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Monday, August 26, 2013
Buyer has no choice but to join homeowners association
Question: Looking to buy a home, we found a single-family residence only to learn it had a homeowners association, so we looked at condominiums. Each had different documents. With the HOA fees on top of our mortgage payments, the house and condo became unaffordable. We want to buy that house but don't want to be part of the association. Can we remove it from the HOA? We're not understanding the concept of these developments and associations. We're at a loss what to look for when buying property. How does this work?
Answer: Powers, rights and duties of associations are initially created by statute. The "association" is a mandated organization to which titleholders must belong and legally separate from the individual members who comprise it. Typically one must be a titleholder to be an association member or elected to the board. Whether they want to or not and whether they like it or not, titleholders in common-interest developments are mandated by law to be members of the association.
The association entity is a legal fiction created to collect money by way of "assessments" in order to fund its operating accounts. Under Civil Code section 1351(a), "association" means a nonprofit corporation or unincorporated association created for the purpose of managing a common-interest development. Under California's Nonprofit Mutual Benefit Corporations Law, homeowners associations may be unincorporated or incorporated. Either way, these associations act for the benefit of the titleholders and may also act as agent for the owners.
An association's genesis is determined early on by its parent, the developer. (California Code of Regulations, title 10, section 2792.8) Association governing documents vary. Under Civil Code section 1351(j) "governing documents" mean the declaration and any other documents, such as association bylaws, operating rules, articles of incorporation, or articles of association, which govern the operation of the common-interest development and/or association, including covenants, conditions, and restrictions. Many CC&Rs are boilerplate, but within the bounds of the law, the developer's vision of the project is advanced by these documents. According to those documents, renters or others may belong to the association and, according to the CC&Rs, may or may not sit on the board of directors if such board exists.
The association's power to act comes from governing documents, the Davis-Stirling Common Interest Development Act, the Corporations Code, California Code of Regulations and a multitude of crossover statutes and case law.
There are at least 11 such powers and duties of the association's governing body, including the formulation of rules and the initiation and execution of disciplinary proceedings against titleholders for violating governing documents, much of which may be outside your control. (Cal. Code Regs., title 10, sections 2792.21(a), 2792.21(a)(8))
The single-family residence may not be removed from the association because there are "prohibitions against or restrictions upon the severability of a separately-owned portion from the common-interest portion of a subdivision interest." Cal. Code Regs title 10, section 2792.8(a)(19).
Think and act as if you are buying into a business. That's why it's so important to confirm the health of the association before you make an offer and to thoroughly understand all documents you sign during escrow.
Since Christensen v. Slawter (1959), California courts have held that in the absence of fraud, the buyer's acceptance of the deed executed in consummation of an agreement between the parties, merges the initial contract and all prior negotiations and agreements relating to that sale into that deed conveyance once recorded. That means buyers won't be able to rely on the sale contract to sue the seller. Making it even more important to understand what it is you are buying prior to making an offer to purchase. Once the seller accepts your offer, it controls everything you do from that point forward. Before making an offer, here's a to-do list:
•Get the articles of incorporation, check association suspension status, obtain the registered agent name at http://www.sos.ca.gov.
•Get the HOA's rules and regulations.
•Get the bylaws, and all amendments for the last five years. If the board won't give these to you, the county recorder's office will have them.
•Get the current CC&Rs, plus the previous set and all amendments for the last five years.
•Get all association insurance policies and proof they are in effect.
•Get one year of meeting minutes.
•Get three years of association budgets.
•Find out how many nonjudicial foreclosures the HOA has had, how many units or homes the HOA owns, how many special assessments and fee increases have occurred in the last five years.
•Learn how many properties have liens against them by the HOA.
•Get written assurances from the HOA that you are not obligated to pay any outstanding fees, penalties and assessments owed to the HOA by the seller at the time of purchase.
•Find out who is the management company and obtain a copy of the current contract with the association
•Check local courts, including Small Claims, for lawsuit listings in which the association is plaintiff or defendant. Also check if the management company has sued or been sued and the nature of those cases.
•Check building and safety, and health department, for prior and existing violations by the association, including current pool maintenance, elevator sign-offs, and building permits
•Check local police crime logs for activity pertaining to the association where you plan to buy.
Zachary Levine, partner at Wolk & Levine, a business and intellectual property law firm, co-wrote this column. Vanitzian is an arbitrator and mediator. Send questions to P.O. Box 10490, Marina del Rey, CA 90295 or email@example.com.