated to citizens against private government HOA's).
161. Homeowners Supporting Homeowners in Associations; Founded November 10, 2000. This group's homepage (now defunct) description stated it best: "DID WE KNOW OF THESE OVER POWERED HOMEOWNER ASSOCIATIONS, AND THEIR BOZO BOARD MEMBERS, GESTAPO CAMPS WITHOUT THE BARBED WIRE IAM [sic] SURPRISED THEY DIDN'T BUILD THE GAS CHAMBERS INSIDE THE COMMUNITYS TO GET RID OF ALL OF US WHO WANT OUR RIGHTS BACK."
162. On The Commons, at http://www.onthecommons.com/ (2003)(On The Commons is a weekly radio show, dedicated to discussing the many issues surrounding mandatory membership common ownership developments. It is broadcast live from WEBR, Fairfax, Virginia)
163. Nolo Law for All at http://www.nolo.com/lawcenter/ency/article.cfm/ objectID/62C6A8D3-4D6E-4BD7-9C5D953B038B4A52 (2003). Nolo's stated mission is "to make the legal system work for everyone--not just lawyers." Since its founding in 1971, Nolo has been making the law more accessible to the public. See also TroubleShooters.com available at http://troubleshooters.com/newtc_plain_html.htm (2003); Regenesis.Net available at http://regenesis.net/FAQ.htm (2003) ("Innovative Community Association Management Strategies" was founded in 1996 by national HOA expert, Richard L. Thompson to serve the needs of homeowner associations worldwide).
164. Cal. Const. art I § 1
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NOTES: Reprinted with permission from the author. This article was first published in Western State University Law Review Volume 30, 2002-2003. A copy of the article reprint was sent to AHRC with the following note: "To Elizabeth, whose tireless efforts to change homeowners associations have been an inspiration to me! Your material was most helpful in this article and I appreciate it. Sharon Bush - October 19, 2003