A. The BOD has a fiduciary duty to all homeowners to investigate alleged defects and
pursue claims for construction defects; if not, they can be sued by the homeowners. CAL.
CIVIL CODE §1365.7.
1. Homeowners have three years to sue their board for breach of fiduciary duty and
negligence for failing to timely pursue a construction defects lawsuit against the
developer of the project. Smith v. Superior Court, CA 3d 950 (1990)
B. California Corporations Code §7231 Imposes Further Obligations:
1. Good faith, after reasonable inquiry
2. Not wanton, willful, grossly negligent
3. To maintain liability insurance
C. Limits to the BOD Liability: CAL Corporations Code §5047.5
1. A director or officer who serves without compensation for a non-profit corporation
may not be sued for negligence if his acts or omissions occur within his duties as a
director acting as a board member. The board member must, however, meet the requirements
of §7231(Business Rule)
2. Gross negligence
3. Offer of proof (certificate)
D. Repair and Maintenance: CCP §1354(a)
1. An HOA, acting through its BOD, is responsible for repairing and maintaining the
common areas, except exclusive use common areas.
2. The owner of each separate interest is responsible for repairing and maintaining the
common areas, except exclusive use common areas.
3. Any claims of negligent maintenance as contributing to common area property damage is a
set off.
E. BOD's Can and Do Have a Sole Obligation To:
1. Decide to pursue litigation (CCP 383),
2. Raise assessment, pass assessments (Civ. Code §1355), or borrow from reserves to pay
for litigation costs and experts (Civ. Code §1365.5, 1366),
3. Settle the case,
4. And then implement repairs (Civ. Code §1364).
F. NEW: Stipulated Settlement Agreement CCP § 664.7
1. Provides for judgement in a stipulated settlement agreement in a construction defect
action wheere the persons either stipulate personally to settlement (in writing or orally
before the court), or where a party's contribution to settlement is paid on its behalf by
its insurance company.
2. The parties may then stipulate through their respective counsel, in a writing for
settlement of the case.
3. The parties may also request that the court retain jurisdiction over the matter to
enforce settlement until performance of the full terms are made.
F. Civil Code Section 1368: Disclosure of Defects to a Prospective Purchaser
1. Section 1368 of the civil code is amended to require disclosure to prospective
purchasers and homeowner members of defect lists and details of any settlements reached
with the developer.
2. Under 1368(a), the owner of a separate interest must now provide a prospective
purchaser:
A. A copy of the preliminary list of defects under cc 1375, where there has been
no settlement, and
B. A statement that a final determination as to whether the list of defects if
accurate and complete has not been made.
3. 1368(b) also requires the association, upon written request, to provide the owner of
a separate interest with a copy of the information above. The association may charge
a fee for this service.
4. The code imposes damages for "willfully violating" these requirements,
under 1368(d), of:
A. Actual damages and
B. a civil penalty not to exceed $500 and
C. reasonable attorneys fees to enforce 1368.
G. Civil Code Section 1375.1: Duties To Members Upon Resolution of Claims
1. Section 1375.1 is added to the civil code to require that as soon as practicable
after the construction defect case has settled or resolved, the association shall, in
writing, inform the membrs that the matter has been resolved, by which means, and disclose
all of the following:
A. A general description of the defects the association believes will be
corrected or repaired;
B. a good faith estimate of when the association believes the defects will be
corrected or repaired;
C. the statu of the defects that will not be corrected or repaired.
