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Case Upholds Homeowners Associations' Standing in Suit Against Realtor

Glen C. Hansen, Abbott & Kindermann, LLP, Sacramento on
Aug 17, 2012

In a case pitting a real estate brokerage against a homeowners association, the trial court sustained demurrers to the HOA's complaint against real estate brokers who acted as dual agents in the developers' sale of properties in the development to HOA members. 

The Glen Oaks Estates Homeowners Association, representing a five-parcel development in Pasadena, alleged in the complaint that the realtors had obtained inaccurate soil reports and had misled the members, resulting in defects of a common roadway and common area slopes. The Court of Appeal for the Second Appellate District reversed the trial court's determination that the association did not have standing to assert claims on behalf of its members against the brokers under Civil Code section 1368.3. 

Part of the Davis-Sterling Common Interest Development Act ("Act"), section 1368.3 states that that a homeowners association established to manage a common interest development "has standing to institute, defend, settle, or intervene in litigation in its own name as the real party in interest and without joining with it the individual owners of the common interest development ." However, such associations have standing only in particular matters, specifically matters pertaining to (1) "[d]amage to the common area," and (2) "[d]amage to a separate interest that arises out of, or is integrally related to, damage to the common area ."  

The act defines a "[s]eparate interest" as "a separately owned lot, parcel, area, or space."  A "[c]ommon area" is defined as "the entire common interest development except the separate interests therein."  In this case, the HOA argued that while the right violated was "personal to the members" in that the realtors owed the HOA members a fiduciary duty, their damages consist of a $3 million repair obligation for the common area driveway and slopes. 

The Court of Appeal first held that the complaint failed to allege damage to the HOA members' separately owned lots or parcels, and therefore there was no standing under the provision in section 1368.3 for damage to a "separate interest" that is integrally related to damage to the common area. 

However, the Court of Appeal held that the complaint sufficiently alleged facts that show that the matter pertains to damage to the common areas. The theory alleged in the complaint was that the HOA members would not have purchased their homes in the development had the realtors: 1) acted as proper fiduciaries; 2) not concealed information relating to the budget for the HOA monthly dues; 3) warned the members about the alleged invalid soil reports; and/or 4) complied with the laws requiring them to provide a final report and other transactional documents. The complaint further alleged that, because the members did purchase their homes, the HOA is now embroiled in third party actions arising from the failure of the common area slopes and roadway, and it is responsible for certain expenses to repair the common areas. According to the Court of Appeals, those allegations were sufficient for section 1368.3 to confer standing to the HOA.

The Court of Appeal went on to reject the realtor's argument that section 1368.3 confers standing only to sue a developer for damages to the common area, and not a realtor. The court explained that the statute does not, by its plain terms, contain a limitation on whom the HOA may sue. Quoting Windham at Carmel Mountain Ranch Assn. v. Superior Court (2003) 109 Cal.App.4th 1162, 1175, the Court of Appeal held that the statute gave associations "the standing to sue as real parties in interest in all types of actions for damage to common areas." That included the claims against realtors alleged in this case.

The Case: 

Glen Oaks Estates Homeowners Assn. v. Re/Max Premier Properties, Inc. (2012) 203 Cal.App.4th 913

The Attorneys: 

For the Plaintiff: Castro & Associates, Jose B. Castro, David H. Pierce, Toneata Martocchio, J. Alan Warfield; Law Office of Morton Minikes and Morton Minikes

For the Defendant: Carlson Law Group, Inc., Mark C. Carlson, Jonathan A. Feldheim; Sedgwick LLP and Douglas J. Collodel