What is an HOA and What Power do They Have?
Homeowners Associations (HOAs) are private housing communities that establish and enforce rules and regulations for residents. Typically, your HOA will have regular meetings, hold periodic elections for the board , and elect board members who will create the governing documents that serve as a contractual agreement between the HOA and the homeowners. As part of its contract with the community, your HOA is legally entitled to assess fines for any infractions of the governing documents.
What Legally Allows an HOA to Fine?
There are two primary governing documents that can provide the legal grounds upon which many HOAs can impose fines. The first is the CC&Rs (Covenants, Conditions & Restrictions), and the second is the bylaws. However, not all HOAs will impose fine penalties within these documents. Sometimes HOAs will impose fines in accordance with rules that have been adopted by the Board of Directors or by a vote of the members.
The CC&Rs typically outline what is required of the residents, what is prohibited, and what is permitted. The CC&Rs may also outline what actions the Board may take when residents are in violation of the CC&Rs. When describing the actions the Board may take, the CC&Rs may state that the Board can levy fines or charge for a specific amount when a violation exists. In that case, the CC&Rs would act as the legal basis for imposing fines.
Another place where HOAs may find legal grounds to impose fines is in their bylaws. The bylaws are the rules and regulations adopted for administering the day-to-day business of the HOA. Bylaws will also outline enforcement powers if fines are to be levied.
If the bylaws grant the Board the right to levy fines that grant the Board discretion over how much to levy, those provisions would be considered to be the legal grounds for imposing fines. Just like the CC&Rs, if the bylaws specify that fines can be for specific amounts, then the provisions would be considered legal grounds for fining. However, the bylaws cannot be broadened to allow fining by reference to the provisions of another document, such as the CC&Rs.
HOAs can also look to the California Civil Code sections 5850 (and sections 5900 et seq.) for additional legal grounds for fining, but these sections would apply only to the imposition of delinquent payment assessment liens. While the statute allows the HOA to impose a fine whenever "the assessment lien has attached to the real property," and that the HOA can charge a specific amount for these assessments, if the CC&Rs or bylaws are silent, then this provision may not be relied upon to impose fines.
Lastly, the power of the enactment of fines may be explicitly granted to members by the CC&Rs if they are in agreement to impose fines by means of their voting rights on the issue under a member’s right to approve amendments.
Most Common HOA Fine Reasons
While there are a number of offenses that may be subject to fines, we see a lot of duplication in what associations tend to do. Maintenance issues not taken care of in a timely way so the home or common areas look neglected and may decrease property values are common reasons for fines. Poor yard maintenance, excessively high grass and weeds, garbage/residuals, and animal complaints are both maintenance and violation matters. HOA rules (CC&Rs) will typically spell out what constitutes maintaining the yard, appropriate fencing, the size and style of the fence, and guidelines on when repairs need to be made. Noise violations are another area discussed quite often. Some associations have adopted "quiet hours" and some have simply adopted "no noise" provisions requiring residents to be considerate of their neighbors and limiting use of loud speakers, amplifiers, musical instruments, and other sources of noise. Keep in mind that in order to prevent HOA unenforceability, the enforcement of such rules needs to be "reasonable" in nature. Alterations are another big reason why homeowners may receive fines. Often for alterations put in without approval or reported late to the association. These rules should be clearly defined so that homeowners know what the rules are. Examples include structural and accessory improvements to the landscaping, fences, decks, gazebos, patios, room additions and other improvements. Many associations have rules to contact the Board prior to making alterations. Generally, if the alteration obstructs views or access, interferes with the quiet enjoyment of the neighbors, or jeopardizes safety, then it should be requested to be removed. Restrictions expressed in these rules or CC&Rs should be interpreted reasonably, as well. Typically, the restrictions should only apply to the common areas of the property and not the inside structure.
Challenging an HOA Fine Legally
Although Rule 30(b)(6) depositions of the association board and manager can reveal that an association has not properly adopted or consistently been following their own procedures for imposing fines, notice, hearing, and due process, even if you have not obtained such evidence through discovery, the law provides other ways to challenge the imposition of fines against owners: The Davis-Stirling Common Interest Development Act ("Davis-Stirling") provides an internal dispute resolution process for HOAs that is intended to be prompt and cost-effective. For instance, Civil Code §5900 provides for an association’s meeting with an owner to address any dispute involving their membership and/or the management of the development, as follows: (a) Any member of an association may submit a dispute concerning the rights or responsibilities of the association or a member of the association arising under the governing documents or the Civil Code (commencing with Section 4000) or any other provision of law relating to the administration of the association or the rights or responsibilities of the members of the association to the association for internal resolution under this article.
House Bill 2237, which was signed into law on October 9, 2007, added Civil Code §5910 which refers to the internal dispute resolution procedure set forth in Civil Code §5900: The internal dispute resolution procedure shall meet all of the following requirements: (a) (1) The procedure shall provide for a meeting between the member and a member of the board or designated committee of the board. (2) The member and the association shall attempt to resolve the dispute at the meeting.
The foregoing indicates that an owner should at least try to resolve a dispute under Civil Code §5910 before the association can commence litigation to impose a fine.
Also in 2007, the Legislature added Civil Code §5930 designed to provide an alternative pre-litigation procedure requiring mediation and, if mediation fails, a meeting of the board with the owner before the matter can be submitted to the small claims court for determination.
However, assuming that Rule 30(b)(6) depositions of the association board and manager reveal that the association has not followed proper procedures for imposing fines or for determining whether the fine had a reasonable basis, then the HOA will be hard-pressed to defend their fine. For example, if the manager and/or board cannot offer any evidence that the rules were properly adopted, or if the manager and/or board do not even know what the rules are or what fines have been imposed, it is highly unlikely that a court will find the fines to be valid.
Consequences for Not Paying HOA Fines
The HOA may also seek to suspend the owner’s right to vote, run for a position on the board, or run for any other office within the HOA. When an owner challenges an assessment or a fine by the HOA through either an internal complaint process or a complaint filed with the Ombudsman, the HOA is barred from taking these actions unless the challenge is determined to be frivolous . That challenge is frivolous if the claim is not grounded in fact or law or it is not warranted by existing law or by a good faith argument for the extension, modification, or reversal of existing law.
Ultimately, refusing to pay HOA fines may result in some unpleasant consequences, including further legal action, liens on property, or other penalties.
Your Rights Against Unfair Fines
In navigating the HOA system, the homeowner certainly has some rights. If those rights are violated, there is a way to protect yourself against any arbitrary fines that the HOA may try to enforce. This is not an exhaustive list or limit of what rights you have as a homeowner, but important steps to keep in mind if a fine is levied against you, the HOA tries to foreclose on your home, or they simply want the dues re-established at a different amount.
The best way to protect yourself is to know your rights. Now, even though my firm wishes we could be your HOA attorneys, we also understand and strive to help you. Find out what rights you do have. Know what rights were violated. Perhaps the HOA modified the fines or amended the rules, and did not give you any notice. Know your rules, the procedural requirements for modifying any rules, or why this is unfair. Once you know your rights, ensure that you attend the next HOA meeting, take notes, or hire an attorney to write the HOA a letter notifying them of your objections to the fine. The next step is to set up a meeting outside of the HOA meeting. This can be something as formal as a request for a formal hearing or something as informal as just requesting a formal meeting. Take that meeting and present your case for why you should not be punished with the fine or for how much you think the fine should occur, i.e., why 3% is too much, and you would like for it to be reestablished at 1%, with intent and correctness. If the HOA continues to issue fines after you have addressed the issue, and you have complied, again, notify them in writing. Formalize everything, get the notice down in writing.
If they are trying to foreclose on your home, you need to consult an attorney right away. There are ways to stop an HOA from foreclosing on your home. Your legal attorney will know how to stop that foreclosure and warn them of upcoming lawsuit. Generally, they do not want to continue down the long path of litigation. The HOA will back off once they realize that you are aware of the law and are not afraid to pursue the law against them. If you believe that the HOA is collecting dues that are improper, this is another way to find an attorney to help you. An attorney is required to serve the HOA by certified mail and not through electronic means or by showing up at a meeting. By being served in writing, you can move forward and sue the HOA for violating your rights as a homeowner in North Carolina. The statute of limitations is three years, but the statute of limitations is extended if they do not give you notice of the proper dues that are owed. You need to know if the dues are improper, and the only way to know this is through an attorney. You start adding an attorney to the number of dues the HOA is already claiming you owe, and this adds up quickly. Again, never hesitate to call an attorney. Even if you believe that your rights are violated under the Community Associations Act, whether it be with letters of violation, or fines, or if you have not received a timely hearing, an attorney can help you comply with the limitations on the HOA and mold within the Community Associations Act so that you are protected at all costs.
State HOA Laws Regarding Fines
The impact of state laws on HOA fines and penalties cannot be understated. The legal framework in which a community association operates is a direct function of what its state legislature has enacted as either statute or common law precedent by the courts thereby impacting practically every aspect of the enforcement of covenants and restrictions. As such, knowing your state laws and how they impact your HOA is a critical component of the fine imposition process. While some states lend themselves relatively leniently to fines, regulating only the frequency of due process hearings, others have specific statutory limitations on the amount of fines that can be issued, and others have totally prohibited fines as a discipline debate. With relatively few exceptions such as California, Massachusetts, and New Hampshire, the vast majority of states are silent on the subject of fines , basically leaving it to the governing documents of each particular community association to dictate the fines process and how it is implemented. Some states have adopted the "liberal rule" which basically holds that that an owners’ monetary obligation is limited to that which is defined in the covenants, or $200.00 per month (or a smaller cap if the CC&Rs’) and so fines beyond that are unenforceable as law. (See Gallagher v Henson’s Cove [Tenn] 1988). The state of Washington adopts the "strict rule" and while a monetary obligation is indeed a function of the CC&Rs’, it has not specifically limited fines, making fines beyond that cap, at least arguably enforceable. For example, Alaska’s statute regarding HOA fines is more straight forward than Washington’s as it states that any fine must be levied in accordance with their CC&Rs’, but has enacted legislation requiring proceedings be brought in a court of competent jurisdiction for amounts over $500.00 and penalties for up to $200.00 per month on each violation of a restrictive covenant but not more than $2,000.00 total per violation. (See Alaska Statute 34.03.310)