ddressing violations and dispute resolution in homeowner associations is getting more and more complicated all the time by the addition of new laws. The good news is that boards have statutory guidance for imposing discipline and resolving association disputes. The bad news is that the real sympathy in Sacramento lies with homeowners who have complaints about their board or association, who complain of no "due process", and who have no recourse that is affordable when battling with their HOA board.
All this results in a trend toward laws that give owners more rights, and encourage more resolution within the Association, so disputes don't get to court.
When considering whether enforcement, IDR, ADR, either, any, or both are appropriate procedures for any disputes or governing document violations, boards have been put in the unenviable position of having to determine whether a violation of or disagreement over responsibilities under the governing documents should first go into the "enforcement category" or into the "dispute resolution" category. If it fits into both, the Board must decide which process to try first. If it fits into the "dispute resolution" category, it has to decide whether to try IDR before ADR. The intent of this article is to try and help boards make some sense of all of this.
For purposes of clarification, these definitions should help.
Enforcement - The board of directors is charged with "enforcement" of the CC&Rs and other governing documents. ("Governing documents" include the Articles of Incorporation, the Bylaws, CC&Rs aka the Declaration, and any rules and regulations, policies, etc., that regulate and govern the association.) Thus, if the CC&Rs or rules contain a restriction such as a prohibition on parking recreational vehicles in the development, and someone is violating the rule, the board of directors must seek compliance ("enforce"). One way is to threaten fines or other disciplinary action. This would require a meeting/hearing (discussed in more detail below). Hearings are more commonly associated with enforcement (and the word force explains the mindset) than dispute resolution.
ADR stands for "alternative dispute resolution". That suggests a means of resolution of disputes "alternative" to litigation. ADR has been around longer and is a more generally understood process than IDR. ADR methods generally include conciliation, mediation, or arbitration. Conciliation and mediation involve a neutral facilitator and resolution is by voluntary agreement. Arbitration is like court, a hearing officer makes a decision. (See Civil Code Section 1369.510 and following.)
IDR is a newer concept commonly referred to as "internal dispute resolution". This means an "internal process", whereby the board or one or more directors meet with an owner who is in "dispute" with the association, or vice versa (association is in dispute with owner), or in an attempt to enforce the governing documents. It may also relate to something like an election dispute, an argument over property lines or actions of the board, or the like. And, the association can provide a neutral facilitator, or not. (See Civil Code Section 1363.810 and following.)
If the Association is considering litigation against an owner, ADR has to be considered. The board must participate in IDR if an owner requests it, and must seek to engage the owner in ADR before litigation can be filed unless an exception applies including urgency or other considerations as set forth
in the specific law found at Civil Code Section 1369.510 and following. If an Owner is considering litigation against the Association, he or she is required to follow the ADR statutes to offer the board ADR but the IDR process is voluntary.
KEYS TO SUCCESS
California law contains statutes dictating requirements for all three processes. The key to planning for a board is to formulate from these statutes and the governing documents of the Association an overall policy for handling matters that involve a lack of compliance with the governing instruments of the Association or pertinent laws. The key to success and the quandary for boards is putting together a policy that satisfies the minimum requirements of the law, satisfies the enforcement requirements of the governing documents, and provides a process that can reasonably be applied.
Any board of directors that does not have a "roadmap" (written policy) to go by to apply these concepts will surely face considerable confusion as to how to handle each particular matter, and in what order. And there is always a risk that boards will miss important legal requirements since the laws are so technical and process intensive.
Below are some suggestions that might help a board formulate a policy to deal with enforcement, IDR and ADR processes. It's kind of a "menu" process with steps that can be changed around or combined, depending on what action needs to be addressed, the type and severity of it, and depending on whether the inability to resolve it could lead to litigation, by necessity or choice. Each association is unique in varying character of the board members, the makeup and level of sophistication, the acumen, and people skills. Fiduciary duty (responsibility) to enforce the governing documents enters into the picture as to how to best choose the right path, and when to invoke dispute resolution processes. The finances available to the association might also be a factor in defining a workable, legally acceptable plan of action (the policy) that would make sense for a particular association.
The board must keep in mind that any time it adopts a policy that is to be used to govern members of the association, discipline, conduct, etc., it must circulate that policy to the members before the board formally adopts it. (Civil Code Section 1357.100 et seq.) This is to allow the owners the opportunity to comment on the proposed rules or policies before they are adopted. No rule, rule change, or policy needs to be circulated to the owners before adoption by the board if it simply reiterates a statute or existing governing document provision because in that case the board would not be formulating provisions; it would be using existing authority for the policy. Owners are also entitled to notice of the board's intent to adopt the enforcement policy (unless it's taken directly from an existing document or law) and to attend the board meeting when the board will discuss the proposed policy and consider adopting it. They must receive written notification after the policy is formally adopted by the board.
In many situations, there is good chance that disputes would be resolvable if the board would give the owner some personal attention and discuss the issue with the owner(s). On the other hand, there are often situations where actions (such as a threat of discipline, fines, reimbursement assessments, or "self-help" by the board) are more convincing and effective than friendly pleas for compliance. The question is:: which comes first, enforcement or dispute resolution, especially since the order of processes is not provided in the pertinent statutes.
For a clear, unequivocal violation that is obvious based on evidence or investigation supported by pictures, eyewitness accounts, or observation, the most common instinct (and most widely given advice) is to move right to enforcement and try to get compliance. While it is true that this prevents
delays, it tends to be a turnoff to many owners. Time may be of the essence where the existing violation could lead to more violations by others who see something going on in spite of restrictions stated in the governing documents. However, in most situations, a meeting with the owners involved before hard feelings have a chance to form has a good chance of resolving the differences.
Thus, the suggested steps below could be used as is or modified by identifying specific types of violations that would switch the course of action. The Board could adopt one process for all, or categorize types of disputes and identify the order of the steps for each category. For example, a board may decide for architectural disputes it will use the dispute resolution processes first, rather than moving to fines or disciplinary hearings, but for rule violations such as leaving out trashcans too long or creating a nuisance, threats of enforcement including possible fines could be considered as a first step. If the dispute or action of the owner could lead to litigation, the board needs to keep in mind that there are requirements to be met, prior to filing any kind of litigation. IDR is voluntary if the board initiates it (see Civil Code Section 1363.810(b)). Offering ADR processes is mandatory in cases where a court order is sought and damages are less than $5000. (See Civil Code Section 1369.520 -there is an exception if for good reason an immediate court order (injunction) is needed).
There may even be those situations where the board may want to implement the enforcement processes and the dispute resolution processes at the same time. The board may decide to conserve resources and energy, shorten delays in the passage of time, and/or prefer a more creative process. There is nothing in any of the laws that dictates the order in which the processes should be used, or that prevents using a combination of processes concurrently.
Here are some reasonable steps to consider for a policy designed to handle noncompliance issues or a dispute over rights or responsibilities in the governing documents or the law:
Step 1: Verify and Document Problem. Verify, in writing, the problem, either by obtaining a written complaint from the complaining party, or by documenting what has been observed, providing dates, times, and a description of the observation. (The Association "record" is critical to success as the enforcement or dispute resolution processes progress.)
Step 2: Courtesy Letter. Communicate with the owner of the property regarding the violation or violations that are believed to be occurring, or have been identified as occurring. A phone call works for some associations. If phone calls are not feasible or there is good reason to be fearful about approaching an owner, a letter is better. [The Step 1 information discovered can be memorialized in a "courtesy" letter to the owner who is responsible for the noncompliance or non-complying party's actions.] Quite often an owner is simply unaware that they or their tenant have violated a restriction or provision exists in the governing documents, or failed to maintain something that is their responsibility, so a courtesy letter may take care of many common problems.
Step 3: Warning Letter/Demand/Possible Notice of Process. If compliance is not forthcoming, a more pointed letter again identifying the problem and demanding compliance immediately or within a stated time could be sent. This letter would include a laundry list of the Association's remedies that will be considered (suspension of rights, fines, reimbursement assessments, right of entry, self-help, etc.). This letter could include an invitation to attend an IDR meeting. If the board believes for some reason that a hearing is warranted at this point that is an option. Each process has its own set of parameters according to the controlling statutes, and there may be good reason to treat the two as separate processes. However, it is also conceivable that a board could opt for a combined meeting that would involve at first a discussion about the issues and an attempt to reach an agreement (as in IDR),
with a subsequent hearing to discuss possible disciplinary action in the event an accord was not reached in the IDR process. This dual track could be called a "cross-over step" that encompasses both steps at the same time. There is more discussion on this below.
Step 4 or 5: IDR. The Board can choose IDR at this or any point if not already tried (addressed in Civil Code Sections 1363.810 et. seq.). An association is required to adopt a "fair, reasonable, and expeditious process" for dispute resolution. The process may be a meeting with 1 or more members of the board and the owner(s) involved, and it may involve a neutral facilitator if the board wants to provide (and pay for) one. This process can be accomplished by sending a written request to the owner to attend a meeting, and it could be set 20 minutes or so before the next board meeting. The purpose which should be stated would be to discuss the pending problem with the full or partial board. At the meeting, the board members and the owner would be able to discuss the problem and possible resolution and hopefully reach an agreement. An owner is not obligated to attend. (But note that if the owner demands the IDR meeting, the board is required to attend.) The board members (if less than the full board) should have some authority to discuss settlement and thus would be able to execute a written agreement if an accord is reached. Such an agreement would be binding on the Association. It is not the same as a hearing where the board or board members assigned to meet sit in judgment and mete out discipline like fines. (See more on the hearing process in the next Step.)
[One challenge is that the statutes do not put IDR in the category of executive session meetings however if the meeting is treated as an executive session meeting based on the fact that disciplinary action may be considered, it could qualify. And, if the owner meets with less than a quorum of board members that would be a way to safely avoid open meeting notice requirements. The statute says one board member is enough but in order to avoid "he said-she said" arguments about what was decided, two is generally better to have at least two board members present.. If the IDR process is combined with a hearing, then the statutes would clearly allow the meeting to be held in executive session because consideration of disciplinary action is appropriate for executive sessions. Additional Note: This meeting with a board member or board members is not the only type of IDR that is acceptable. Boards may adopt a policy using outside dispute resolution resources (neutrals such as mediators) and provide for prompt timelines and written notice to an owner requesting attendance. But the "meet and confer" process (which is the default process under the statute if another process is not adopted) described here makes more sense in practical terms because using outside resources to try and resolve matters internally results in costs to the association where meeting with board members does not. If a board uses an outside mediator and the matter does not resolve, the process must essentially be repeated in the ADR processes and then there are more costs (although these are shared).
Step 5 or 4: Enforcement Actions. At this point, if the owner has been given one or two written notices about the situation, the board may decide it's time to give the owner a notice of hearing, before or after IDR (hence the possibility of switching Step 5 or 4). The requirements under Civil Code Section 1363(h) require that if a board is going to meet and consider discipline of any Owner, the board must (1) send a written notice to the owner listing the violations and remedies to be considered and the date and time of the meeting/hearing; (2) have the meeting/hearing; and (3) send a written notice to the owner of the discipline to be imposed within 10 days of the board's decision. Without following these steps, the disciplinary action would be considered invalid.
[Comment: In order to combine Steps 4 and 5 into one process, the board would have to satisfy the requirements for IDR and satisfy these requirements for notice of a hearing, and if the meeting
evolves into a hearing because agreement is not reached, follow through will include deciding on the discipline and providing the notice of decision.]
Step 6: Alternative Dispute Resolution. ADR options are always available on a voluntary basis. If the board is considering litigation, it needs to follow the minimum requirements for ADR, which per Civil Code Section 1369.510 et seq. contain a number of steps and requirements. These steps involve making a request that the other party participate in an ADR process such as mediation, conciliation or arbitration. The responding party has 30 days to respond or the request is deemed rejected. This process is not new, and a request can be made even if there is no intent to file litigation.
[Note: If either party requests that the other participate in ADR, the other does not have to agree or participate but they probably should. If the other side agrees, the parties have 90 days to complete the process but they can agree to a longer period of time. The Association must provide an IDR policy and an ADR summary each year (to members) explaining the law on ADR. A party must file a certificate stating that an attempt was made to engage the other side in ADR before litigation may be filed asking for injunctive or declarative relief coupled with a damages request of $5000 or less. This would include a homeowner or association as a party. If one party requests ADR, and the other declines to respond or says no, the requesting party can proceed to litigation. If a party refuses to participate in an ADR process and the matter is litigated, the judge can take the refusal to participate in an ADR process into consideration in deciding whether to award attorneys fees to the prevailing party. The implication is that a judge could withhold attorneys fees to the prevailing party if it refused to participate in an ADR process that might have resolved matters and saved the court and parties money and time.)]
Step 7. Further Legal Action (Litigation). If the differences are unresolveable through any of the above steps, then the association (or owner in dispute with the association) may consider litigation. Certification will have to be made as to the attempts to resolve matters through ADR in many cases.
The policy of the association for handling noncompliance or violations of the governing documents or California law regulating HOAs should include the procedures that the association would use in any of the above settings. Because of the complicated nature of these processes, it would be advisable to enlist the help of a professional sufficiently knowledgeable so as to make sure that any policy adopted is useful, understandable, and accurate with regard to all of the requirements. It should provide a manageable "road map" for a board now in place and future boards in the association. A policy to deal with any violation or dispute with an owner needs to be circulated to the membership before it is adopted by the Board as prescribed by Civil Code Section 1357.100 et. seq.
Attempting to reconcile the three processes (enforcement, IDR, and ADR) may seem complicated but when broken down into steps and choices that are embodied in a policy, the processes become manageable. It is to the benefit of all associations to try and make these processes work and to treat owners fairly. Experience tells us that if "due process" for owners is ignored (by violating the notice and hearing requirements), or if boards ignore the statutory requirements for HOAs, or if IDR and ADR are not taken seriously or given an opportunity to work, the legislature will continue to mandate more processes geared to punish boards for the inadequacies and failures, and to keep HOA disputes off of their doorsteps and out of court.
Article by Beth A. Grimm, CID Attorney and member of CAI. CAI-CLAC, and the ECHO East Bay Resource Panel and Legal Panel.
By Beth A. Grimm, Attorney. A "service oriented" attorney and member of ECHO and CAI and various other industry organizations in California and nationally, host of the website www.californiacondoguru.com; two Blogs: California Condominium & HOA Law Blog, and Condolawguru.com Blog, and author of many helpful community association publications which can be found in the webstore on her site.