Homeowner Associations have too much power, critics say

June 05, 1994

By Randyl Drummer
Copyright © Inland Valley Daily Bulletin

After eight years at Garey Oaks, Mary Lindsey thought she had bought into not just a condominium complex, but a sense of security and community.

That was before the throes of a messy divorce and tough financial times caused her to fall behind on her $70 a month homeowners association membership dues.

After refusing to work out a payment plan and refusing her requests to examine the organization's financial records, the Garey Oaks Homeowners Association filed suit last April to foreclose on her home, Lindsey said.

"I was in shock,", she said. "For about three days I couldn't do anything. I was emotionally devastated."

After more than a year of threats, mounting attorneys' bills and legal wrangling, Lindsey lost the case in Pomona Superior Court last month. She was ordered to pay $787 in back dues, late fees and other costs.

But that amount pales in comparison to the most recent legal bill from the association's law firm, Fiore, Nordberg, Walker & Woolf-Willis: $33,000. This week, she received notice that a judge had lowered the mount due to $21,024.32.

Lindsey figures the association will now be able to foreclose on her home – after an original debt that amounted to less than one monthly mortgage payment.

"In the twinkling of an eye, they can turn your life upside down," Lindsey said. "It's mind-boggling. Who would have thought my neighbors would do that?"

Lindsey's case is far from unusual, according to homeowner advocates critical of the growing power of homeowners associations.

Other cases have underscored the tendency of minor disputes with homeowners associations to turn into gargantuan debts.

- In 1991, Jim Abraham was cited for parking his motor home in a recreational vehicle lot at a townhouse complex in Fullerton. After a lengthy court fight, Abraham was stuck with a $28,000 legal bill.

- In Huntington Beach, a dues delinquency of $120 resulted in the auction sale of a home owned by Tom Larrance and his elderly mother.

- Vera Armstrong of Santa Ana insisted on flying a POW-MIA memorial flag in honor of her husband, and Air Force serviceman listed as missing in action in Vietnam. Her homeowners association, after spending more than $75,000, won its case in court in December.

- Homeowners associations are self-governing, with elected boards of directors that wield sweeping powers over everything from the color residents can paint their homes to whether they can put up basketball hoops or leave their garage doors open.

More ominously, state law allows homeowners associations to place liens on and even foreclose on property when the owners fall behind on their dues – even if it's a small amount.

Although they must operate under California statutes and their bylaws and covenants, conditions and restrictions – known as CC & Rs, no regulatory agency watches over privately incorporated homeowners associations to make sure they follow the rules, critics say.

Even when operating within the law, homeowner associations can trample on the rights of some of the homeowners they are charged with representing, said Elizabeth McMahon, an Anaheim woman who formed the American Homeowners Resource Center after a legal battle with her own association.

"The homeowners associations are run like little dictatorships", McMahon said. "They get vindictive … they target nonsupporters and people they want to teach a lesson.

"In Mary's case, it was an awfully expensive lesson.

McMahon maintains that the filing of foreclosure actions over relatively minor amounts of money amounts to little more than legalized strong-arming. Homeowners have no alternative but to pay the disputed fees, plus other charges arbitrarily tacked on by attorneys, collection agencies and management companies, she said.

The residents' other option: spend as much as $30,000 to defend the case in court against association lawyers who specialize in foreclosure.

"The individual has to go up against the association, with all its reserves and resouces", Lindsey said.

Lindsey's debacle started as a small dispute over how much she owed in back membership dues and fees.

"I thought I owed them $494 in delinquent assessments, $297 in legal fees for the lien and $32 in late fees:, she said. "they said it was over $1000".

Lindsey had unsuccessfully tried to arrange a payment plan during her period of financial difficulty.

Believing the association's numbers to be wrong, she also made several requests to see the association's accounting records. All were denied.

Lindsey, who said she always pays her mortgage on time and has been a model resident of the 76-unit Garey Oaks condominium community, believes the association sued her to punish her for making the several written request to see its ledgers. She said an association board member implied that the suit was filed to "teach me a lesson for questioning them."

For more than a year, Lindsey, unable to afford her own attorney, navigated alone through a blizzard of legal documents to try and save her home from foreclosure.

Meanwhile, the legal meter kept ticking. Within six months, Lindsey's initial debt had skyrocketed to $10,000 in legal fees. After a year it was more than triple that.

Lindsey said court documents support her contention that she never owed the amount that the association claimed. But an attorney for Garey Oaks interprets the lawsuit and its outcome differently.

The ruling against Lindsey "vindicated the association's position that the delinquent homeowners were obligated to pay past-due assessments, late charges, interest, attorney fees and costs," said Peter Racobs, an attorney representing Garey Oaks, in a faxed statement.

"It is unfortunate that the homeowners' obligations were not paid at the outset, and the delay and expense of litigation thereby avoided," said Racobs, whose law firm specializes in cases involving homeowners associations.

McMahon said few people in Sacramento are willing to oppose the politically well-connected homeowners associations. The national organization representing associations, the community Associations institute, is a strong lobbying force run "by those who make a living from homeowners associations – lawyers, management companies, service companies," according to McMahon.

Skip Daum, a lobbyist in Sacramento for the institute's California Legislative Action Committee, countered that homeowners who do legal battle with their associations are a tiny minority of the estimated 4 million Californians who belong to such groups.

Daum said his organizations is controlled mostly by individual homeowners and their associations boards. About 3,090 common-interest developments belong to the California Legislative Action Committee, he said.

"They are the true constituency of this organization,", Daum said. "It is not controlled by an elite corps of vendors to those associations."

Association boards have a legal and financial responsibility to their memberships to take whatever steps are necessary to insure that all residents abide by the rules, Daum said.

"Any homeowner knows the rules before they move in, and it's their responsibility to live within those rules," he said. "Obviously the court agrees in those cases; otherwise the awards would not be made."

The potential for Machiavellian and vindictive actions by association boards "is something totally blown out of proportion," Daum added.

"If (homeowners) think they're out of control, they should elect new boards of directors," he said. Most state legislation is aimed at increasing, not curtailing, the legal and regulatory powers of homeowners associations over their residents, McMahon said.

Assemblyman Dan Hauser, D-Eureka, sponsored Assembly Bill 871, which passed the state Legislature in 1991. The bill allows associations to use budget reserves to pay legal bills, and then to bill homeowners to recover the costs.

McMahon said the law, supported by trial lawyers and homeowners associations, invites lawyers to run up huge legal tabs with the knowledge that they can charge the association – and ultimately, the homeowner – for often-capricious lawsuits.

The bill was intended to help associations fight construction defect lawsuits, but they "are using it for virtually any excuse to file suits against homeowners," McMahon said.

Meanwhile, AB 1545, sponsored by Assemblywoman Julie Bornstein, D-Palm Desert, would make it easier for associations to foreclose on homeowners – even after just one month of delinquency, McMahon said.

The bill – also supported by trial attorneys – has been tabled indefinitely, but it resurfaces in virtually every legislative session, McMahon said.

"Homeowners' rights are being bought and sold," she charged. "We're being denied due process."

For Lindsey, the dream of owning a home has turned into a nightmare over the last year.

"I feel like I don't even want to come home anymore," she said. "They've taken my home.

"I'm trapped. It's like they have a line of credit against my home. They can use your own money to drive you under."