This E-newsletter is all about abandoned property in HOAs in California. What should be done when the property begins to deteriorate such that it brings down the values in the neighborhoods? The good news is: there are more options than would be the case for single family non HOA owners. The bad news is: they don’t come free.

My goal in this newsletter is to “enlighten” the HOA-interested public to some extent on the possible parties, priorities, perspectives, interests, goals, ramifications, actions that can be taken, and pros and cons.

POSSIBLE PARTIES: HOA (homeowner association), HO-gone (homeowner who abandoned), HO-remaining (those other homeowners in the development), Bank or Lender, possibly the City or County, and in some cases where the development is fairly or brand new (yes, it happens there too), the Developer.

PRIORITIES, PERSPECTIVES, INTERESTS, GOALS: For the HOA, the interests in keeping the property up are fulfilling duties and obligations, protecting property values (to the extent reasonable and feasible), and aesthetics. The interest in the cost factor is how much, how long, and how big a burden on the HOA funds and HOA-remaining. The HOA-remaining have an interest in the costs of course (since they are still paying assessments), and also may, if they are trying to sell or lease, or just live without having to look at a deteriorated property, have an even higher interest than their neighbor in having something done. For the HO-gone, there is little chance of any participation, accountability, or recovery of any costs incurred, unless that owner is trying to get a work out of some kind to avoid foreclosure. The Bank or Lender that is not getting paid, or is foreclosing (as is often the case), will not be liable or responsible for anything until assuming ownership. However, the Bank or Lender may have an interest in keeping the property up if considering a short sale or deed in lieu, at least temporarily. Cities and counties with strong code enforcement departments want property in their cities and towns maintained, and may assist with enforcement. However, they may also get in the way if, for example, the owner does not pay their water bill and the water gets turned off. If they are going to turn it back on, they will require a viable party to take over the responsibility to pay the bill of course. And last, but not least, except for the magnanimous developers out there who just want to do good deeds or take extra care of properties they built, the main interest in keeping property looking good is to enhance the ability to sell, or re-sell (in the case of properties upon which they make loans that fail).

RAMIFICATIONS, ACTIONS THAT CAN BE TAKEN, PROS AND CONS:

HOA MONEY: If the HOA spends money to upkeep landscape or property that is falling into disrepair, and has little hope of recovering that money, a balance has to be achieved and the questions are: is it fair to expect the neighbors to pay? For how long? What is the benefit to them? For how long? Should they be asked? Should a vote be taken? Is it necessary to get permission of the other members? If the HOA signs on for responsibility for a separate interest water meter, is it assuming responsibility for water incidents (such as a broken pipe) in the home. Logical thinking would indicate that if the water was turned off, the event would not have happened. So you be the judge here. I could imagine a good argument being made against the HOA’s interest, but truly, I know of no definitive authority for this scenario. And another thing, is there any hazard or liability based on the disrepair of the property? Fire danger from weeds or dead landscaping? Porch roof falling off, or anything like that? Again, its about balancing costs against responsibilities and interests.

HO-GONE MONEY: The questions are: is the owner gone from sight and mind? Are they judgment proof (because besides trying to collect assessments, there also is the possible remedy of debt collection via the courts)? Are they trying to do a workout? Are they collecting rent (where is it being sent and can the HOA tap into it?).

HO-REMAINING MONEY AND COSTS: Sometimes a neighbor will offer to water areas where the irrigation is being turned off for non-payment, just to keep the neighbor’s lawn presentable enough to prevent blight in the court or on the lane or street. Sometimes they will ask for reimbursement for doing so. The questions for the owner and the HOA to consider are: is that cheaper and easier than assuming responsibility for a water bill? Is there a chance the neighbor might take liberties, might get careless, might be wasting precious water, might encounter a hazard in the yard when watering leading to a potential liability risk, might face trespassing charges?

The HOA has to be cognizant as well that any HO-remaining has a potential cause of action for damages or reimbursement of funds if the Board decides to expend money and resources for any obligation that is not that of the HOA at the outset. For example, if the HOA takes on a water bill that would otherwise be the owner’s, or maintains a lot that is the owner’s responsibility, any other owner could seek recovery of the costs from the HOA or the decision-makers themselves (the Board or management if taking it upon themselves to take some kind of action that costs the HOA money). I am not saying such a claim would succeed, or not, but it might have to be defended.

BANK OR LENDER FUNDS: If a bank or lender is amenable (which may translate to finding someone who thinks outside the box within the organization), they might agree to bear some of the cost of maintaining the front yard to keep a place marketable. This would not be an option unless the lending entity was working with the owner to do a short sale or deed in lieu or some such transaction. They might agree to reimburse some of the costs if costs are incurred by the HOA in doing some reasonable and necessary maintenance. Get it in writing!

CITY OR COUNTY FUNDS: I think there is little chance any City or County is going to expend monies to keep up the landscape or property of an abandoned Lot. If legally correct and supported in their situation, they may impose fines or costs that could lead to a public sale. While I think anything is possible, I have to believe the burden on Cities and Towns, much like that of the burden on HOAs, stemming from abandoned properties, could be staggering.

DEVELOPERS’ MONEY: A developer may offer to water, plant, or repair an abandoned home. After all, developers do sometimes subsidize costs by irrigating, watering, and doing other things with the goal of keeping a development “pretty”, and keeping the assessments low, during the period of sales of Lots within, which sometimes leaves HOAs with a big surprise once they are out and the true costs of managing and maintaining the properties comes to light. Without being too critical though, like everyone else, the developer has an investment to protect. I have been asked by HOAs whether they should support or join with the developer to keep abandoned properties up. Sure, it seems great that there is another party to participate. But what if, after the developer leaves, the burden becomes too great and the HOA folds? Now, there is a question of whether that activity created a new area of liability for either the developer, or the HOA, or both. This new possible area of liability is deceit. Is it legally actionable to participate in a situation that could be conceived by anyone – such as a potential seller or buyer – as deceit or misrepresentation? I can hear the argument – “I would never have bought in that development had I known that the HOA was subsidizing deadbeats’ properties just to keep things looking nice. That gave me an inaccurate picture of the HOA’s financial position.”

I cannot give legal advice by this E-Newsletter but I hope that I have helped you in understanding the ramifications of various actions. HOA Boards and management tend to first think that it is the HOA responsibility to keep the development looking good, and look hard for a way to do that, and to a degree, it is commendable. But since these are exceedingly tough economic times, and not likely to turn around soon, doing that to the extreme where the cost could become a burden on the others in the development who are struggling to keep up (or even keep) their own property, or could create exposure to unusual legal claims, one has to think twice about these things.

Watch for notice of a program in October covering this topic in the Fresno area. Looks likely that I will be doing a program on this and other hot topics. Email me if you are interested and I will get you on the mailing list for upcoming programs at which I will be a presenter.

Copyright © 2008 Beth A. Grimm, All Rights Reserved