Question: Thirteen years ago, we bought into a ranch in the Sequoias. We paid cash for the purchase of a 2,500th of an undivided share. Our association has a payroll of more than $1 million per year and most employees are seasonal. We have a manager-vendor and office staff. The board oversees all decisions concerning finances, employees and lawyers.
According to our covenants, conditions and restrictions, our payments were due on the 15th of the month and all titleholders could pay these assessment fees in whole, half twice a year or monthly installments with no handling charge.
The manager notified titleholders that without a vote from owners, by order of the five-member board, our payments changed beginning 2004, with the amount due on the 10th of each month.
Our payment options now are a yearly lump sum or monthly payments using an automatic withdrawal. If the monthly payment option is selected, this amount is subject to a $5 charge for what the board calls "handling fees." Withdrawals are deposited directly into the manager's credit union bank account. I spoke to the credit union and confirmed that they do not charge handling fees for such automatic withdrawal transactions.
Neither the manager nor the board will answer our questions concerning these arbitrary changes. The additional charges could generate $150,000 more a year but we don't know where the extra money is going or which fund would receive it.
The majority of owners don't want to pay handling fees and don't want a new payment program. Is this legal and can we stop it?
Answer: The manager-vendor has found a scheme to collect $5 a month from every titleholder in your project who pays on a monthly basis. If a titleholder opts for monthly payments, the manager would make an extra $60 a year. Based on 2,500 owners, that amounts to $150,000 a year. This is a lot of money to be deposited directly into a manager's account for no services rendered.
The declaration of covenants, conditions and restrictions, or CC&Rs, state the date payments are due and the time frame during which the titleholder may pay. Altering the time frame for delinquencies must follow the law. Under Civil Code section 1366(e): "Regular and special assessments levied pursuant to the governing documents are delinquent 15 days after they become due, unless the declaration provides a longer time period, in which case the longer time period shall apply."
It appears the manager amended the CC&Rs without authority to do so. If no meeting was held in which members voted to amend the CC&Rs, then no amendment changing the CC&Rs was approved.
The payment terms and time periods remain as stated in the CC&Rs.
The governing documents contain the method for amending the CC&Rs. Any change that fails to follow that procedure is void, and recent court cases have upheld that finding.
No law states owners must pay by automatic transfer. Any plan that by its terms prevents the titleholder from requesting and receiving a receipt at the time of payment is a violation of the Davis-Stirling Act. Civil Code section 1367.1(b) provides: "When an owner makes a payment, the owner may request a receipt and the association shall provide it. The receipt shall indicate the date of payment and the person who received it. The association shall provide a mailing address for overnight payment of assessments."
An association's collection policy must provide a method for overnight payment and for delivering a receipt to the owner. A manager-vendor cannot unilaterally change an existing payment schedule and the association board must comply with the law. Permitting an illegal payment scheme to continue could be a violation of the individual directors' obligations owed to the board and could subject each director and the association to liability if any of the owners are damaged.
The manager's windfall belongs to the titleholders who paid it. An action against the board by a titleholder may vindicate that position. If the titleholder's suit is successful, the court must award him or her costs and attorney's fees.
Please send questions to P.O. Box 451278, Los Angeles, CA 90045 or e-mail your queries to: NoExit@mindspring.com.