Topic: Homeowners Association Law
Civil Code Section 5975(c) states: “In an action to enforce the governing documents, the prevailing party shall be awarded reasonable attorney’s fees and costs.” There are a few things to note about this statute. First, this only applies to an action to “enforce the governing documents.” If this is not an action to “enforce the governing documents,” this statute does not apply. Also, case law has established that a former property owner does not have standing to bring an action to “enforce the CC&R’s” and therefore will not be governed by this section. Farber v. Bay View Terrace Homeowners Association (2006) 141 Cai.App. 4th 1007. While most property owners assume that they will be the prevailing party, there is a chance that they will not be the prevailing party. In that case, the property owner may have to pay the association’s attorney’s fees.
Aside from the statutory provision allowing recovery of attorney’s fees, frequently there is an attorney’s fees provision in the CC&R’s. Sometimes, particularly in older CC&R’s, you see a provision that says that the association shall recover its attorney’s fees in any action against the owner, but does not provide any reciprocity in the case where the owner prevails. Under Civil Code Section 1717, such a one-way attorney’s fee provision is interpreted to be reciprocal.
The CC&R’s may contain a surprise called a reimbursement assessment. Usually the reimbursement assessment is written very broadly to the effect that if the association incurs any expense whatsoever in connection with any dispute with a property owner, whether there is litigation or not, the association may impose a reimbursement assessment against the property owner for the expenses incurred by the association. Thus, if interpreted literally, this means that if you communicate with the association’s attorney on behalf of the property owner and cause the association’s attorney to write a letter back to you responding to your letter, the association may assess your cl ient, the property owner, for the association’s attorney’s fees under the reimbursement assessment provision of the CC&R’s. I have litigated this issue in a case in the San Diego Superior Court. I argued that the reimbursement assessment should not and cannot be applied to the issue of attorney’s fees because it is contrary to the statutory intent behind Civil Code Section 1717 to provide that attorney’s fees can only be awarded to the prevailing party. I obtained a preliminary injunction to prevent the association from enforcing the reimbursement assessment based on attorney’s fees until the conclusion of the litigation. This is not to state that there is no legitimacy whatsoever to a reimbursement assessment. A reimbursement assessment may be appropriate in a case where a property owner causes damage to the association’s common area. For example, if a property owner drives his car into the association’s fence and destroys the fence, the association should be able to use the reimbursement assessment provision to impose an assessment against the property owner for the cost of repairing the fence.
There is another issue that arises in connection with litigation over an assessment arising from litigation. Suppose the property owner wins the lawsuit and recovers $1 million dollars (most or all of which is attorney’s fees) against the association, which has 100 homes. The association does not have $1 million dollars or any other funds available to pay the judgment. There is no available insurances. So the association imposes a special assessment of $10,000 each against each prope1ty owner in order to pay the $1 million dollar judgment. Is the prevailing party plaintiff, responsible to pay the $10,000 special assessment which arose because the plaintiff prevailed in litigation against the association? I have litigated this issue once and convinced one Orange County Superior Court judge that such a special assessment should not be imposed against the prevailing party plaintiff in a homeowner association case. However, there is no appellate court law on the subject. Certainly, another judge could decide the case another way.