Reader Questions - Assessments After Bankruptcy, Reviewing Contracts

Hi Kelly,

I recently got a letter from an attorney demanding payment of back HOA dues on a house that I left in 2008. We got hit hard by the recession and were forced to file bankruptcy. The attorney says I owe the dues from the time we filed bankruptcy until the bank foreclosed in 2011.

How can they just now demand payment with no prior notices or attempts to collect? To my knowledge there was never another lien filed or the new owners would have had to pay it I assume.

They want interest on top of attorney fees so the whole demand is for many thousands. I find the whole thing shocking. 

Thank you,

K.G., Coto de Caza

Dear K.G.,

An owner has two types of exposure for unpaid assessments. The association may make a claim against the property in the form of a lien, or it may pursue the owner for money damages, or both. One may move out of their property, but the assessment obligation continues as long as the property is owned. Once the property is foreclosed away by a senior lienholder (usually a mortgage lender), the ongoing obligation to pay assessments ceases.

A bankruptcy may wipe out liability for assessments prior to the bankruptcy filing, but the ongoing assessments after the bankruptcy is filed are not wiped out, pursuant to the Bankruptcy Code – 11 U.S.C. 523(a)(16).

See your lawyer to confirm the extent of your obligations – they may be more than you thought.

Thanks,
Kelly

Dear Kelly,

Hi, great column. Our HOA governing documents say that an owner can look at association “books and records”. Here’s the problem. Our board uses executive sessions to discuss contract matters, which I understand they can. But after they have entered into a contract they then refuse to let a member look at that contract. This applies to all kinds of written agreements they have entered into. They say they are following their attorney’s instructions.

Does a member have the right to look at those contracts?

D.W., Murrieta

Dear D.W.,

Under Civil 5200(a)(4), homeowners can review “executed contracts not privileged under law.” A privileged contract would be extraordinary – I do not consider even attorney fee agreements “privileged” as to members – so all but the most unusual contracts are reviewable by members upon written request.

Remember, when you review a contract, you should not intervene if you don’t like something in it – let the manager and board do their job. If you see a problem, let them know and let them handle it. Review, comment, but don’t act.

Many lawyers allow discussion of any contract issues in closed session. However, I think that is contrary to the statute and contrary to good association governance. Civil Code Section 4935(a) allows closed session discussion of the “formation” of contracts. “Formation” means negotiating the contract (discussing counter offers and legal contract terms), but NOT the selection of a vendor – that should be an open session topic. Although closed sessions are only for matters which truly need to be confidential, far too many boards, managers and lawyers allow all “contract issues” to be in closed session. So, they interview bidders, review proposals and discuss vendor selection all in secret… unnecessarily. Govern as much as possible in the open, to preserve trust.

Thanks for your question,
Kelly

Written by Kelly G. Richardson

Kelly G. Richardson Esq., CCAL, is a Fellow of the College of Community Association Lawyers and a Partner of Richardson | Ober | DeNichilo LLP, a California law firm known for community association advice. Submit questions to [email protected]. Past columns at www.hoahomefront.com. All rights reserved®.