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By: David G. Molinari
Nearly one quarter of Californians live in a community governed by an HOA. Associations use fines to curb violations of governing documents. Some associations use fines excessively, while others only rarely. How should fines be used as an enforcement tool in the management of the HOA’s affairs.
Monetary penalties serve two purposes: enforcement and deterrence. Without a system of penalties, a Board is handicapped carrying out its duty to enforce the governing documents. Board members are under a fiduciary duty to enforce the governing documents. How may the Board reconcile these two purposes? The imposition of a fine on an owner who violated the CC&R’s fulfills the Board’s enforcement duty; and the severity and extent of the fine should discourage future violations.
The authority for an HOA to impose fines is found in the association’s governing documents. CC&Rs or bylaws give the Board authority either directly or through the power to adopt rules relating to management of the development to impose penalties on members. The authority must be exercised through a schedule of monetary penalties adopted and distributed to members. California Civil Code Section 5855, part of the Davis-Sterling Common Interest Development Act requires a schedule of penalties and fines be distributed to the homeowners before fines may be imposed. This schedule is considered an operating rule which requires minimal due process requirements such as distribution to members for comments at least 30 days before adoption. The procedure for imposing a fine requires: 1) A hearing before the Board or Enforcement Committee; and 2) at least 10-day notice to the owner of the date and time of the hearing along with an explanation of the nature of the violation.
Some Associations find a step-up type process helpful before handing down fines. Use of courtesy warning letters for first violations followed by the imposition of monetary penalties provides members with a sense of “fairness and consistency” that avoids a claim that any individual member was being singled out or disciplinary measures were carried out in a discriminatory fashion.
What amount of fine is necessary to enforce compliance? Fines must be reasonable. A fine cannot be arbitrary or discriminatory and must be imposed in good faith and geared toward the best interests of the association. Two common factors in setting amount are the economic status of the community and the seriousness of the violation. In some associations, a minimal fine of under $100.00 is sufficient to ensure compliance where in a community of multimillion dollar homes, the same fine to enforce landscaping requirements may be meaningless. Actions that create a safety hazard or that threaten common areas may justify a higher fine than actions that have only an esthetic impact. The bottom line: the fine must be reasonable, get the owner’s attention and be enforceable.
A related hurdle is the collection of fines. As of 2012 enforcement fines cannot be turned into a lien against the property. California Civil Code Section 7525(b) states that a monetary penalty imposed by an association as a disciplinary measure may not be characterized or treated as an assessment that becomes a lien against the member’s interests enforceable by sale. That leaves the HOA with a choice of a small claims action as a fast and inexpensive avenue of resolution that avoids additional cost and difficulty of involving attorneys. Alternatively, depending on the nature and amount of the violation, a Superior Court action may be brought. Most governing documents have an attorney’s fees provision allowing for the recovery of counsel fees and enforcement costs. However, in California such provisions are deemed reciprocal. An unsuccessful case could result in the member avoiding the penalty and having the HOA pay their attorney’s fees.
The HOA must use a rule of reason. Violations must be treated in the same manner. Reasonable and consistent enforcement will result in the HOA achieving the “just right” balance.
If you have any questions or would like more information, please contact David Molinari at [email protected].