Management Firm May Be Overstepping Bounds

Question: We live in Redondo Beach, and our homeowner association board said they “hired a management company to keep us abreast of all the new laws.”

The management company does not have lawyers on staff, and the only thing it has done successfully is teach our board how to fine, penalize and control owners. The board’s newfound power of sending out memos ordering homeowners to “conform” and pushing “uniformity” and then adding monetary fines is frightening. The board makes so many demands upon owners that we no longer want to open our mail.

Homeowners who don’t do what the management company tells them to do are threatened with a lawsuit for “diminishing the value of association property” or the latest threat of “interference with association business.” We don’t understand what these things mean.

It is not a matter of board members following proper procedure for implementing fines; they say they follow the Davis-Stirling Act. Outstanding fines increase by the amount of penalty, and some fines take away an owner’s right to vote in elections or decision-making processes affecting the association.

There is a procedure for disputing the fines, but it is a facade. The fines are purely subjective and are imposed at the whim of whoever is on the board.

The board delegated the entire subject to a committee that consists of management company employees, and the notices come from management on our association letterhead.

The company gets to keep a certain percentage of all the fines it generates and collects. I believe that much of the dissension is caused by the prodding of management company personnel.

Does the management company or the board have this authority? What can happen to those of us who do not pay or abide by these notices?

Answer: Assigning the rights to fine homeowners to a management company that keeps a percentage of the fines sounds like a scam, yet the present law does not protect homeowners from such scams. Resolution turns on whether your board followed procedures set forth in the Davis-Stirling Act for instituting a system of monetary penalties, and whether it followed those procedures for levying those fines.

Procedures must be fair. If your board did not follow the law, the fines are illegal and need not be paid. As a result, any liens placed on your property are also illegal and must be removed on demand of the homeowner and at the association’s expense.

Failure to remove the illegal liens can result in the one placing the liens having to pay the homeowner damages, which could include the attorney’s fees needed to have the liens removed.

As for the alleged interference, most management companies raising this argument do so as a scare tactic, recognizing that most homeowners are not attorneys and will not know that such claims are usually without legal or factual basis.

Any claim of interference, especially when the homeowner is exercising those remaining rights under the law, such as requesting documents from the board, are efforts to frighten homeowners into not acting on those rights or ignoring those rights when they move into a deed-restricted development. Your attorney can advise the best course of action.

Over the last two decades, the median price for condos and homes in Southern California has risen substantially. If your management company was only recently hired, it can hardly take credit for the increase, but its actions might result in a decrease once people discover that living in your complex makes them subject to management company whims and the penalties associated with them. The retaining of a percentage of the fines collected may subject the management company to other laws, which it may be ignoring, not to mention the breach of the fiduciary duty of the board to the homeowners in permitting the management company to keep a portion of the fines.

Your board’s actions can have an impact when it’s time for you to sell your home. Unless the liens have been removed, you may have to pay them before the sale can go through.

Once you have sold, if you can establish that the board failed to follow the letter of the law when it created and/or assessed the fines, you may be able to recover them in an action against your board and the management company. Although the courts may award attorney’s fees, as the prevailing party there is no guarantee this will happen. If you can afford it, a lawsuit may be your only alternative.

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Stephen Glassman is a writer and an attorney in private practice specializing in corporate and business law. Donie Vanitzian, J.D., is a writer and arbitrator and manages commercial property. Both live in common interest developments and have served on association boards. Please send questions to: Common Interest Living, P.O. Box 451278, Los Angeles, CA 90045 or e-mail queries to [email protected].