Bills May Curb Associations' Ability to Sue Homeowners
One couple's $74,000 legal bill over a parking place illustrates the problem, an advocacy group says.

ZONING, PLANNING AND USE • Jul. 09, 2004
By Linda Rapattoni
Daily Journal Staff Writer

SACRAMENTO - Sanford and MaryJane Madigan's search for a spot to park their daughter's pickup truck near their Scripps Ranch home turned into a $74,000 venture that wasn't resolved until long after their daughter moved away with her truck.

Although they claim victory in their legal battle, they may end up paying for part of their own legal fees.

The Glenwood Springs Homeowners Association, where the couple lives, sued the Madigans in June 2002 for repeatedly parking their vehicle on the street, even though they'd received assurances from the police, fire and traffic engineers' offices that it was perfectly legal.

Now the association is assessing each of its member homeowners $1,000 to meet a court order that the association must pay 85 percent - $60,000 - of the Madigans' legal costs.

Marjorie Murray, chief legislative advocate for common interest development housing for the Congress of California Seniors, said one of the housing bills pending before the Legislature could have prevented the Madigans' fiasco.

The Glenwood Springs association decided to pursue litigation against the Madigans without notifying the other homeowners in the association, Murray said. AB2718 by Assemblyman John Laird, D-Santa Cruz, would require boards to notify all homeowners any time its members are thinking of spending reserve accounts intended for capital improvements on litigation.

"We think if the Glenwood Springs board had told every homeowner that it was planning to use reserve accounts to finance the lawsuit against the Madigans, that cooler heads would have prevailed - especially if the board told the homeowners they would be forced to pay a special assessment to restore the reserve accounts," Murray said.

According to the Madigans, their fellow homeowners voted out the board members who supported the litigation and were furious that the board had the city paint the curbs red and install "no parking" signs on the street outside their homes after the suit was filed.

"This board was the worst board," MaryJane Madigan said. "It was like the Gestapo. Now we have a wonderful board of reasonable people."

Stories such as the Madigans' have been sparking legislation in Sacramento, and this year lawmakers are considering several bills to address the governance of homeowner associations.

Skip Daum, a lobbyist for the Community Associations Institute, a resource center for homeowner associations, said he fears the public is getting the wrong perception of homeowner associations.

"The mystifying thing for me right now is why a limited number of anomalies have exploded the legislative perception that these homeowner associations are all trying to screw the homeowners and take their homes and not accommodate their financial needs," Daum said. "If you name a dozen bad examples I can name a hundred that don't have problems."

Simon Freedman, a partner with Peters & Freedman of Encinitas, which represented Glenwood Springs in the Madigans' dispute, said the association had a duty to enforce its rules. The association and the couple tried alternative dispute resolution and when they still could not agree, the association filed its suit, he said.

He objected to the Madigans' comparison of the homeowners' board to the Gestapo.
"I think it's unfortunate a homeowner would choose to apply the label of one of most infamous units of the Nazi police - responsible for the deaths of thousands of people - to a board of homeowners who volunteer their time," Freedman said.

He noted the California Supreme Court last month reaffirmed the power of homeowner associations to amend and enforce their rules, even requiring a pet owner to move or give up her pet, Villa de las Palmas Homeowners Association v. Paula Terifaj, 2004 DJDAR 7037.

The suit against the Madigans alleged that the couple bought an F-150 pickup truck too big for their garage and parked it in guest parking spots or in driveways, violating rules governing the size of vehicles as well as parking regulations.

Sanford Madigan said he was aware of the rules regarding vehicle size, but he believed the truck would fit when it was purchased. It missed the mark by 18 inches, he said. However, he also figured his daughter could park the vehicle on the street.

Although the Madigans contend there were sufficient guest parking spaces, Freedman said the limited parking required strict enforcement of the association rules to maintain the neighborhood's character.

One in four California homeowners lives in common interest developments that include condominiums and luxury homes with common areas such as golf courses and pools. Disputes often arise. Legislators say they are responding to their constituents' complaints about homeowners associations.

Of the six bills related to homeowners associations the Legislature is considering, AB2598 by Assemblyman Darrell Steinberg, D-Sacramento, and AB1682 by Sen. Denise Ducheny, D-San Diego, have gotten the most attention. They would restrict the use of foreclosures to collect delinquent assessments.

Homeowners have told hair-raising stories about losing their homes - sold for a small fraction of their value - while boards collected debts as small as $120.

The Steinberg and Ducheny bills would allow associations to use small claims court or record a lien to collect debts less than $2,500 - the bulk of assessment disputes. For larger debts, associations could use judicial or nonjudicial foreclosure, but only after participating in alternative dispute resolution. Homes sold in foreclosure would have to be sold for at least 90 percent of their fair market value, and the owners of those homes would have 90 days to try to redeem their property.

The Community Associations Institute opposes the bills. Small claims judgments are too expensive to collect, Daum said, and associations would be forced to wait years to collect small delinquent assessments.

The Executive Council of Homeowners, another group representing homeowner associations, also opposes the bills, favoring a ban on nonjudicial foreclosure for delinquent assessments, said Sandy Bonato, the group's lobbyist and a lawyer for Berding & Weil in Alamo.

Other opponents include trustees who have complained that if they had to sell these properties for 90 percent of their value, they'd find few willing buyers, since the appeal of these deals for the purchasers is the potential for a bargain.

Consumer groups such as the Congress of California Seniors support the legislation, believing it would be fairer for homeowners and result in fewer foreclosure actions, Murray said.

The Steinberg and Ducheny bills would allow homeowners to sue their associations if they are denied access to association records, membership lists and contracts. Inspections of those documents is the only way homeowners can learn how their assessments are being spent, Murray said.

Some homeowners have complained their association boards have held fraudulent elections in which they intimidated homeowners into voting for costly special assessments. Sen. Jim Battin, R-La Quinta, has introduced SB1581 to require secret ballots to decide assessments, board members and changes to governing documents.

The California Law Revision Commission is behind two other bills. AB1836 by Assemblyman Tom Harman, R-Huntington Beach, would expand the mandatory use of alternative dispute resolution before parties could file suit. It would apply the process to assessment disputes if the Steinberg bill passes.

A commission study found associations have the upper hand in alternative dispute resolution because they have greater economic resources than individual homeowners and can assess the homeowners with disputes.

Another bill proposed by the commission, AB2376, would set review standards for associations considering owners' plans for physical changes to their homes. Associations would have to explain any disapproval in writing and reconsider decisions in open meetings. The bill by Assemblywoman Patricia Bates, R-Laguna Niguel, would take effect only if the commission's other bill, AB1836, is approved.


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