Late Mailing Has Repercussions for Association Budget

Question: Our association’s fiscal year begins on Jan. 1. The legal documents say that the budget is to be distributed 60 days in advance of the fiscal year. The board of directors mailed the 2000 budget, delinquency policy and reserve study summary on Nov. 17, 1999, stating that Section 1365 of the California Civil Code permits mailing this information as late as 45 days before Jan. 1, superseding the covenants.

Some owners feel that the budget information was not mailed in compliance with the law and that the $10 increase in monthly assessments must be approved by the owners before it can be collected. Is this correct?

Can the association spend money without a properly approved budget, or must invoices wait until a budget is approved by the owners? Can the association follow the current budget until a new budget is approved?

Answer: California Civil Code Section 1365 starts out with the phrase, “Unless the declaration imposes more stringent standards. . . .”

Perhaps your attorney advises otherwise, but I believe the budget and other financial information should have been sent to the owners before the 60-day deadline.

Section 1366 states that increases up to 20% of the prior year’s budget can be approved by the board and must be distributed in a timely manner or else the increase must be approved by a majority vote of a quorum of the owners.

I firmly believe in abiding by the covenants and the Civil Code, but the board members thought that they were doing the right thing.

In this situation, an argument over the missed deadline and the cost of time and money for some owners to contest the validity or legality of the budget is counterproductive.

Remember, the board of directors is a group of volunteers who are serving because they were elected to represent all of the owners.

They cannot be experts in every aspect of the operation of the physical property and the association’s business. Sometimes they will make mistakes. When that happens, the other owners should be reasonable. It isn’t prudent to go to extremes and work against the board. After all, you should all be playing on the same team, working for the good of the association.

Whether the budget is proper or not, the bills keep coming in, and they must be paid on time or the association’s credit will suffer. If the association is forced to go back to the prior year’s budget, there may be a shortfall that would require a special assessment. One way or the other, the owners have to pay the costs of operating the association.

Will it benefit the association to force the board to put the 2000 budget to a vote of the owners? In my opinion, it isn’t necessary, but that may be the only way to restore harmony. Since a $10 increase seems reasonable, wouldn’t most of the owners vote for it? While the board is wrestling with this brouhaha, what other problems are they ignoring or putting on hold?

My suggestion to the board would be to decide quickly whether they are going to stick to their guns and keep the new budget, or organize a vote of the owners to approve it.

Once the question has been decided, how about putting the owners who are questioning the legality of the budget on the finance committee for next year with the goal of distributing the budget information properly? You may find that they would prefer to sit in the background waiting for someone else to mess up so that they can complain.

Association living would be so much more satisfying if people would have patience with one another. Bickering not only wastes a lot of time, it is also very detrimental to the association because it creates an atmosphere that discourages owners from serving on the board.

Fee Warranted for Overdue Assessment

Q: I live in a five-unit townhouse complex. Each unit pays a monthly assessment of $150. We try to keep our assessment collection on a personal, friendly basis.

One of our owners is often two to four months late in paying his assessment. Many reminders and phone messages have been unsuccessful in getting full payment. The rest of us are feeling very frustrated with the time and effort that it takes to collect from him. What action can we take?

A: With a small association, it is especially important for the owners to pay their assessments on time. When one owner fails to pay, the association has to delay paying bills or defer maintenance until the money is received. This can have a detrimental effect on everyone’s investment.

California Civil Code Section 1366 allows community associations to charge a fee if an assessment is more than 16 days late.

The monthly assessment is due on the first day of the month and delinquent if unpaid on the 15th day of the month.

Unless the association’s legal documents specify a smaller amount, you can charge the delinquent owner a late charge of 10% of the unpaid amount or $10, whichever is greater. You are also entitled to collect a reasonable fee for extra bookkeeping or extra notices that are sent.

Many other states have adopted the Uniform Condominium Act or the Uniform Common Interest Ownership Act with similar provisions for collecting assessments.

Read your association’s declaration of covenants, conditions and restrictions to find the enforcement procedures to collect delinquent assessments.

If the late charge specified in the declaration is less than the state law allows, then you must charge the lesser fee, unless you can justify additional collection costs.

The association can charge interest at the rate of 12% per annum if the monthly assessment is still unpaid 30 days past the due date.

The association can file a lien for the unpaid assessments and charge the cost of lien filing and other legal expenses to the delinquent owner. If the owner ignores the lien, the association can foreclose and take the unit.

The board should review the association’s legal documents and vote on the methods to be used to collect unpaid assessments.

If the association’s board of directors adopts a new delinquency procedure, all of the owners must be informed.

The association is obligated to distribute the written delinquency procedures annually to the owners during the 60-day period before the beginning of the fiscal year.

Consult a property management company, a lien service or attorneys who specialize in community association matters if you need professional guidance.

Always enforce your delinquency procedures fairly and consistently with all owners. When the delinquent owner is informed that your association will enforce its procedures and charge him for any additional costs, he may decide to pay on time in the future.

Jan Hickenbottom is a community association management consultant and a founding director of the California Assn. of Community Managers. She selects questions of general interest for the column and regrets that she cannot respond to all questions. Send questions to: Condo Q&A;, Private Mailbox 263, 4790 Irvine Blvd., No. 105, Irvine, CA 92620-1998.