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Throughout the nation, our democratic system of government faces increasing scrutiny each year. This scrutiny is justified as challenges to election processes multiply. Whether it’s stockholder votes, HOA elections, or state and local elections, none are spared from the scrutiny they rightfully deserve.

An HOA directorship, once held in high regard, now suffers from a tarnished reputation that continues to deteriorate. In some areas, those serving as Directors or trustees struggle to grasp the simplest concepts, like “fiduciary responsibility.” If you’ve watched HBO’s Last Week Tonight recently, you’ll know exactly how dire the situation is. [For a deeper dive, check out my post: https://www.hoadvocate.com/homeowners-associations-last-week-tonight-with-john-oliver/]

In California, the bar to serve as an HOA Director is laughably low, with no requirement for education or training. Removing a Director is akin to pulling teeth, requiring a recall or a court order under Corporations Code § 7223. For those brave enough, my recently resolved 7223 Petition (Kruschen v. Annandale Townhouse Association, Inc., and Steven Gittleman) awaits your perusal: https://www.hoadvocate.com/wp-content/uploads/2023/03/2023-03-07-FA-23VECP00088.pdf

HOA elections in California are tightly regulated, thanks to Senator Bob Wieckowski, who waged war on corruption with SB-323 in 2019. [For the gory details, see: https://www.hoadvocate.com/new-election-rules-why/] Wieckowski’s crusade didn’t stop there; SB-432 in 2021 was another blow to those who seek to manipulate the system. [More on that here: https://www.hoadvocate.com/sb-432-wieckowski-does-it-again/]

According to an April 2, 2019, Senate Judiciary Committee report, “The California Appellate courts have ruled repeatedly that associations parallel in almost every way the powers, duties, and responsibilities of local government. The original legislation to create integrity in association elections built on these opinions by stating that ‘it is the intent of the Legislature to ensure that democratic principles and practices are in place with respect to the governance of common interest developments.’ Nowhere in association governance are democratic principles more vital than during elections […] Unfortunately, since their enactment, the California laws governing association elections have been ignored or violated or undermined […]. SB323 aims to address these abuses.”

A July 9, 2019, Assembly Committee on Judiciary report notes, “…SB323 makes it harder for associations to manipulate HOA elections and goes a long way toward restoring confidence in this essential democratic process.”

It’s crystal clear that safeguarding the integrity of HOA director elections isn’t just a state concern; it’s a rallying cry for conscientious HOA members everywhere. Obtaining a directorship through a flawed election undermines its legitimacy.

Despite my relentless warnings to the HOA beginning in September 2022, the election inspector, Michelle Kelly of Correct Elect, LLC, remained defiant. Michelle was made aware of the issues but turned a blind eye, refusing to rectify her errors or invalidate her sham election and start anew. An act of cowardice that would’ve spared the HOA further strife.

As a consequence, I took decisive action and filed a shareholder lawsuit under Corporations Code § 7616 and Civil Code § 5145. Los Angeles County Superior Court Case No. 23VECV05191, filed on November 20, 2023, exposed a litany of violations of state law and the HOA’s governing documents.

Among the litany of spectacular failures, the HOA neglected to mail election materials to all members, disregarded correct mailing addresses, failed to confirm nominations, bungled the distribution of a compliant candidate list, misidentified the 3-year terms of office, neglected to properly provide meeting notice to members, flouted in-person ballot counting meeting requirements, accepted non-compliant proxies, accepted proxies in lieu of ballots, and allowed 50 ballots to materialize after the predefined cutoff.

Did Annandale, Martinez, Wagner, Grossman, Perl, and Atkinson do the right thing and acknowledge their legal quagmire, ordering a new election? Absolutely not. They were hell-bent on squandering our HOA’s cash, with conservative estimates tallying over $100,000, to defend the indefensible notion that the failures had no impact on the election results. But math doesn’t lie. Add or subtract a ballot, and the results change. Deny members the right to vote, and the outcome is tainted.

For five interminable months, Annandale, Victor Martinez, Scott Perl, James Grossman, Jeff Atkinson, and Anthony Wagner flailed about incoherently with their lawyers, Leonard Siegel and Gerard Kilroy of Kulik Gottesman Siegel & Ware LLP. They thought deflection, character assassination, and scapegoating would save them. But I keep meticulous records. I’m a relentless communicator. As witness William Springer attested, I “don’t hold back.” The evidence  presented was overwhelming and voluminous, and Judge Harmon affirmed in his order, “…the court finds that the defendant has not established that any noncompliance did not affect the results of the election.”

SUCCESS!

Per the judgment entered today, March 26, 2024:

•Annandale’s October 2023 director election is invalid and void.

•Defendants VICTOR RENE MARTINEZ, ANTHONY WAGNER, JAMES GROSSMAN, SCOTT PERL, and JEFFERY ATKINSON do not comprise the Board of Directors, and are not authorized to act on behalf of the Association, engage in Association business, or conduct Association affairs.

•A new director election shall be held in compliance with the relevant laws of the State of California and the Association’s CC&Rs, Bylaws, and Election and Voting Rules.

•Plaintiff is the prevailing party in this action.

I extend heartfelt gratitude to William Springer, and Doreen Murray of Sunrise Property Management Group, for their truthful testimony during the three-day bench trial in February. I owe a debt of gratitude to James E. Perero, partner at Myers, Widders, Gibson, Jones & Feingold in Ventura, and his associate Monique Fierro, for their astute prosecution of the case, demonstrating wisdom, intelligence, pragmatism, and a mastery of the subject matter.

“The HOA is supposed to maintain our tennis courts, gym and lap pool. They have let the tennis courts go into disrepair and have allowed pickleball players to commandeer the courts. Next years budget just hit my mailbox and lo and behold, they are going to repair the tennis courts but instead of making it tennis worthy, they are going to turn it into a pickleball court and use our raised dues for that purpose!

We did not vote for that change and “tennis court” is not “pickleball court” at least as far as the CC&Rs are concerned. What do you think my first step should be to correct this before it gets out of hand?”

 

I would write a letter to the Board of Directors reminding them that your CC&Rs define what amenities there are, and that the HOA is responsible for them. I would remind them that tennis courts aren’t pickleball courts and a material change to the property, and the use of HOA funds to effect said change, without a vote of membership, is outside the scope of their authority.

If that does not reverse their course, consider demanding an IDR.

I also suggest that you try and poll your community. If a majority of your members are in favor of this change and would be likely to vote in favor, you might be barking up the wrong tree.

“Remember those rains in February? I don’t because I was enjoying some needed vacationing with my girlfriend. No pets, no kids. I can come and go as I please, even for three weeks at a time. When I got home my condo was destroyed. That roofing work they are supposed to do, they didn’t do. Water everywhere. There was sheetrock and plaster and mold everywhere. It wasn’t pretty. I’m still not back in my home.

As my insurance and their insurance continue their ongoing battle, they’ve taken the rather absurd step of suing me for negligence. Apparently, I failed to promptly notify them of a roof problem while I was on my extended vacation. What on earth is wrong with these people?”

 

They are insisting on playing the Blame Game. You mentioned “roofing work they are supposed to do” which I interpret as preventative annual maintenance. Surely they didn’t know of an actual problem and failed to mitigate it timely? HOAs don’t do that, right?

I think the Board got caught with their pants down knowing full well that they took a gamble and lost. Unless they have some evidence that you knew your place was flooding while you were gone and didn’t take any steps to notify the HOA, I don’t see this being successful, and maybe they don’t want it to be. Maybe it’s a misguided attempt at forcing you and/or your insurance carrier to agree to participate in paying for some of the damage. As long as they have this pending, they may be motivated to just let you suffer.

I think you’re beyond IDR at this time and I’m assuming your insurance carrier has given you an attorney to represent you in this fight.

It’s so important that all owners in multifamily communities study their governing documents. The CC&Rs outline the maintenance, repair, and replacement responsibilities both owners and the HOA have. The responsibilities are not optional and they are not delegable. If maintenance, repair, and replacement work is not being performed, owners must work to hold their HOA accountable. We can help!

Clients often report a common intimidation tactic used against them, where they are warned, “You’ll be responsible for covering the HOA’s attorney fees,” as a means to discourage them from pursuing accountability for their HOA’s wrongdoing.

A significant legal development was addressed in an appellate ruling from last month in the case of LNSU #1, LLC v. Alta Del Mar Coastal Collection Community Assn. In this post, I will focus on the issue of fee-shifting.

In LNSU #1, LLC v. Alta Del Mar Coastal Collection Community Assn., the Court of Appeal had to grapple with the interpretation of the term “frivolous, unreasonable, and without foundation” within the context of a fee-shifting provision outlined in the Common Interest Development Open Meeting Act (OMA), specifically Civil Code §4955(b). This provision allows for fee shifting to a prevailing Homeowners’ Association (HOA) if certain prerequisites are met.

In this case, two homeowners had initiated legal action against their HOA for OMA violations. The lower court ruled against the homeowners on the merits of their claims, and this decision was upheld by the appellate court. However, the lower court awarded the HOA $8,874.61 in standard costs and rejected the homeowners’ motion to challenge or reduce these costs. Additionally, the lower court granted the HOA $348,306 in attorney’s fees (out of a requested $405,282.50) under the Davis-Stirling Act (Civil Code §5975(c)), rather than the cost-shifting provision of the OMA.

The appellate court ultimately reversed both the cost and fee awards against the homeowners. The issue with the fee award stemmed from the fact that the homeowners had not brought a claim under the Davis-Stirling Act, which is based on the HOA’s governing documents. Instead, they had invoked the OMA, which only allows for the recovery of regular costs (not attorney’s fees) in favor of a prevailing HOA.

The focus then shifted to the regular costs award. The appellate court interpreted the “frivolous, unreasonable, and without foundation” criteria for awarding costs to a prevailing HOA to incorporate the “any reasonable attorney” standard, as established in cases such as Smith v. Selma Community Hospital, 188 Cal.App.4th 1, 33 (2010). Given this standard, the homeowners’ positions were subject to debate and had not been definitively resolved previously. Consequently, there existed legal uncertainty, which did not warrant the imposition of standard costs under the circumstances. Even though the homeowners had rejected the HOA’s §998 offer, the specific OMA cost-shifting provision took precedence over the §998 cost-shifting mechanism.

It’s important to note that while it’s true that homeowners pursuing legal action against their HOAs to enforce governing documents may potentially face liability for the HOA’s attorney fees if they do not prevail, there is a strategic alternative. With the constantly evolving laws concerning common interest developments, often mirroring the Civil Code and Corporations Code, initiating action under these code sections, as opposed to pursuing a governing document enforcement action, can offer a clear pathway to avoid fee shifting in bona fide legal actions.

Another takeaway is that Alta Del Mar Coastal Collection Community Association spent over $400,000 to defend itself and now there’s some great law everyone can benefit from!

“I tuned in to the tail end of your call last week on WFTL regarding the Wolf v. Carpenter, Hazlewood, Delgado & Bolen, LLP case and your optimism about the Supreme Court considering the petition for certiorari. Regarding the issue of homeowners refusing to pay their dues, why shouldn’t the HOA have the ability to access the owner’s credit report, just like any other creditor would for a debtor?”

 

Let’s be honest, especially in California, the Homeowners’ Association (HOA) system is seriously flawed. People’s satisfaction with HOAs is at an all-time low, yet more unsuspecting people are getting involved in them than ever before. What’s concerning is that virtually anyone can become a Director, Officer, or Community Manager in an HOA without any legal requirement for licensing, credentials, training, or certification. Those uneducated humans make mistakes, and often.

The U.S. Supreme Court is being asked to decide whether a standard HOA assessment qualifies as a “credit transaction” under the Fair Credit Reporting Act (FCRA), giving HOAs the right to access a homeowner’s credit report.

There’s a significant division among different circuits when it comes to defining what constitutes a “credit” transaction. Back in 1984, the Ninth Circuit ruled that any transaction involving deferred payment should be considered “credit.” On the other hand, the Second, D.C., and Seventh Circuits have all asserted that if payment happens substantially at the same time as the performance of a service or goods delivery, it shouldn’t be considered a “credit transaction,” even if some payments are deferred.

The central question here is whether all transactions involving deferred payment, regardless of the timing of payment in relation to performance, should be labeled as “credit transactions” according to the FCRA.

According to the petition, “Within the Ninth Circuit alone, there ‘are likely millions of homeowners… subject to homeowner association assessments.’ [Pet. App. 3a]. And although the Ninth Circuit Panel did not rule on whether HOA assessments are credit transactions, it affirmed the District Court’s holding that they are. By affirming that ruling, the Ninth Circuit not only remains out of step with a thirty-year doctrinal trend, but it also undermines the privacy of millions of homeowners.”

This case isn’t just about homeowners who are behind on their assessment payments; it affects all homeowners who pay their assessments on time or even prepay them. If deferred payments like assessments are deemed credit transactions, it will continue to grant HOAs the authority to access the credit reports of their members. Can you really trust your HOA to maintain the confidentiality of your HOA records? Do you believe your HOA will provide accurate records when you request them? Do you think your HOA’s Community Manager and governing body genuinely prioritize the privacy protection of their members? I have my doubts, as their actions consistently fail to align with their promises, time and time again.

Given the utmost importance of homeowner privacy, and unless there’s a case of overdue payments, I believe HOAs should not have the authority to access the credit reports of homeowners.

Finally, I suggest checking out attorney Eric Glazer’s blog titled “Florida HOA & Condo Blog…Why can’t we be friends?” available at www.hoa-condoblog.com. Regardless of your state of residence, you’ll find valuable information to assist homeowners and trustees in navigating the ever-growing challenges in the world of HOAs.