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Beware The Associations - Part VII

Contributed by: Jan Jackson on 6/4/2008

Homeowners associations' boards of directors must be held to a very high standard of responsibility. That is, directors of homeowners associations (HOAs) have a duty - a fiduciary duty under the law -- to exercise due care not to bring harm, in any way, to its homeowners.

Boards of directors also, under the law, cannot make arbitrary or capricious or -- needless to say -- unethical or unlawful decisions which could harm homeowners, especially financially.

But they do.

All the time.

All over the country.

And when they do, what's supposed to happen is that those HOA directors who vote for an action that causes injury to a homeowner would face personal liability for the injury. A California Supreme Court ruling even held that exculpatory clauses (provisions which would clear a board or board member from guilt or blame) in an HOA's documents which were intended to immunize the HOA board members from lawsuits cannot be used to block homeowner lawsuits against their HOA when a board or a board member makes a decision which harms or injures a homeowner.

But the reality is that, once in court, the homeowner often finds that the court's sympathy -- unreasonably and without legal merit -- resides with the HOA, not the injured homeowner.

Also, under the law, when an association's recorded documents contain provisions that are unconscionable or characteristic of an adhesion contract, the offending clauses are supposed to be struck down.

But they're not.

Or, it is such a rare occurrence that homeowners have never heard of such a thing happening in their HOAs.

Also, actions taken by boards of directors in excess of their lawful power should always be found guilty of a civil wrongdoing or a criminal act in our courts.

Again, that may be the law, but that also must be a rare occurrence because one of the main complaints of HOA homeowners everywhere is that their boards of directors simply make any decisions and take any actions that they, and their member "cabals," and their HOA CAI lawyers, want to -- regardless of business ethics or statutes to the contrary.

Jan

Beware The Associations - Part VII

Association Boards of Directors Have a Fiduciary Duty to the Owners

In 1986 the California Supreme Court held that the directors of a corporation owe a duty to third persons, such as employees or complete strangers, to exercise due care to not bring harm to such persons. They clarified, however, that the only directors who face personal liability are those who actually vote for an action that causes injury, even though the wrongful act is performed in the name of the corporation. [fn52]

In Cohen v. Kite Hill Community Association, [fn53] the Fourth District Court of Appeal ruled that homeowners' associations are "quasi governmental" and that they are "mini-governments" paralleling in almost every case the powers, duties, and responsibilities of a municipal government." [fn54] The Cohen court aligned itself with a well-established body of decisions that warrant against associations using their decision-making powers arbitrarily or capriciously. [fn55] Recognizing the mini-government status of homeowners' associations, the court gave more than parenthetical affirmation to those decisions saying, "With power, of course, comes the power for abuse. Therefore, the Association must be held to a high standard of responsibility," thereby holding that exculpatory clauses in the CC&Rs intended to immunize the associations from lawsuits fail to block homeowner suits.[fn56]

In disputes between owners and associations, courts look to governing documents for guidance to see if the association has acted within the scope of its powers.[fn57] Actions taken in excess of power are not enforceable. [fn58] Where it has been found that an association's recorded CC&Rs contained provisions that were unconscionable and characteristic of an adhesion contract, the offending clauses were struck down.[fn59] When circumstances arise where CC&Rs do not adequately cover the matter, the remedy is to amend the CC&Rs. [fn60]

When courts are called upon to assess the validity of a rule made by a board of directors, courts look to see if: 1) the board acted within scope of authority and 2) the rule reflects reasoned or arbitrary and capricious decision making.[fn61] In Ward v Superior Court, the court found that it was unreasonable for an association to record a notice of non-compliance with the CC&Rs.[fn62] The court's rationale was that instruments should be recorded only if some statute authorizes the recording or if section 27280 of the California Government Code authorizes their recording.[fn63] The court reasoned that since section 27280 of the California Government Code authorized the recording of interests that have a legal effect on title or possession of real property and the notice of noncompliance had no legal effect on title or possession of real property, that the notice of noncompliance could not be recorded.[fn64]

If there is a conflict between the condominium CC&Rs and the Davis Sterling Common Development Act, the Act prevails as a matter of law.[fn65]

(continued in Part VIII)


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CONTRIBUTOR INFORMATION

Jan Jackson

Florissant , CO

Jan Jackson has posted 533 stories and 38 comments since joining on 9/14/2005. Jan Jackson 's average story rating is 4.5.
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