Suspect fees imperil their nest egg

Question: In July 2003, we purchased a Marina del Rey condo for $630,000 with low monthly dues. At the time of purchase, both salespeople said no major repairs to the unit or buildings were needed in the near future, and none were noted in escrow disclosures. We learned the seller’s salesperson owned many units here and seemed to be a permanent board director whose agenda was to keep the monthly fees very low.

As seniors, we planned on retiring in two years, but once we moved in, the monthly fees kept increasing. In December 2003, the board circulated an announcement demanding mandatory owner attendance at a meeting. It said all the planters lacked drainage and must be rebuilt with new drains and waterproofing. It said mold was found in all the storage areas and deemed the work “necessary” and an “emergency.”

In February 2004, the planters were torn out at an initial cost of $6,500. Today, it all remains in disrepair with no projected completion date. No work has begun on the mold problem.

In July 2004, the board called a meeting for yet another emergency. It announced that the entire complex’s cedar paneling was rotted, with estimated repair costs beginning at $45,000 per owner and “no guarantee where it will end.”

Some skeptical owners hired an independent investigator, who discovered that the paneling is not rotted but that several influential salespeople who live here want to upgrade all their units, then sell and move. We learned that the same group has dominated board positions and is responsible for many poor decisions while wielding heavy-handed influence over owners.

We’ve now spent thousands on the unit, are faced with paying the $45,000 assessment and have been warned that “more unexpected expenditures” are coming. These expenses have jeopardized our financial stability and retirement plans. Do we have any recourse?

Answer: Many residential deed-restricted buyers fail to understand the depth of investigation that must be performed to protect their assets before a purchase. For seniors on a fixed income or approaching retirement, condo ownership is not always affordable. Association assessment payments are always increasing and special assessments are never more than a board vote away.

Because there are more titleholders than board directors, stopping runaway emergency assessments is not impossible. Civil Code Section 1363.05(h) defines “emergency” as circumstances “that could not have been reasonably foreseen, which require immediate attention and possible action by the board.” Neither of the situations described constitutes something unforeseeable by a board. The fact that the board has warned homeowners to expect more unexpected expenditures automatically removes these expenses from the definition of emergency by law.

What it does indicate is a lack of due diligence and a breach of the duty directors owe to all titleholders by virtue of being elected to the board. Civil Code Section 1365.5(e) requires that at least once every three years the board of directors “shall cause to be conducted a reasonably competent and diligent visual inspection of the accessible areas of the major components which the association is obligated to repair, replace, restore or maintain as part of a study of the reserve account requirements of the common interest development.”

The board must conduct this inspection in good faith, and its failure to do so may be cause for removal of one or all directors or subject them to liability.

Any change approved by the board made for the benefit of a few board directors and not the entire membership would constitute a breach of duty and, if proven, could also result in individual liability for those directors who approved the change.

If the special assessments in any fiscal year total more than 5% of the budgeted gross expenses of the association, a majority of the titleholders must approve those special assessments.

Making the decision to buy a deed-restricted property requires pre-sale investigation. Do not rely on statements made by third parties, including salespeople, management personnel or board directors. Regardless of who makes the representation, each assertion must be independently investigated and verified in writing to your satisfaction. Any request for information made and not timely complied with is a warning against purchasing that property.

Questions can be sent to P.O. Box 11843, Marina del Rey, CA 90295 or e-mailed to [email protected].