HOA Holding Up My Escrow over Legal Fees

I filed a lawsuit against my HOA for violating the Davis Stirling Common Interest Act. They assert they are not subject to the law, and have gone through the CC&Rs and deleted anything referring to the law, without consulting the membership and without a quorum, and refiled them in Riverside County.

In the meantime, I had a house fire, the burnt out house was properly demoed and I sold the vacant lot for $34K. We haven't been to court yet, regarding the DSA violations, there is no ruling, no judgement or liens on my property, nevertheless, the HOA is demanding $12K in legal fees in order to allow escrow to close. They have never presented me with a bill or an invoice for their legal fees, and the case hasn't been dismissed yet, due to my lack of standing, because I am still the owner of the property until escrow closes.

Does the HOA have the right to demand these fees without a lien or a judgement, and hold up my escrow?

No, the HOA isn't asking for anything related to the fire. Because of the fire and the expense of rebuilding, I decided to sell the vacant lot. Once the sale goes through I won't have legal standing to take the HOA to court, as I won't be an HOA member anymore, the case will have to be dismissed.

Anticipating that, the HOA is demanding that I pay the legal fees that incurred to launch a defense against my lawsuit against them for violations of and the rejection of the Davis Stirling Common Interest Act before they allow my escrow to close.

Normally the prevailing party is awarded legal fees, but in this case there is no prevailing party.

Your two issues are related, your attorney should advise not to dismiss/withdraw the lawsuit until he/she has negotiated a "without prejudice" dismissal/withdrawal, if successful in negotiating without prejudice, they cannot come after you for fee's and you still have the right to reopen the complaint.

If negotiations fail. Your attorney needs to file another lawsuit in form of an injunction and have a court decide on if the legal fee's are valid. In almost all cases, legal fee's are shared amongst the homeowners.

Are you sure you have a competent attorney that has experience in HOA's and corporate law?

As for the illegal CC&R's amendment, was this the builder that had them changed?

"As for the illegal CC&R's amendment, was this the builder that had them changed? "

No. The membership voted to be a common interest development subject to the Davis Stirling Common Interest Act in 1998. In 2017, an unelected, self appointed board decided they didn't want to be subject to that pesky law, so they stripped any reference to the law from the CC&Rs, and without a quorum and without notifying the membership or getting their consent they filed the revised CC&Rs with the county.

I and my attorney, who owns 30 homes in the development, filed for injunctive relief. The HOA is dragging their feet and demanding all kinds of discovery before we actually see a judge. Due to the expense of depositions etc., the case is stalled.

It's usually the other way around, the plaintiff usually proceeds with discovery and the defendant usually drags their feet on providing discovery. Like I stated, your attorney needs to start negotiating with the HOA and possibly the insurance if they are involved.

Wendy, HOAs (like most people) get mad when they're sued. They're just being vindictive.

Can your lawyer re-file the complaint and now include additional grounds that would be grounds to make the directors personally liable? Isn't wrongfully blocking the sale by wrongfully demanding legal fees an additional tort that you can sue for?

I'd try that. If they want to up the ante, do the same.

I'm with Cathy and LetA - you need to be discussing all this with your attorney. We live in different states and aren't attotneys, and it's not a good idea to get legal advice on something this involved from the internet

This excuse is used a lot. I don't think removing civil law codes constitutes typos. I'm surprised the court clerk didn't say anything. But your CC&R's have been around since 1998? So the excuse to change them now due to a typo is a bit weak. Your lawsuit appears to have been the deciding factor.

I agree that, from what has been presented here, it's as likely the Plaintiff is in the right. Before the fire, the HOA may have been using its corporate wealth and insurance to prolong the lawsuit to try to intimidate the plaintiff into cutting her losses. So even if the Plaintiff is in the right, (small town) corporate America may be able to mop the floor with her.

Wendy, is the HOA's insurer providing the attorney for the HOA's defense? Per chance, is there a hammer clause? At this point, I kind of doubt it. Still, if the HOA's insurance policy has a hammer clause, this may be in your favor. It means your attorney can talk to the HOA's insurer-provided attorney in a rational, bottom line, way. The insurer is a third interested party in this conflict, and it may have a lot of sway.

"Wendy, is the HOA's insurer providing the attorney for the HOA's defense?"

I don't think so. They declined their request when this was in Small Claims, (dismissed without prejudice because Small Claims wasn't the proper venue, once they changed the CC&Rs) before we filed for injunctive relief.

The insurance company won't defend cases where the defendants are willfully in violation of the law, in this case, the board is willfully violating the Davis Stirling Act.

... and I gather one reason the Board is ignoring your complaints and has no hearing policy is because it claims the HOA is not subject to the Davis-Stirling Act. If the HOA is not subject to Davis-Stirling, then IDR, followed possibly by mediation, is not required. Also Davis-Stirling Section 5975 would not apply. This means the HOA is on weak ground when it comes to demanding attorney's fees. Even if a lawsuit goes forward, and the HOA wins, the courts rarely award attorney's fees to the prevailing side unless a statute authorizes it.

Given everything, consider asking your attorney about mediation. E.g. your attorney could ask the HOA for mediation. If this fails, then your attorney could ask the court to order mediation. The HOA can always say no, but subsequently the judge is going to be a tad annoyed with the HOA, for wasting court resources.

Requesting mediation is a great idea! I'll ask my attorney about that.

The HOA must have a pretty ratty attorney to be making an argument like that. That's pitiful and doesn't even seem like a serious legal position.

Hi Richard.
I lost my computer in the fire, and most of my screen names and passwords with it, so I had to sign in with a new account. Otherwise, I would have continued on my original thread. But, I couldn't find it.

UPDATE: My attorney was finally able to speak to the HOA's (new) attorney, and he was unaware of this issue. Hopefully, we'll have something resolved by Monday, or not. The funny think is their attorney is from the law firm that specializes in Davis Stirling and hosts most of the Davis Stirling web pages!

I remember this well. Yes, based on the documents, the association is subject to the Davis-Stirling Act of California Civil Code. If they have a management adding these legal fees, they would be in for big trouble, IMO.

Wendy, does your HOA own any land (a.k.a. "common area")? See https://www.hoalawblog.com/not_every_homeowners_associati/

The demand for legal fees is nullified unless there is a judgement on the title report, which I am assuming there isn't.

Each incorporated entity must file Statement of Information with the Secretary of State. In this instance, this HOA, which happens to be a mobile home park, filed a SI-CID form and checked off the box saying they were a Common Interest Development, signed by the agent THE attorney in question.

The California case law articles I linked indicates that a HOA is not subject to Davis-Stirling when it owns no "common area." If in fact this HOA has no "common area," then I think this case law may easily trump (a) this filed "Statement of Information"; (b) the governing documents stating the HOA is subject to Davis-Stirling; and (c) a vote by the residents to make the community subject to Davis-Stirling.

The case law articles I linked talk about what "common area" means when it comes to determining whether the HOA is subject to Davis-Stirling. Here's the court's actual ruling in one of the two major cases on the subject: https://law.justia.com/cases/california/court-of-appeal/4th/59/885.html

If it is a subjective issue, and given the general loathing for HOAs, I can understand how a HOA, with questionable "common area," would perhaps fight tooth and nail not to be subject to Davis-Stirling.

I think this HOA's strategy is to never get a judgment from a court, via burying the OP and her attorney in paperwork and delays. The HOA may agree to a settlement to get this member out.

Hi Wendy
I'm struck by the fact that your attorney owns 30 units in your community.

1. Is he a named Plaintiff in the lawsuit?

2. How many other owners are Plaintiffs?

3. How many units represented in the lawsuit and how many total in the community?

This is not a class action suit. It's just me, represented by my lawyer, who obviously has a vested interest in how the property is managed.

A lot of homeowners are eagerly waiting for the outcome of this case, so that they can claim the common area part of their lot as their yard, fence it in and have a 5 feet deeper yard space. The HOA isn't keen on letting homeowner do that though, and have forbidden any fencing blocking the "common area" of the walkways.

We have been trying to settle for a few months now. They just keep upping the ante, like this latest surprise of adding $12K in attorney fees to the escrow demand.

I believe the CC&Rs explicitly declaring something like, "This HOA is hereby subject to the Davis-Stirling Act, California Civil Code 4000 to... ", has no bearing on whether the HOA is subject to the Davis-Stirling Act. What does determine if the HOA is subject to the D-S statute is, for one thing, whether the HOA meets the requirements as given in the statute. In particular, Section 4175 states:
---
“Planned development” means a real property development other than a community apartment project, a condominium project, or a stock cooperative, having either or both of the following features:

(a) Common area that is owned either by an association or in common by the owners of the separate interests who possess appurtenant rights to the beneficial use and enjoyment of the common area.

(b) Common area and an association that maintains the common area with the power to levy assessments that may become a lien upon the separate interests in accordance with Article 2 (commencing with Section 5650) of Chapter 8.
---

If either (a) or (b) is not met, then there is no "planned development" and other sections of the statute say the statute therefore does not apply. This is per the case law I linked above. It makes sense: No "common area," then no "common interest" exists. The statute was written for communities with a "common interest" based in a "common area."

Nor can a membership vote cause the Davis-Stirling statute verbiage just go away. A community cannot just vote to become subject to D-S. The community has to meet certain requirements, as laid out by the statute itself.

Your community may or may not qualify as a D-S "planned development." I would have to study your governing documents a lot more. Then case law. The practice within your community over the years might come into play as an indication of whether the original developer's intent was to make the walkways, "common area." Hence the massive discovery.

I hope your attorney principally addressed the above D-S verbiage (about what "common area" is) in the filing he made on your behalf. I could be wrong, but I get the feeling he did not explain to you on what much of this lawsuit will hinge.

Title is held as a Planned Unit Development (PUD) and that document is recorded.

If what Richard and Augustin say are correct, the $12k in fees is small potatoes. I'm going to guess that they have adequate documented support for those expenditures and those expenditures are on this lawsuit. They would be fools to claim legal expenses that don't apply.

I am troubled by the fact that, even before the fire, your attorney was 30x more likely to benefit than you from the outcome if you won, but he is not a co-plaintiff and therefore, you are solely liable if things go against you.

In your shoes, I would go to an independent lawyer to discuss the position that your "lawyer" put you in. Why should you be left holding the bag when he benefits more than you from the outcome? Maybe he should replace you as the plaintiff? Maybe he should put up a bond to cover the HOA's legal fees so that you can get your money and move on? Maybe the threat of a complaint against him to your state's bar association will get him to start thinking about his "client's" best interest instead of his own?

This is especially unfortunate for you, since the value of the asset you're left with after the fire is nowhere near what your lawyer's 30 units are worth. Find a lawyer who doesn't mind taking action against another lawyer and at minimum get yourself a consultation with that new lawyer.

I understand that your focus is on the behavior of your BOD. You're personally invested in that lawsuit, and it's grinding on you. Maybe you should shift some of that grind to your supposed lawyer. No matter what happens at the HOA at this point, the BOD's prior behavior shouldn't be your concern anymore. Let it go. Protect yourself as best you can financially. Talk to someone who will only be thinking about how to get you out of this jam at the least cost to you.

Best.