What California Real Estate Investors Need to Know About Homeowner Associations

Legal News GavelAuthor: Staff

Ownership of real property includes various rights regarding the use of that property, but these rights are not absolute. Purchasing a particular piece of property often comes with specific restrictions on its use. Many residential properties are part of a planned development, such as a condominium building or a housing subdivision. Upon purchasing a property that is part of a “common interest development” (CID) under the laws of California, a real estate investor becomes a member of the homeowner association (HOA) for that development. HOAs can have considerable power and influence over their members, so it is important to know one’s rights and obligations before closing a sale.

What Is a Homeowner Association?

When a developer is building a CID, it creates an organization, usually a nonprofit corporation, to manage the individual units of the development. It establishes bylaws for the operation of the HOA, as well as “covenants, conditions and restrictions” (CC&Rs) regulating the maintenance and use of individual units. The HOA’s main responsibility is maintenance of the CID’s common areas, meaning parts of the development that are not part of any individual unit but benefit the entire community of homeowners.

The developer appoints the HOA’s initial board of directors, and it typically retains privileged voting rights while the CID is still under development. Eventually, the members take control of the HOA.

Membership in a Homeowner Association

HOA membership is a mandatory condition of purchasing a unit in a CID. Membership “runs with the land,” meaning that if the buyer sells the unit to someone else, HOA membership passes to the new owner.

Membership requirements include payment of regular fees and special assessments, as well as adherence to the CC&Rs. Members elect directors at annual HOA member meetings. As control of the HOA shifts from the developer to the homeowners, homeowners replace the developer’s appointees on the board of directors.

Covenants, Conditions and Restrictions

CC&Rs can cover a wide range of issues relating to the use and maintenance of property units, typically with the goal of maintaining a consistent look or style throughout the CID. This could include restrictions on building height, distance between buildings or between a building and the street, types of building materials, maintenance of front yards, exterior decorations, and street parking. Some HOAs have even sought to regulate interior home decorations, like window treatments, that are visible from outside. Members may be able to modify or amend the CC&Rs under procedures established by the HOA’s bylaws.

Assessments

Assessments often include regular fees paid by members to the HOA or to a management company hired by the board of directors. Regular fees are calculated based on each homeowner’s proportional share of the total CID. A homeowner whose unit constitutes 0.1 percent of the CID would pay fees equal to 0.1 percent of the HOA’s operating and maintenance budget.

The HOA may also require payment of special assessments for maintenance and repairs that are not included in the budget. This might include roof repair in a condominium building, or street repair in a subdivision.

Enforcement

HOAs have broad enforcement authority over their members for non-payment of assessments and violations of CC&Rs. Under California law, HOAs and members must attempt alternative dispute resolution before filing a lawsuit. If that is unsuccessful, HOAs may file suit to recover unpaid assessments, enjoin CC&R violations, and even foreclose on property units. Homeowners can only sue the HOA for a violation of the HOA’s own governing documents and other overt misconduct.

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Common Interest Developments, Homeowner Associations, and California Real Estate Investments, Titles and Deeds, January 10, 2018

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