When an HOA ignores its duties under its covenants and restrictions, the consequences can be devastating. In Ridley v. Rancho Palma Grande Homeowners Association (Cal. Ct. App., Aug. 28, 2025, No. H052560), a Santa Clara couple secured a $1.8 million judgment after their condominium was rendered uninhabitable due to water intrusion, mold, and a sinkhole caused by an abandoned well beneath the property. The Court of Appeal upheld the judgment, finding that the HOA’s delay, deception, and failure to act breached its duties under the CC&Rs.
What Went Wrong at Rancho Palma Grande HOA
Retirees Doug Ridley and Sherry Shen owned a condominium in Santa Clara County. In 2018, their tenants discovered persistent water pooling in the crawlspace beneath the unit—part of the building’s common area under the HOA’s control. The issue worsened over time, culminating in severe water damage, mold growth, and ultimately, a sinkhole beneath the living room floor.
Investigations revealed that the unit sat atop an abandoned 400-plus-foot well. Critically, it was revealed that the HOA board had access to maps and records from the Santa Clara Valley Water District showing the possible presence of the well, but failed to disclose this information to contractors or city officials. At trial, the HOA’s president even admitted to knowingly providing false information, including denying the presence of mold and asserting that the unit remained habitable.
Despite knowing of the problem, the HOA delayed meaningful remediation for more than 19 months, causing extensive damage and rendering the unit uninhabitable.
Why the HOA Was Found Liable
On appeal, the HOA challenged the trial court’s finding that it breached its duties under the CC&Rs. The trial court found that the HOA failed to meet its contractual duties, which required the association to maintain and repair common areas—including the crawlspace under Ridley’s unit. The court concluded that the HOA did not conduct a reasonable investigation into the source of water intrusion, nor did it remediate water and mold damage in a reasonably timely fashion, leaving the unit uninhabitable for years.
The appellate court held that the trial court’s findings were supported by substantia evidence. The record showed that the HOA ignored repeated warnings from the City, Water District, and multiple contractors that the water likely stemmed from an undestroyed well. Instead, the HOA rejected expert advice, dismissed low-cost investigative measures, and advanced a theory of a high groundwater table—ultimately discovering the well by accident 19 months later. The court rejected the HOA’s reliance on judicial deference and the business judgment rule, finding those defenses unavailable because the HOA had not acted upon reasonable investigation or in good faith. In fact, evidence showed intentional misrepresentations and bad-faith conduct by board leadership. The court further held that the HOA’s conduct rose to the level of gross negligence, both as an extreme departure from reasonable care and as conscious indifference to the consequences, thereby foreclosing reliance on the exculpation clause in the CC&Rs.
Key Takeaways for Community Associations
This case underscores that California HOAs have a non-delegable duty to investigate and repair conditions in common areas that affect homeowners’ units. The decision highlights that board inaction, misrepresentation, or concealment can expose associations not only to breach of CC&R claims, but also to significant liability for fraud and even elder abuse.
Prompt action is critical when issues such as water intrusion or mold are reported. Boards that delay investigations and/or repair risk magnifying liability and damages. Absent diligent investigation, there is risk that inadequate information or incorrect information will increase risk of exposure for the community and/or its insurers. This case also serves as a reminder that board members must know and understand their fiduciary obligations under the CC&Rs and California law.
Ridley v. Rancho Palma Grande Homeowners Association is a cautionary tale for community associations—failure to investigate and address common area defects can lead to catastrophic financial and reputational consequences.
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