REIMBURSEMENT OF
LEGAL FEES

QUESTION: We have a qualified board who seeks guidance from attorneys and experts when needed. Like most CIDs we have a small faction of owners who claim that almost every act by the board is illegal. They forced us into ADR, which cost us $28,000 in legal fees. There was no resolution and the dissidents walked away. Can we go after the dissidents for the legal costs or do we need to special assess our membership?

ANSWER: Unfortunately, you need to special assess your membership. Dissent is a healthy part of the political process but owners who view all boards as power-hungry law breakers are dead wrong. Moreover, they are harmful to their associations because of their constant disruptive behavior and litigation. It is even worse when they get themselves elected to the board. Once in control, they often impose the very destructive practices they alleged when they were off the board.

Recouping Fees. For better or worse, legal fees are part of an association's "cost of doing business" and there is no way to recoup them unless a dispute goes to trial (or binding arbitration), the association wins, and fees are awarded to the association. Even then, awards are at the discretion of the judge or arbitrator.

FORECLOSURE AND
THE ASSOCIATION'S CREDIT

QUESTION: Regarding your latest newsletter about an association taking over the mortgage via the foreclosure/sale process, your article mentioned that the bank will ultimately foreclose on the association if the mortgage is not paid by the association. What effect would this have on the association's credit? We have a unit under water and the bank has been postponing the sale date for over a year now.

ANSWER: If the association takes ownership and the bank subsequently forecloses, it will not impact the association. The loan is in the prior owner's name and the bank is foreclosing on the unit, not the association. The prior owner's credit is harmed, not the association's. Even if the association's credit were somehow affected, it would be meaningless. Associations normally do not borrow money for consumer goods or to buy property. Typically, the only time they borrow is to make repairs. When that is done, the loan is secured by a special assessment approved by the membership.

Renting the Unit. You mentioned the bank's continual postponing of the sale date. Too many banks are delaying foreclosures because they don't want the property on their books nor do they want to pay the association's monthly dues. As a result, they sit on their hands and do nothing. As I mentioned last week, associations can foreclose on the unit, take possession, and put a renter in the unit until the bank completes its own foreclosure. Because the bank will eventually foreclose, you cannot put the renter on a long-term lease. It should be month-to-month since the bank will want the renter to vacate at some point so it can get the unit ready for sale. To find a renter willing to lease for an uncertain time-period, you need to offer the unit at  below-market rents.

Rent Skimming. Boards should be aware that the bank may demand the rents collected by the association per Civil Code §890. If a bank were to make a demand, the board must immediately turn over the rents. I've never seen it happen but it's a possibility and boards should consult with legal counsel before proceeding.

MISLEADING CAMPAIGN

QUESTION: We are a large 55+ community. Elections for the board are coming up shortly. Two candidates were directors in the past but not currently. Their campaign literature is asking residents to "Re-Elect" them. There is potential for confusion, particularly among the very elderly. Is there any constraint, ethically, legally or otherwise against their asking to be "re-elected"?

ANSWER : It is unethical to intentionally wage misleading campaigns. They confuse more than just the very elderly. Those who wish to set the record straight have the right to point out the candidates' misstatements to the membership.

CUMULATIVE VOTING

QUESTION: One of our members would like to use cumulative voting in our current board election. Our bylaws state that they must announce at the meeting that they will use cumulative voting. We vote by mail with the 2 envelope system so there is no meeting to announce before voting. Can he still use cumulative method and, if so, does he need to announce by another means or perhaps declare it on his ballot?

ANSWER: Since your governing documents allow cumulative voting, you must automatically "announce it" in the ballots you mail to your members. Declaring it at a meeting is no longer required. Civil Code §1363.03(b).

FEEDBACK

Litigious Owners. The comments in last Sunday's Feedback section by "Phil A." ring of the excuses used by our problem owners to justify their numerous lawsuits and the colossal waste of our members' money. The comments you made in your Litigious Owners newsletter two weeks ago are spot-on and describe our HOA to the letter. Insurance companies are making it very difficult for HOAs by rewarding the chronically litigious for their bad behavior. -Caryn B.

Military Delinquencies. I would strongly recommend that all of us extend an exemption from collections for those men and women serving our nation. My suggestion is that we also suspend late charges, costs of collection and allow the associations to book these funds as a receivable/asset to the reserves (the total of the deferred amounts). It is far too little for all of us to do in support of our under paid service personnel. -Doug C.

Barking Dogs. If you live in a homeowners association in California, you also live in a civil jurisdiction where the city or county has animal control regulations. They have the power to issue warnings, levy fines and take court action depending upon the severity of the infraction. That said, often times a dual approach can be taken whereby someone could contact both animal control AND the association. As the association may need to take a slower approach, the association can even use the animal control findings as part of its decision making process. -Kerry L.