What Can Possibly Happen in a Small HOA?

I have had a lot of calls lately from owners in, and directors of, small associations. I mean 10 or fewer units. One would think everyone could just get along, right? Well, we don’t always get what we want, and in any size HOA, but especially the smaller ones, one bad apple can spoil the whole bunch.

Now that is an interesting statement because in my head I can see various scenarios from past clients and inquiry calls identifying “bad apples” that may or may not be the problem:

One possibility – many old school, old boy boards cussing or acting badly because someone with new blood, new ideas, and an understanding of the law can work their way onto the board and stir up a whole lotta hoopla with their inquiries. And those old boy (or old lady for that matter) long time burned out board members get resentful about someone shaking the boat, even if the newbie is right!

Another is that a director or an owner is being obnoxious and taking advantage of the fact that small associations to not have money to sue and so he or she (the problem director or owner) ignores rules, reconstructs their space without regard to ARC requirements or the neighbors, and wreaks general havoc with their nastiness, ignorance, and/or belligerism (a word?).

And there is the everyone sues everyone scenario because everyone wants to win instead of resolve reasonably and then no one can sell their unit and get out.It qualifies as a “fray” in my world.

In fact, there are a number of scenarios that make it hard for owners in small HOAs or condos to sell or rent and get out of Dodge.

When one owner buys up units (and it is a real downer when they coerce the seller based on their own offensive conduct to sell low), it can matter. The secondary mortgage markets and FHA and even conventional lenders shy away from giving loans at differing owner-occupancy ratios and differing ownership ratios. In a 7 unit building, if one owner buys a second unit, they own 2 out of 7 units, and that is over 20%. And if it is a calculated course and plan, they may be on their way to a majority interest. This blocks loans that set 10% ownership as the maximum.If they get over 50%, now that is a real problem because they can control the board and the membership votes and really shrink the rental and/or loan opportunities.

What does one do?

1. Think twice about buying into a small association.

2. Consider proposing an amendment to the Bylaws or other regulatory document that would prevent more than one owner per household from serving on the board, or a stronger message, that would prevent more than one person in a family OR with financial ties to another person or company who owns a unit from serving on the board.  (Getting the picture?)

3. Consider proposing an amendment to the CC&Rs to provide that there would only be one membership vote to any person who is in a family OR with financial ties to another person or company no matter how many units they own.

However, if this process is not initiated when the owners with only one unit have the majority voting power, you may be sunk.  Under California law, if a CC&R amendment is proposed and the voting requirement is more than a majority of the members, but a majority approves it, the HOA can petition the court and ask a judge to lower the percentage required to amend if he or she adjudges the proposed amendment is not unfair. But would a judge approve an amendment that severely restricts an owner of multiple properties from having a larger voting interest needed to protect their investment? This rises to “a quandary.”

The Petition process is basically summarized above, but read the law if you are interested. It appears in the Davis Stirling Act on the California Government Website and in my book called THE DAVIS STIRLING ACT IN PLAIN ENGLISH, available in the webstore on my website at www.californiacondoguru.com.) There is also a SMALL HOA SURVIVAL GUIDE available in the book section in case you are on the board or in the “audience” and want a resource for some right thinking about what needs to be done to stay on track in a small HOA.

**

As an aside, I am studying poetry so how is this for a poem about this darn dilemma:

Can’t stand… Can’t move. Can’t rent. Can’t sell. Who do we tell? What do we do? Can we even sue? Who? Probably Not. Boohoo…

Yes, I know, not very good. And please don’t take this as a sign I do not take these problems seriously. I just have to have some fun with things to stay sane. Humor is the best prescription sometimes for what ails you, if you can eek it out of a tough situation. And my real and serious motto is that for every problem, there is a solution.

I know there are private lenders and investors who would finance such a unit, or buy it, but of course they do not commonly offer top dollar. And they do not commonly make good board members either. But its nice to know all options.

I am open to any thoughts those of you out there in the HOA and CONDO world have, unless you just want to slam my poetry, as those studies are a work in progress.

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An HOA Lawyer Who Tells It Like It Is.

Those dang Attorneys – Sometime they are sooooooooo frustrating! I am a lawyer. I don’t be around the bush I tell it like it is. In my extensive 30+ year as an HOA lawyer, I have found that even if the news isn’t great, or what a client necessarily wants to hear, at least it [...]

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Beth A. Grimm is an attorney who serves homeowner associations and homeowners alike. She is a frequent contributor to the Echo Journal and other similar publications in the State of California and on a national level. She provides several publications written in plain English to help people who need information about California law as it relates to homeowner and condominium associations.

Things to keep in mind about this site: Practical Nuts and Bolts Problems and Solutions are Discussed. Beth A. Grimm practices law in California ONLY! There is nothing in these blogs that is intended to constitute legal advice. You must consult with an attorney if you want legal advice!