Dear Kelly: Recently our board stopped dues collection for 6 months because they said some homeowners were experiencing financial hardship.  The board has no plans to ask owners to pay back dues. Is this legal?

P.B., Marin County

Dear P.B.: One of the HOA board’s fundamental responsibilities is to make sure the association’s bills are paid, and that means also collecting the money to pay those bills. Civil Code Section 5600 states that “the association shall levy regular and special assessments sufficient to perform its obligations…” A similar situation came up in the Great Recession of 2008-2009, when many owners were in financial distress and some boards struggled with whether to require such owners to pay their assessments. However, members who fail to pay assessments harm those who are paying their share of the HOA costs, so associations must insist that all members pay their assessments. The HOA’s bills do not stop during the pandemic so assessments cannot stop either. The board should be businesslike in its handling of HOA finances, which includes good stewardship of the HOA’s income – and not cutting it off!

Best regards to your HOA, Kelly

Mr. Richardson:  Our HOA over the last 20 years has used up its reserves because of increasing maintenance and irrigation costs. The CCRs forbid raising the annual dues and special assessments are only permitted for litigation emergencies. We have tried to modify the CCRs but we cannot get a majority of the homeowners to vote to OK a change. What would you suggest?

A.B., Solana Beach

 

Dear A.B.: The law has a provision which allows HOA boards to adopt modest increases in assessments, and that is Civil Code Section 5606(b). Under this statute, HOA boards can increase regular assessments by up to 20% per year without member approval, regardless of anything contrary in the governing documents. The same statute allows boards to impose a special assessment each year of up to 5% of the association’s annual budgeted gross expenditures. Such an action must occur in an open board meeting, and it is helpful to explain to the members the necessity of the increase. Depleting reserves to subsidize long term operating cash deficits is a bad idea; discipline is better.

Thanks, Kelly.

Kelly, can members delinquent in payment of their HOA dues be on the board? 

Thanks, J.P., Bonsall

Dear J.P.: Civil Code Section 5105(c)(1) allows associations to “disqualify a person from nomination” due to assessment delinquency unless that person is in a payment plan with the HOA to catch up. Under the law as it changed in 2020, delinquency in assessments is one of four optional eligibility qualifications that associations may adopt along with the mandatory qualification of membership in the HOA. Such eligibility standard, if desired by the HOA, should be adopted in a change to the HOA’s election rules. 

Many bylaws contain provisions also disqualifying sitting directors if they are delinquent in their assessment obligations. One of the many unanswered questions from this new law is whether in addition to the four specified optional candidacy standards there can be additional disqualifications of sitting directors (such as, for example, missing several meetings. Many HOA attorneys believe that the new law applies only to candidacy and not disqualification of sitting directors.

Best, Kelly 

 

Kelly G. Richardson Esq., CCAL, is a Fellow of the College of Community Association Lawyers and a Partner of Richardson | Ober | DeNichilo LLP, a California law firm known for community association advice. Submit questions to Kelly@rodllp.com. Past columns at www.HOAHomefront.com. All rights reserved®.

2 Comments

  1. Elaine Morgan

    CIV 5600(b) states that no fee should exceed the amount necessary to defray the costs for which it is levied.
    When the yearly dust settles, and if the year end budget v actual expenses reflect excess monies collected, do we refund the excess back to the members or are we allowed to apply the overage to reduce the next year’s estimated expense?

    Reply
    • Kelly G. Richardson, Esq. CCAL

      Hi Elaine, if it turns out that the association’s financial year turned out better than expected, the board has done nothing wrong! The board in that case should disclose the good news to the members and then decide whether it will reduce the next year’s assessment, put the surplus into the reserves account, or prepay some expenses. What a great problem to have!

      Reply

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