Posted on 05/29/2006 9:35:07 AM PDT by SmithL
The shake shingles lining the hips of the low-pitched roofs at Alvarado Village are lifting or askew, if they aren't already covered in black plastic. Leaking water has painted white lines down the dark-brown siding on several townhouses. The weight of accumulated sludge has bent gutters flat.
It wasn't a shock then, when the Union City community's homeowners association informed its members last year that it was planning repairs. Pierre Morrison, a police officer who bought a unit in October 2003, even recognized that the organization might request money above his monthly membership dues to pay for it.
But Morrison was stunned when, as he scanned the notice last June, his eyes landed on the proposed amount: $18,494.27.
"I was floored," Morrison said. "Not in a million years would I have thought that we would have had an assessment like that."
Few condo and townhouse owners do. But as the East Bay's stock of condominiums, townhouses and other so-called common-interest developments age, steep assessments are increasingly common. Experts estimate that at least one in three homeowners associations is now underfunded, putting residents at risk of hefty fees when major repairs come due.
Under most circumstances, owners have little choice but to pay, even if it means taking out a second mortgage, moving or falling into foreclosure.
"We see this stuff day in and day out," said Tyler Berding, a founding partner of the Alamo-based law firm Berding & Weil, who specializes in special assessment cases. "There's a big problem out there."
Indeed, East Bay examples abound. The association board for the Gables of Pleasanton levied a $12,900 special assessment last year. Owners at the Stoneridge complex across the street have coughed up nearly $10,000 in extra fees over the past few years. And a Rossmoor homeowners association recently hit up residents of at least two projects, charging a $10,000 fee payable over four years and a $8,500 "emergency" charge that was due in full shortly after it was first announced.
Assessments can run higher still. Pleasant Hill attorney Beth Grimm, who runs the CaliforniaCondoGuru.com blog, regularly consults on $30,000 to $40,000 cases. She met with one association in San Francisco considering a charge of more than $60,000.
Homeowners stuck in this scenario are often quick to point fingers at their association's current board of directors. The fault, however, is typically spread across a series of boards, management companies and the owners themselves stretching back a decade or more.
Excluding the possibility of construction defects or outright board embezzlement, the root cause of nearly every special assessment is that homeowners were simply not paying adequate dues over the years to account for the building's ongoing depreciation.
That occurs because homeowners association fees -- which cover everything from lawn care to structural repairs -- are proposed by a board comprised of residents and voted on by the homeowners as a whole. In other words, fees can only be raised by people who lack a financial incentive to do so, at least in the short term.
As a result, dues often scarcely creep up and the gulf between association reserves and the cost of looming repairs steadily widens, until the only way to fix the problem is to levy a special assessment.
"That usually upsets the neighborhood," said Roy Helsing, CEO of the Helsing Group Inc. in San Ramon, which audits reserves on behalf of homeowners associations. "But what they're doing is collecting money now for monies they should have been collecting in the past."
That fact doesn't makes it any easier for the typical homeowner to swallow a five-digit assessment. It can be especially difficult, as well as unfair, for recent buyers. They have to pay an equal share of the fees, even though they typically have enjoyed less home value appreciation to offset the cost, and much of the wear and tear occurred under the previous owners' watch.
"The entire brunt of a 20-year roof deterioration falls on the shoulders of those who happen to own at that time," said Robert Nordlund, president of Calabasas-based consultancy Association Reserves. "That is unfair, unsettling and surprising."
State law largely plays the enabler in these cases. Although the Davis-Sterling Act requires associations to create a plan to fund any looming repairs every three years, it doesn't actually order them to raise dues or set aside funding for the plan. A bill to change that, while requiring additional notification of imminent repairs to owners, passed unanimously in the Assembly earlier this month and will be heard by the Senate Transportation and Housing Committee on June 13.
The California Association of Realtors sponsored AB2100, which was introduced by Assembly member John Laird, D-Santa Cruz, largely because their members often land on the bad side of recent home buyers who didn't see the assessments coming.
The bill would do little, however, to address the decades of underfunding that has already occurred at common-interest developments -- or to help those now grappling with stiff special assessments.
Residents at the Gables on Stonedale Drive, where the roofs are being replaced to repair leaks in many of the 56 units, are coping with their $12,900 charge in varied ways.
Frieda McCrary, who moved in less than two years ago, took out an equity line of credit and withdrew funds from a 401(k) account. Another woman, a former board member who didn't want her name used for this article, sold her second car.
David Graham, who bought a townhouse at the Gables a decade ago and served briefly on the association board, also paid using an equity line of credit. But he is weighing whether to sue the homeowners association, which he claims mishandled some $1.2 million in membership dues.
"Somebody spent the money," Graham said, "and they're going to have to pony up."
Attorney Grimm, who works with the association, declined to comment on the Gables. The management company that oversees the association, San Ramon-based Community Accounting and Management Services, maintains that the assessment stemmed from poor planning that started years before its involvement.
"When we came in, there were about 10 or 12 active roof leaks," said John Jervis, operations manager for CAMS, which began managing the Gables about 18 months ago. "Also, their reserves were very low."
Pleasanton-based Christison Co., which began managing the Alvarado Village association about a year ago, said it too only began working with the group well after the damage was done.
Given the steep cost of a lawsuit, it tends to be the exception in special assessment cases. More often, residents and associations work together to create payment plans or arrange banks loans. Homeowners also have the option of selling their home and paying off the assessment with a portion of the proceeds.
If a resident steadfastly refuses to pay -- as at least one Gables resident has -- the homeowners association is empowered by state law to place a lien on a home or ultimately to start foreclosure proceedings.
The ideal way to deal with a special assessment is to avoid it in the first place, said Ron Atkins, a Pleasanton Realtor with Re/Max Accord. Even though home buyers are awash in paperwork, he said they should take the time to scrutinize the audit of the association's reserve, as well as meeting minutes. The homeowners group is required to provide both documents to new buyers, and together, they should indicate anticipated repairs as well as whether there is enough money to pay for them.
Buyers "need to do the due diligence, and go through the report and if they have questions, ask them," Atkins said. "That's the way to stay out of trouble."
Another way of avoiding a special assessment is to vote against it. Except in emergency cases, a majority of voting homeowners have to approve the charge.
When Morrison received the letter from Christison Co., he walked door to door across Alvarado Village, encouraging his neighbors to vote down the measure. They ultimately did.
The board, however, sent another notice in November, with a strongly worded warning.
"We have been advised by the association's legal counsel that the failure to replace the roofs and gutters at this time could have negative implications with respect to the association's ability to insure the premises and the individual homeowners' ability to refinance or sell their units."
This time a majority of members, including Morrison, voted in favor of the assessment. The end cost was $16,160.33 per unit, a fee Morrison paid by borrowing money from his aunt.
"I felt cornered at that point," said Morrison, who plans to sell his unit within a year and leave townhouse living behind for good. "I guess that's probably the way most people felt."
James Temple covers real estate for the Contra Costa Times. Reach him at 925-977-8534 or jtemple@cctimes.com.
An organization that oversees the maintenance and management of common facilities and areas -- such as landscaping, pools, exterior walls and fences -- in townhouse, condominium and other so-called common-interest developments.
Buyers considering a common-interest development should always scrutinize the association's reserve audit and the past 12 months of board minutes, both of which should indicate anticipated repairs and whether there are adequate funds in the reserves to pay for them.
Don't buy a house/condo in a subdivision that has a Homeowners Assc.
Interesting article -- thanks for the post.
That is the very best advice. When I bought my place 20 years ago, that was the first issue that got the house removed from the list...CC's&R.
I can tell you that every few years, we are hit with a large "maintaince" bill--a new roof, a new plastering job for the pool, new landscaping, etc etc.
I can't imagine that it is any different in a condo or townhome. Property has to be repaired and updated. It's a fact of life--and sometimes, these things cost big bucks.
If we put away say $200/month toward some upcoming repair, chances are it wouldn't be enough to cover the cost of a major repair when the time came.
In that way each member of the association pays for the depreciation "consumed" while a member of the association. When selling, buyer should compensate seller pro-rata for the value of the accumulated fund since the seller contributed to the depreciation fund while a member of the association.
Buyers should not then be surprised by large special assessments; but they WILL pay larger annual association dues.
Responsible non-profit institutions such as private schools and churches do this. Why shouldn't homneowner associations?
I think the main objection here is that some "association" is deciding how to spend the "dues" for the "greater good". When a person "owns" property, they don't have to worry about such things. When they buy into one of these communist organizations, then they must abide by the terms of the contract.
I nearly bought a place 10 years ago that was one of 3 units on a lot with a shared driveway. Everything else was perfect but for me, the shared driveway was a deal killer. I ended up with a standalone SFR and have never once regretted it.
"Unfair" is a word that should be put on Humpty Dumpty's flexible language list. It means whatever you choose it to mean. If you buy a condo, house, or duplex in perfect condition, you will most likely pay more money. If you buy a structure that needs repairs, you should get a discount for purchasing a building in less than perfect condition, but SHOULD expect to be out of money in the near future to make those repairs.
If you overpayed for something because you didn't research or have a building inspector, well, guess who's fault that was? Condo owners should also be aware that they're basically joining another government, and this government will frequently affect them far more personally than the city, state or feds.
Oh, tell me his condo hasn't gone up in value at least that amount since he bought it -- especially after the repairs.
Unfortunately most new subdivisions have them. We were among the first to buy in our subdivsion earlier this year, so the HOA isn't active yet. I expect that to eventually change but my plan is to go to the first meeting and shut down the control freaks before they can trample over the rest of us. Our CCRs are pretty minimal, but a control freak can still make life miserable.
One good thing about living in NJ: most of the state is near a border to somewhere else. ;-)
Are you serious?! I just bought a waterfront home in Pensacola, Fl. for 145k. Save your money and move, my FRiend.
If you relocate to Oklahoma, you could find a decent home well under $70,000 and use the remaining $630,000 for some other pursuits.
I can't believe this was a result of competitive bidding.
Have you gotten your NEW insurance bill yet?..
BTW,,,I haven't seen a CA since John LaFleur was doing heli-logging in the Carolinas..
Oh, I got it alright. I wasn't too happy, but I expected it to be more.
The cost of insurance and building materials has skyrocketed. People who properly maintain and insure their own homes in a non-association community are facing the same thing.
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