QUESTION: We have a very difficult time getting absentee owners and their tenants to comply with the CC&Rs. Our management company says there’s nothing we can do to collect fines levied against those who ignore the rules. If that is the case, why do HOAs have rules and fines?
ANSWER: Collecting fines is not impossible but it can be challenging. Most residents fall into four categories: (i) those who follow the rules, (ii) those who occasionally stray but immediately comply with a polite warning, (iii) those who chafe at rules but comply when fined (but may or may not pay the fine), and (iv) the scofflaws–those who flout rules and ignore fines. Following are methods for collecting fines.
Non-Judicial Foreclosure. It used to be that associations could include fines in non-judicial (trustee) foreclosures. Not any more. Associations are now prohibited from including fines in liens that lead to trustee sales. Civil Code §1367.1(e).
Judicial Foreclosure. Fines can, however, be included in assessment liens for judicial foreclosures. Unfortunately, collecting them means waiting for the owner to become delinquent and then paying an attorney to it through a judicial foreclosure.
Small Claims Court. Associations can sue scofflaws in small claims court. The benefit is that no lawyers are involved and an abstract of judgment can be recorded against the owner’s property. The downside is it’s a roll of the dice in small claims–you may or may not get an award for the fines. If you lose, you cannot appeal, which means the fines are wiped out.
Superior Court. If the fines are over $5,000, you can file an action in superior court. If your scofflaw has accumulated that much in fines, you have a serious problem on your hands.
Suspend Privileges. Sometimes the best option is to suspend a person’s privileges until the fines are paid. The advantage is that no legal fees are incurred. However, the association may need to amend its governing documents before implementing this strategy. Also, suspensions are only effective if the association has privileges worth suspending.
RECOMMENDATION: Fines need to be reasonable and should be used sparingly. They should not be viewed as a means of raising revenue but rather as a mechanism for encouraging compliance with the associations rules.
QUESTION: When do members get to know about a contract?
ANSWER: Contract formation/approval should be listed on the board’s meeting agenda, which is posted at least four days in advance of the meeting.
Executive Session. Boards are allowed to meet in executive session to consider matters relating to the formation of contracts. The phrase “relating to the formation” is not defined but is generally understood to mean establishing bid specifications, reviewing bids, and voting on bids (following legal review). Although not required, some boards discuss and vote on contracts in open session.
Disclosure to Membership. Any matter discussed in executive session (such as contract formation) must be noted in the minutes of the next open meeting of the board.
Membership Review. Once a contract has been approved the membership has a right to review it. This right extends to all non-privileged contracts. The statute excludes from privileged status contracts for maintenance, management and legal services. In other words, these contracts must be made available for review. Civil Code §1365.2(d)(1)(E)(iv).
Bid Packages. Although not specifically provided for in the statute, boards should also make all bid packages available for inspection once a contract has been approved.
RECOMMENDATION: Boards should immediately post all approved contracts on the association’s website in a password protected area accessible by members. In addition, losing bids should be made available for owners to review.
QUESTION: Is an HOA required to send billing statements for regular HOA dues by U.S. mail or is e-mail billing acceptable?
ANSWER: If an association increases its regular assessments or imposes a special assessment, notice must be given by first-class mail not less than 30 nor more than 60 days prior to the increased assessment comes due. Civil Code §1366(d).
Monthly Statements. I could not find anything in the Davis-Stirling Act that required first-class mailings of monthly billing statements once a notice of increase has been given. Since monthly statements are not required, some associations use coupon books rather than incur the expense of monthly mailings. Accordingly, it appears that monthly statements via e-mail are legal.
COMMENT: The use of e-mail is obviously increasing but we have not yet reached the point where it can completely replace first-class mailings. Many disclosures can now be given by e-mail but only if authorized by owners.
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