Homeowners in the Coast Homeowners Association in Legal and Economic Quagmire

February 05, 2003

By AHRC News Services
Copyright ahrc.com

The scene is seemingly idyllic. The 575 homes called the "The Coast Homeowners Association" sit in scenic San Clemente, just a hop, skip and jump from the beautiful, blue Pacific. The balmy ocean breezes bring clean fresh air to the children who play on the tidy lawns in front of the affluent homes. It seems to be about as close to middle class heaven as one can get.

Yet the homeowner association that runs this community has been writhing in turmoil for years. Neighbor has been pitted against neighbor, and it is on the brink of bankruptcy - its bank accounts emptied by a board that allegedly spent $750,000 on legal fees in 2002 alone. It was suing members of the association, and defending against other lawsuits.

The board imposed a special assessment of $900 on each home in 2002 to pay for the legal fees. The regular monthly assessment is $170 a month, which takes care of the streets and slopes. It has been raised 20% a year for the past three years. The board wanted to impose another assessment of $2,700 this year, $1500 of it for anticipated legal fees. The homeowners revolted. At a special election on December 5, 2002, 62% of the members voted to oust the board of directors.

But that was far from being the end of the story.

The old board told its attorney, Dan Nordberg (an old hand at running homeowner associations), to file a suit to block the election. They told another attorney, Steven Linkon, to file a motion to put the homeowner association into receivership. Of course, all the homeowners were paying the legal fees to do this.

The reform group of homeowners were incensed. They went door to door for two weeks asking $100 from each homeowner and collected $28,000 for a defense fund. One of the members sister, a lawyer, volunteered to defend them pro bono. She asked for a restraining order to delay the implementation of the $2,700 assessment.

On December 24, 2002, Judge Sundvold of the Orange County Superior Court granted the homeowners a Temporary Restraining Order in favor of the homeowners. It ordered the old board not "to collect and/or enforce an improper and illegal "Emergency Special Assessment of $2,700 per member" and from spending "any funds already collected from ASSOCIATION members in payment of the $2,700 special assessment". On January 16, 2003, the judge converted the temporary injunction into a preliminary one. This made his ruling effective until the time of trial.

At the December 24 hearing, he also ordered a new election to be held on February 3, 2003, just in case anybody would challenge the previous election on a technicality.

Yesterday, the election was held at the San Clemente Community Center and the reform group won by 467 votes to 2. None of the old board were present. Attorney Dan Nordberg was supposed to be present to answer questions in an open forum. According to observers at the meeting, he turned up, but then left unannounced by a back door. He is said to have been afraid because everybody was so angry.

The new board does not know what sort of challenge, if any, it will receive to the election. They say that the management company, Webb Management, had refused to show the books and records to the members for January through October of 2002. The homeowners say that they have now received these, but not for November and December. State law requires that these be shown to the members. As there is a motion to put the Coast homeowners association into receivership on February 7, they say that they need these records to see what has been going on. They have also questioned many of the expenditures that have led to the emptying of the coffers.

But the election does not mean that the turmoil in the Coast homeowner association will evaporate. In fact, the hardest part of the road may lie ahead.

The 575 homes are situated on 275 acres of steep hillside. The association is obligated to maintain these slopes. The slopes are unstable. More than 31 active landslides have been identified on the property. As the average home price is $750,000, this means that the association has to protect over $431 million in home values.

The original developer of the Coast installed 8 monitoring wells, along with inclinometers and subdrains. When the developer turned the Coast over to the homeowner association in 1982, instructions were given for monthly monitoring and pumping of the wells, along with control of surface water in order to keep the level of ground water low. The association followed these instructions until 1986. Then the association stopped all monitoring and pumping until 1993.

In 1992, the McClintocks had a slope failure in the rear of their home. They charged that their damages were the result of the association's failure to monitor the wells. In 1994, a jury ruled in their favor, and the court ordered the association to "monitor, maintain and repair the water well monitoring system". Despite this order, it is alleged that the association did no monitoring in 1994, and only twice in 1995, even though the association's own experts recommended monthly monitoring.

In 1995, further disaster struck the Coast. A large slope area failed. The association's experts, American Geotechnical, concluded that excessive ground water had reactivated an existing slide. However, the association still did not monitor or pump the wells.

In September 1996, American Geotechnical told the association that the groundwater levels in the wells were high, and recommended further study. However, it would be another year before the wells were monitored again.

In 1997, two homeowners, Robert Price and Eric Sheppard, noticed that the water in one well was within inches of the surface, when it was supposed to be 76 feet below the surface. When the board refused to do anything, a class action lawsuit was filed against the association. Approximately 82% of the homeowners joined the suit.

The association, believing that the liability from the class action lawsuit could be more than $35 million, filed a Chapter 11 bankruptcy, the second such bankruptcy filed. The first had been filed in 1995.

During the bankruptcy - which has not yet been finalized - the board offered the class action plaintiffs a deal. They could keep their share of the insurance proceeds for the damages. One report states that the total payout by the settling insurance companies is $6 million. However, a letter was sent to each of the plaintiffs stating that they would receive $3,000 each, for a total of $1,416,000.

The remainder, $4,584.000, would go to expenses and lawyers fees. None would go to the association to repair the slope problems. (The experts for the class action plaintiffs estimated that it would cost more than $40 million to repair the slopes.) Shortly after this letter was sent, the association informed the homeowners that they have to pay a special assessment of $2,700. $1,500 was for anticipated legal fees.

To compound the problem even further, it was determined that former directors of the board were "grossly negligent and had breached their fiduciary duty" to the association. Because of that, the insurance companies are reportedly considering withdrawing their defense of the association in the class action case, and pursuing the association to recover its defense costs. They had originally agreed to defend the association only under a reservation of rights.

However, the association's woes do not end there. The Orange County Fire Authority is breathing down their back as well. They are demanding under threat of legal action that the association remove 20 year old dead and dying vegetation within 100 feet of homes. Because new foliage would have to be immediately planned to prevent erosion of the hillsides, a landscape architect has estimated that it will all cost over $2 million. The association's projected budget for 2003 already contains a $2 million deficit.

Coast is involved in another lawsuit against the owner of the neighoring hillside property, Laing. It is slipping and has allegedly already caused association property to slide, crack, erode and fall away. A preliminary estimate puts the tab to stabilize the slope at between $5 to $10 million.

Another neighboring slope, Sea View, is failing and threatening to undermine the stability of Coast slopes. No lawsuit has been filed yet.

Another battle is under way between Coast homeowners,the Shirleys, and the association. They are seeking $300,000 in damages from the association, while the latter has cross-complained, saying that improvements made by the Shirleys have damaged association property.

The city of San Clemente is even threatening criminal prosecution against the association for allegedly failing to stop a homeowner from encroaching on slope areas. The city, along with a homeowner, Moore, are threatening civil action as well.

As the association's CCR's guarantee view protection, two homeowners, Glenn and Bauche, are suing the association for failing to maintain their views.

Several homeowners have threatened to sue the association for not bringing a lawsuit against another homeowner, Blum, who has allegedly made unapproved and unauthorized improvements and encroached onto the slope areas.

In addition to all the legal and economic turmoil, there are allegations of verbal threats and death threats against the former board president, Mr. Meyer. It is reported that the association had to provide his family with armed 24 hour security for 2 weeks.

The new board pledged prior to the recall election that its first act would be to rescind the motion to place the association into receivership. As of press time, there was no word whether it had actually done this.

One final twist in this tangled tale is the suggestion by the association attorney, Dan Nordberg, that his associate Michael Perry become the receiver for the association. Perry would then resign from the law firm to avoid any conflict of interest . and the association would have to pay him $22,000 a month to run the association.

One overarching question asked by many homeowners is whether the city of San Clemente should have allowed a homeowner association in the first place. They suggest that if each homeowner had owned the adjacent slope, this horrible mess may not have occurred.

They also say that San Clemente and its city attorney work closely with developers, allowing them to build on unstable slopes. By creating homeowner associations, they then pass on the liability of moving hills and slopes to unsuspecting home buyers.

They argue that homeowner associations pile complexity on complexity, and with outside lawyers, managers and other vendors vying for association dollars, the mix becomes intolerable. San Clemente is currently developing the Talega project where about 4,800 homes are being built. Almost all will be in homeowner associations. As San Clemente is notorious for its unstable slopes, some wonder whether the Coast problems will seem puny compared to those which might loom in the Talega project.

The Coast homeowners in San Clemente are not alone in their homeowner association woes. In nearby Misty Ridge, a homeowner claims that the former police chief of San Clemente (he was forced to resign after 90% of the officers held a vote of no confidence in him, and his secretary accused him of racism)is preventing him from building his dream home even though he has all the requisite city permits. Jeff Oderman, the city attorney, advised the city council back in 1990 to pass a law requiring association homeowners to get permission from their homeowner association before securing final city approval for their plans. Critics contend that this is giving governmental powers to a private corporation.

In Cypress Cove, another homeowner had to pay $40,000 in legal fees to a former partner of Nordberg - Richard Fiori - in order to prevent his half built house from being torn down. He says that a board member across the street has been trying to scuttle his project because it will allegedly affect his ocean view.

San Clemente, of course, is not alone in having homeowner association problems. Almost every homeowner association in South Orange County has been involved in one form of legal action or another. Across the country, homeowners are preparing to go to jail because their homeowner association refuses to allow them to fly the flag. The former decorated veteran claims that he can die for the flag, but not fly it.

In Harris County, Texas, there have been more than 5000 foreclosures in homeowner associations since 1995 because of a law signed by the then Governor Bush. In Arizona, homeowners are fighting to prevent a repeat of a situation where a 77 year old woman in a homeowner association was ejected by constables from her home, and left lying on a guerny on her driveway.

In almost every state, from sea to shining sea, homeowner associations are raising the wrath and ire of homeowners who live in homeowner associations. In Arizona, it turned to murder when one homeowner, irate at how his association had trimmed his bushes, took an arsenal of guns to a homeowner association meeting and killed two board members.

Observers say that a large part of the blame is due to the homeowner association collection lawyers who stoke conflicts in order to generate lawsuits and legal fees. A group of homeowners in California is planning to file a complaint with the state bar to get some of them disciplined or disbarred.

So, the California sun still shines on the homes of the Coast homeowner association. But there seems to be very little sun in the hearts of the homeowners.


© AHRC News Services 2003.
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