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socrateaser
socrateaser, Lawyer
Category: Real Estate Law
Satisfied Customers: 37960
Experience:  Attorney and Real Estate broker -- Retired (mostly)
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My condo is in escrow and the HOA introduced a letter into

Customer Question

My condo is in escrow and the HOA introduced a letter into my escrow stating that there is hard surface flooring "throughout my unit" that is in violation of the CC&Rs. There is in fact a few feet of tile adjacent to my kitchen that is in violation (disclosed to the buyer and currently covered by a pad and area rug) however the entire unit is not in violation as stated by the letter. Many units in my complex have closed escrow in the past with egregious violations - and to my knowledge and to my real estate agent's knowledge, this is the first time that the HOA has introduced a letter like this into escrow. The HOA did not notify the homeowners in advance that they were planning to begin addressing violations during escrow.
In addition through the escrow process it was discovered that there is a lawsuit against the HOA that has not been disclosed to the homeowners. If my buyer's lender decides not to fund her loan due to the aforementioned issues and the deal falls apart, do I have any potential recourse against the HOA? Thank you!
Submitted: 1 year ago.
Category: Real Estate Law
Expert:  socrateaser replied 1 year ago.

Hello,

Though you may not realize it, you are asking a very complicated question, the answer to which is not entirely certain, due to the lack of dispositive case law. Please bear with me, because there is no easy way to simply my answer.

Enforcement and Abandonment of CC&Rs

California law provides that a restrictive covenants, such as architectural controls may be lost by the HOA under the doctrine of abandonment. This doctrine holds that where a change in the community is so widespread that it evidences that the association has chosen to abandon the covenant, the courts will refuse to enforce the restrictive covenant. See generally, Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1356, 1380.

You would have to show that there are numerous, perhaps even a majority of units with similar flooring conditions, and that none of these property owners have been required to remedy the violation. This isn't a particularly easy proof, because you would need a court order to enter into and inspect literally every individual unit in your building. But, this sort of thing has happened in the past, so it's legally possible.

Litigation Disclosure

Concerning the pending lawsuit, the California legislature has never provided a general statute to require HOAs to disclose pending litigation, except in narrow circumstances, not applicable to your question. The HOA does have a duty, under well-established accounting practices, to disclose litigation which may have an unfavorable outcome, as part of its annual report.

There is a case law that provides a general duty that the HOA must disclose material facts to association members. Ostayan v. Nordoff Townhomes Homeowners Assn., Inc. (2003) 110 Cal.App.4th 120. However, there is also a statutory litigation privilege that protects the HOA from legal action where such disclosure occurs. Civil Code Section 47(b). The combination of these various duties suggests that if the HOA were to disclose, you would have no recourse, but by failing to disclose, you may have an action against the HOA for breach of fiduciary.

Conclusion

The short answer to your question is that you would have a better claim for covenant abandonment, than you would have for breach of fiduciary -- only because the law surrounding the latter is so ambiguous. Were I representing you in court, I would sue for both claims, and I would add "interference with prospective economic advantage," which is a claim that the HOA has taken an action to damage your interests in the sale for an improper purpose (retroactive punishment for the flooring violation).

The bot***** *****ne is that you may be able to encourage the association to back off via a letter from an attorney, suggesting that the HOA may be exposing itself to very substantial litigation, if your sale falls through. However, the cost of such litigation may not be worth the benefit. And, in fact, you may be better off lowering your sales price somewhat to induce the buyer to purchase, than to fight this battle in court or arbitration.

Certainly, the idea of losing money in the deal is not appealing. And, while you may be able to recover your litigation costs from the HOA if you prevail, the dispute could persist for a long time -- and in the meanwhile, you will have expended your money on legal fees, instead of something more enjoyable.

I realize that my answer may not be exactly what you were hoping to read. However, under the circumstances, the best that I can do is to explain what the law is and is not, so that you can avoid expending valuable resources looking for answers that do not exist, and concentrate on the options that are actually available.

I hope I've answered your question. Please let me know if you require further clarification. And, please provide a positive feedback rating for my answer -- otherwise, I receive nothing for my efforts in your behalf.

Thanks again for using Justanswer!

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