Dangers hidden in homeowner groups

San Mateo County (Map, News) - Victor Saldana and his wife saved up some money and decided to finally buy their own home. They knew they could never afford a single-family home on the Peninsula and instead found a condominium at what seemed like a great price.

Then Saldana went to a homeowners association meeting and heard the news: Their Colina Condominium complex in South San Francisco has major structural problems. To fix the damages, each unit in the complex may have to pay a special assessment fee in the range of $70,000 to $90,000 per unit on top of the HOA dues, property taxes and mortgage residents pay each month.

The Saldanas and their neighbors are not alone. As of 2006, there were 906 homeowners associations in San Mateo County that maintain the common spaces of approximately 73,000 units in condominiums or single-family homes built in a neighborhood development. Some 59 percent of these units are more than 20 years old, according to a survey by industry CPA firm Levy, Erlanger and Co., a housing industry watchdog. As the units continue to age, more residents may find themselves facing pricey assessments if their complexes haven’t been managed well — or if the management has fallen into the wrong hands, experts say.

Homeowners associations collect fees from residents to maintain common spaces, such as landscaping, pool upkeep and structural improvements. Residents pay the fees in addition to their mortgages and property taxes but to make matters worse, HOAs have the power to foreclose on residents who do not pay their fees or assessments.

Ideally, HOAs set aside funds in the event of pricey repairs — a new roof, for example — to provide enough money to pay for upkeep, explained Richard Munson, president of the California Association of Homeowners Associations.

But that doesn’t always happen.

Mismanagement of HOAs is “widespread,” he said. In his eyes, the problem stems from the fact that most members of the board of directors — homeowners in the complex who are voted into a position of leadership — are simply laypeople and not professional administrators. The property managers hired by the board of directors are not required to be licensed, so in some cases, “it’s the blind leading the blind,” he said.

Marjorie Murray, founder of the nonprofit Center for California Homeowner Association Law, said she has heard countless stories of homeowners who have been victims of HOA mismanagement. She said the mismanagement can range from negligence to deliberate concealment of financial information. She said she consistently hears of what is deemed “necessary” special assessments by HOAs that are in fact unnecessary.

Fortunately for the Saldanas, no special assessment has been levied so far, but many basic structural problems hang over the heads of the complex’s 144 owners. But Saldana said that a recent management overhaul — one that put his wife on the HOA board — leaves him hopeful that the money will be more closely guarded and such large assessment can be avoided.

“We’re keeping our fingers crossed,” he said.

Peninsula man seeks to prove HOAs are illegal

Last year, Todd Weinfield was sued by his Redwood Shores homeowners association because he changed the slope of his lawn, which the association told him was in violation of its renovation codes.

Though he said he was infuriated, he decided it was in his financial interest not to invest in a court battle. He re-sloped his lawn according to the HOA’s standards.

But he didn’t stop there. He began researching laws governing homeowners associations. That research evolved into a quest: to prove that HOA dues are unconstitutional.

His legal theory is as follows: HOAs are usually formed when a development is first approved by a city or county. The cities approve the developments on the condition that the HOA performs functions that would otherwise cost the city money. The cities approve the HOAs’ covenants, which lay out their right to impose fees.

This, he argues, violates Proposition 13 — state law prohibiting governments from increasing taxes without a two-thirds vote by the public.

Weinfield points to a 1939 case from March, Ala., in which people living in a company-operated town disputed that firm’s rights to distribute religious literature. The Supreme Court sided with the residents because they said the company performed a government-like function.

Since HOAs also provide government functions, the same should apply to the associations, Weinfield said.

Weinfield said he plans to take legal action against HOAs and Redwood City.

kworth@sfexaminer.com

Homeowner rights

There is no substantial governmental oversight of HOAs, but their members have some rights and resources available to them.

» The HOA must provide regular financial statements outlining its expenditures.

» The HOA must provide a fair, reasonable and expeditious procedure for resolving disputes with its members.

» In resolving these disputes, they must make maximum use of local, low-cost mediation programs.

» Either the HOA or the member can request one of these mediations. The member can refuse to participate in it, but the HOA cannot.

» The members are not to be charged a fee to participate in the process.

» The member has the right to take the HOA to small claims court to dispute a charge.

» The HOA has the power to foreclose on a member. However, it can only do so to collect assessments, not to collect fines or penalties.

» HOAs must provide members 30 days notice of its intention to lien the property for late assessments. It must notify homeowners that failure to pay assessments may result in foreclosure.

» HOAs cannot make a rule prohibiting homeowners from keeping at least one pet.

Source: Center for California Homeowner Association Law

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