HOA fees not being used as promised

I live in Utah. About 5 years ago when I was on the BOD we increased fees by $10 per month, from $125/ month to $135. The increase was to cover earthquake insurance on the community. The cost came to $8 per month per unit (88 units) and the extra $2 would be put in the general fund. Although we did not need to, we had a vote of homeowners about adding the Earthquake insurance and the additional $10 fee. It passed. Many people felt that the Earthquake insurance was an added benefit for such a small fee.

About 2 years ago, the current BOD cancelled the Earthquake insurance (EI), yet they did not inform the community about this change and they kept the $10/month increase in place. When asked about why they cancelled the insurance without informing the community, they state "because we can." Their reasoning is that the EI was getting too expensive.

Can they "legally" keep the increase in place since it is no longer being used as it was intended and voted for by the members? By the way, this new BOD has increased the fees from $135 to $175 in less than 1.5 years, all the while decreasing the amount spent on landscaping, trash collection, snow removal but paying for a not-needed clubhouse remodel and implementing outrageous new "clubhouse rental" fees.

It would have been a good idea to ask homeowners if they were OK with an increase big enough to keep the earthquake insurance.

Not "illegal"- ill-advised, perhaps. Don't bother calling the sheriff.

So ... If there is an earthquake is the HOA gong to be responsible for all repairs? If you put something to the vote of all homeowners and they all agree to pay for said benefit should they not be informed of changes to the benefit? ... The HOA in essence has denied the owners the benefit they agreed to pay for and if their is a loss in value when owners were not informed of any potential change so they could obtain said insurance on a personal basis ... the question would be who is responsible for any loss?

My personal question is has your area in the state of Utah ever had an earthquake? Not sure on a personal level why you would want this type of insurane.

> So ... If there is an earthquake is the HOA gong to be responsible for all repairs?

If financially feasible the HOA would rebuild and assess the owners. (They would also assess the owners for the deductible on earthquake insurance if there was a claim. When I lived in CA, I learned that the deductible on earthquake insurance is very substantial.)

> If you put something to the vote of all homeowners and they all agree to pay for said benefit should they not be informed of changes to the benefit?

Definitely. This is why I say cancellation was improper. However- if in the minutes- that could be considered notice.

> ... the question would be who is responsible for any loss?

The only responsible party besides the HOA is the directors. The question is whether dropping insurance is reasonable under the business judgement rule.

I can imagine a case where there is earthquake damage...it doesn't exceed the typical large deductible...but homeowners still out a pile of money.

Ok... i'm attempting to answer all the questions posed

JohnC - No the vote was not binding. Yes I know fees need to be increased but many people see a fee increase twice in 8 months as suspect especially when they are remodeling a clubhouse that was only 9 years old and still in very good shape.

JanetB - The earthquake insurance would cover up to $10 million in damage. It wouldn't cover everything, and yes there was $5,000 deductible. But because the homes are all stucco and the HOA is responsible for everything that isn't nailed down in the house, the EQ would help cover costs. Even with a minor earthquake there could be major damage. We live right on the Wasatch Fault, a major fault line in the US, plus the valley is built on an old lake bed (Lake Bonneville) When there is an earthquake there will be a liquefaction factor in addition to the dropping of the entire east side of Salt Lake. While there hasn't been the "big one" for years, the faults in Utah are very active and we have many minor ones on a daily basis (http://earthquaketrack.com/r/utah/recent). We got the insurance when we started noticing many large earthquakes happening throughout the world. We felt that with all the activity happening that it might be prudent to cover our costs. An individual homeowner could not get EQ insurance on their own, as the buildings are covered by the HOA. If there is damage and loss and the HOA couldn't cover it, the homeowner would be 100% responsible and it is likely that their regular insurance would not cover it since EQ insurance is a separate cost (similar to flood insurance).

GlenL - we are an HOA that is private. We would have to pay for all the repairs to the roads, sewer etc. It is not required in the CC&Rs, we just thought it would be an added benefit for the minimal cost of $10/month per unit. And it was a bargain. Yes, we have a reserve study, per Utah Law. Our reserves are woefully underfunded. That is why the board canceled the EQ insurance, saying that it is going to reserves. They are also stating that all fee increases are going to the reserves. Yet, as they increase the reserves, they are also spending the reserve on an unnecessary remodel of the clubhouse. There are other items (like redoing the cement on the sidewalks and driveways, painting, roof repairs) that the money could have and should have been used on.

In California, earthquake is not required unless it is so stated in the governing documents. IF, an Association, through its Board went out and purchased earthquake insurance, then, in California, it is required that the membership vote to discontinue the policy.

You're lucky, you only have a $5,000 deductible. In California, on a $10M policy the minimum deductible would be 10% and typically would be in the neighborhood of 20% or $200K.

If the price was right, it might be a small price to pay for a little extra security, although I can't recall any earthquakes in Utah causing measurable damage.

Say, Richard, I checked at davis-stirling.com, Insurance, Earthquake Ins. Menu, and those CA HOA attorneys recommend putting the cancellation of EQ insurance to a vote of the membership to avoid liability issues. But they do not say that such a vote is required.

Our PM polled about 15 urban high rises in our city about EQ insurance. One had it because their CC&Rs required it. Two had plate glass insurance for the units and common areas. We surveyed our Owners with a US mail questionnaire and of 211 residential owners, only about 35 replied and 80% of them did not want our HOA to buy such insurance both because of the cost and the very high deductible.

Is your Noard actually remodeling the clubhouse or redecorating it?

If your co-owners are as unhappy with the current board as you are, per my waaaay above and Ann--give 'em the boot! And become involved again

I am not a believer in EQ insurance, because it's generally cheaper to pay for the event after it happens, then carry coverage before the event occurs.

Not giving anyone ideas, but, have an association that didn't have and after the 94 Northridge quake took out a SBA loan to cover damage. With interest and over 30 years they will have paid $2.9M. If they carried coverage for the same period, the premium would be $4.3M, not counting 20% deductible.

Kerry you're right a H/O vote isn't required but H/O notification is:

California Civil Code Section 5810

Legal Research Home > California Laws > Civil Code > California Civil Code Section 5810

5810. The association shall, as soon as reasonably practicable,
provide individual notice pursuant to Section 4040 to all members if
any of the policies described in the annual budget report pursuant to
Section 5300 have lapsed, been canceled, and are not immediately
renewed, restored, or replaced, or if there is a significant change,
such as a reduction in coverage or limits or an increase in the
deductible, as to any of those policies. If the association receives
any notice of nonrenewal of a policy described in the annual budget
report pursuant to Section 5300, the association shall immediately
notify its members if replacement coverage will not be in effect by
the date the existing coverage will lapse.

But that neither helps or hinders the OP as she is in Utah and not subject to CA statutes.

True, Glen. Sometimes, though, folks want to know how things are done in other states and there also may be some lurkers who're from CA who'd want to know this info.

I've seen a city offer up a Levy for the schools and once they got it they just placed it in their general funds and built a recreational center with it instead and stated it was the city money now and they did what they wanted with it. Nothing new here move along.

The current board may do what it wishes under its command but residents deserve continuity and precedence no matter what board is currently sitting. Otherwise, there will be another rate hike to cover insurance and the previous insurance revenue is redirected. It's called discipline.