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by Steven S. Weil, Esq. and Andrea L. O'Toole, Esq.
The Davis-Stirling Common Interest Development Act ("Act") has an awful lot of "dos and don'ts": send out a budget, estimate reserves, hold hearings, offer mediation, create a collection policy, don't lien without a meeting, etc. But what happens if a board doesn't comply with all these mandates? Will directors who do not comply be removed from office, fined, arrested, or put in jail? If so, by whom? Fellow directors? An association committee? The Department of Real Estate, or the Attorney General? The District Attorney? The Condo Police? This article explores the issues.
Common Interest Developments (or "CID," the term used to describe most homeowner and condominium associations in our state) are required by law to be operated in accordance with the Act. Most CIDs are also non-profit mutual benefit corporations and thus are subject to various provisions of the Nonprofit Mutual Benefit Corporation Law. CIDs are subject to a host of other state laws, including the Unruh Civil Rights Act and the Fair Employment and Housing Act (these latter two generally deal with discrimination).
The subject of whether boards of directors comply with all of these laws is the subject of much interest on the internet, websites, and in e-newsletters. With such interest comes a great deal of scrutiny and claims that, in fact, directors do not comply with the laws. Frequently, association members seek relief from the California Department of Real Estate or the state Attorney General or even ECHO or sue for relief in Superior Court or its Small Claims division. Others simply think they are entitled to remedies for legal violations without taking any action whatsoever. Let's start by dispelling some myths and rumors.
The Department of Real Estate and the California Attorney General
Many are surprised to learn that the California Department of Real State (DRE) plays a fairly limited role when it comes to enforcing the Act or other perceived board improprieties. When it comes to CIDs, generally the DRE's function is to protect purchasers from fraud or misrepresentation in connection with sales of lots or units in a CID.
During the early stages of a project – until 25% of the properties are sold – any amendment to the governing documents to change how the association operates requires the DRE consent. (See Business & Professions Code §11018.7) After that, DRE consent is not required. Here is what the DRE website (www.dre.ca.gov/sub_faq_cid.html) says about its power to deal with CID disputes:
Q. - What about homeowner associations disputes?
A. - We suggest that members refer to their governing documents (Articles, Bylaws, Declaration, etc.) for dispute resolution remedies. The California State Attorney General's office provides some oversight for incorporated homeowner associations. Depending on the nature of the problem, you may consider seeking the advice of a private attorney or contacting your local district attorney's office.
If the subdivider still owns interests within the project, we recommend that the association and/or owners contact the Department of Real Estate for possible assistance. The Department's powers are generally limited to preventing the subdivider from marketing the remaining units in the project, if wrongdoing is substantiated.
While the DRE can, if it determines that misrepresentations or other violations of relevant regulations and laws have been violated (Business & Professions Code §11019), issue a "Cease and Desist Order" to bar a subdivider from continuing to sell property, the DRE itself is not charged with enforcement of the Act against "homeowner" directors.
Join us and visit our booth at ECHO's Annual Seminar at the Santa Clara convention center on Saturday, June 19th. Andrea O'Toole and Steve Weil will be lecturing on their article in this issue of the E-Alert . Tyler Berding and Jan Kopcznski will be speaking on CC&R traps for unwary directors and managers facing defect issues in condos and conversions.
For more information and to register, log on to www.echo-ca.org or contact the Echo office at (408) 297-3246
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