J & N REALTY, INC.

J & N Realty, Inc. considers most, if not all, Davis-Stirling.com articles very informative, knowledgeable, and correct. We are certain that every manager and homeowner may derive great benefits from reading them.

Reprinted from
Davis-Stirling.com by Adams Kessler PLC   

BID SHOPPING  

QUESTION: I would appreciate your comments on whether bid shopping by a board of directors is a violation California law or a violation of the Code of Ethics by a certified manager. 

ANSWER: There are two types of bid shopping and both are considered unethical because of the unfair competition involved. 

Pre-Award Shopping. The first type is called pre-award bid shopping and occurs when a board or manager receives bids on a project and instead of awarding the contract to the best bid takes the lowest bid without the contractor's knowledge or approval and discloses it to other contractors. The board or manager "shops" the bid in an effort to get new proposals below the original bid. At that point, the board may award the contract to a new low bidder or squeeze everyone yet again with a another round of bid shopping. 

Post-Award Shopping. The second type is called post-award bid shopping. This one is done by the general contractor after the association awards him the contract. It is done without the association's knowledge or approval. The general takes his subcontractors' bids and shops them in an effort to drive down the costs he quoted the association. He does not pass the savings on to the association. Instead, he pockets the difference. 

Negative Impact. Using a legitimate bid to chisel down other bidders can significantly impact work quality. Contractors will cut corners by substituting cheaper materials and inexperienced labor in an effort to make a profit. Some states have made efforts to curb this practice. Those efforts have been largely unsuccessful.  

Managers. I reviewed the Codes of Professional Conductposted by the Community Associations Institute (CAI) and the California Association of Community Managers (CACM) on their websites. They don't directly address bid shopping but their ethics standards are broad enough to cover the practice. In 5-01(b) of CACM's Standards of Practice: 

[Managers] shall employ a sealed bid process wherein all bids are received sealed and are opened in the presence of the client board or its designated representative other than the Member. 

Paragraph 14 of CAI's Professional Manager Code of Ethics states that managers shall "Not engage in any form of price fixing, anti-trust, or anti-competition." 

RECOMMENDATION: I know that boards and managers who engage in bid shopping have good intentions but the practice is not ethical. Moreover, using it to save a few dollars may actually backfire and cost the association more money than it saves.  

FDIC INSURANCE 

On July 21, 2010, basic FDIC insurance coverage was permanently increased to $250,000. The standard maximum insurance amount of $100,000 had been temporarily raised through December 31, 2013. That increase is now permanent. The coverage applies per depositor, per insured institution. Boards should take this into consideration as part of their association's investment strategy.  

HOA CREDIT UNION 

QUESTION: Can our common interest development own and operate a credit union or bank for the benefit of the homeowners? 

ANSWER: An HOA owning a credit union? That’s a new one. I had to ask attorney Helene Franszfor help on this one. 

Corporate Purpose. Your association's articles of incorporation establish the purpose for your corporation. Running a credit union is probably not one of them. As a result, if your board set up a credit union it would likely be an ultra viresact unless the membership amended your articles to allow for it. 

Ownership & Taxes. There may be laws regarding who may and may not own a credit union. You need to talk to a lawyer who specializes in banking law. You better talk to tax specialist as well since income from business operations will be taxed differently than membership dues. Finally, who would run the credit union? It's tough enough running a homeowners association. A credit union would be another source of potential liability. Gives me the willies just thinking about it. 

FEEDBACK 

Wolves at the Door. The letter from the folks wanting to hire non-members as directors was interesting. Your advice to "insurance up" was apropos but you should warn the little lambs about the right insurance lest they be slaughtered by the wolves within or without because useless coverage ala Farmers. I have found (too late) Travelers, Chubb, and AIG cover the dangerous and common non-damages lawsuits. Without such coverage, they stand to lose their homes and everything else as is happening to us. -Lois W. 

A Vacuum. Herein lies the vacuum in the professional management industry; little or no training, knowledge, or experience about roofing, plumbing, electrical, heating, paint quality, waterproofing, basic structural considerations, etc. It appears that, unless there is an onsite property manager, the management company's efforts consist of calling a contractor to fix the problem, or gathering bids for work requested by the board. I would guess that most boards do not realize this when they hire a manager. -Michael G.

 

  NUISANCE BARBEQUE    

QUESTION : We have a homeowner who barbeques every Sunday and the smoke from the barbeque goes into his neighbor's home. The smoke is so bad she has to close her windows and sometimes has to leave the house. She wants the board to intervene but the board believes this is an owner-to-owner issue since the barbeque is outside. Would the board have an obligation to intervene on her behalf?  

ANSWER : The board has a duty to investigate and take appropriate action if it determines the smoke constitutes a nuisance under the nuisance provision of the CC&Rs. It does not matter that the nuisance originates outside.  

Open Flame Devices. In addition, the barbeque grill may be a violation of California Fire Codes §308.3.1 and§308.3.1.1, which were adopted by the state in 2007 and by various cities and counties in 2008 and 2009.CFC §308.3.1 states that all open-flame cooking devices (including charcoal & propane grills) may not be operated on combustible balconies or within ten feet of a combustible construction. The two exceptions are for (i) single and two-family dwellings (duplexes), and (ii) buildings that have installed automatic sprinkler systems throughout, including balconies and decks. 

LPG Containers. California Fire Code §308.3.1.1 further restricts the use of Liquefied Petroleum Gas (usually propane) grills by prohibiting containers with a capacity greater than 2.5 pounds. The only exception is for single and two-family dwellings. In addition, propane containers with a capacity larger than one pound cannot be transported through enclosed common area stairs, hallways, or elevators. They must be transported into the unit through an exterior stairway. 

Insurance . Even if your city or county has not adopted these codes, your board should contact the association's insurance broker to see if fire damage related to barbeques is insured. Some insurance carriers want to see barbeques (especially charcoal) gone from frame complexes altogether.  

RECOMMENDATION . Boards should check with local fire codes, their insurance broker, and legal counsel and then draft appropriate restrictions on the use of barbeque grills and LPG containers. 

NO SECONDS  

QUESTION : If a director makes a motion, can he second his own motion? 

ANSWER : No, the second must be from another director. (Robert's Rules, 10th Edition, p. 34.) If the motion fails for lack of a second, there is no discussion and no vote on the failed motion. 

5% SPECIAL ASSESSMENT  

QUESTION : Is the special 5% assessment restricted to any particular use? Our CC&Rs say it is for capital improvement, but I find nothing in Davis-Stirling Act with that restriction. 

ANSWER : There is no restriction in the Act related to how a special assessment is used, only on the size of the assessment. Civil Code §1366. If your governing documents limit how board approved non-emergency special assessments are spent, you may be bound by those restrictions. Your board should have the association's attorney review the language in your governing documents and provide an opinion.  

FREE SPEECH BULLIES  

Feedback #1 : It is amazing how the First Amendment has been perverted over the years. Does it not say "Congress shall make no laws . . ." That is, the unwashed masses have a right to speak out against their government (as distinguished from them not having the right to speak out against the monarch). The law does not apply to a private organization (e.g., club, business, or homeowner association). Also, let's not forget manners, civility, and social graces that apply everywhere but are neither taught nor practiced anywhere these days. I'll get off my soap box now. -Stephany Y. 

Feedback #2 : I find it amazing that so many American's have such a misguided understanding of "Freedom of Speech." Perhaps in bringing enforcement against these more often than not, bullies, they might view the board's fining them and ejecting them from the meeting as our right to the pursuit of happiness! -Vicki M. 

COMMENT . Free speech bullies seem oblivious to their own bad behavior, or worse, revel in it. Boards should always listen to membership concerns and be patient with members who get emotional. However, boards do not have to put up with abusive behavior, harassment, personal attacks, obscenities, and threats. There is no "First Amendment right" to such behavior and persons who engage in it can be ejected from meetings and, following due process, fined. If necessary, boards can seek restraining orders. 

I SECOND THAT!  

QUESTION : Can the same board member second himself if he was nominated as president of a 3-member board? 

ANSWER: Yes. Nominations for each office (president, secretary and treasurer) are made by the directors. No second is needed for nominations. (Robert's Rules, 10th Edition, p. 418.) In addition, directors may nominate themselves if they wish. Since the Davis-Stirling Act allows members to nominate themselves to run for the board, it would be reasonable to allow self-nomination as officers. Civil Code §1363.03(a)(3). Each nomination is then voted on by the board, not the membership. 

TABLED ITEMS  

QUESTION : If an item is tabled at a regular Board Meeting, can it be acted on in any way at the next meeting under old business? 

ANSWER: Yes. The matter may be "taken from the table" by a majority vote of the directors at the next meeting. (Robert's Rules, 10th Edition, p. 205.) If the board comtemplates discussion and/or action on the tabled item, it must be listed on the agenda and posted at least four days in advance of the meeting. 

FINED FOR HARASSMENT  

Feedback : BULLSHIT -- SO-CALLED "anti-harassment" resolutions violate both the statutory and constitutional rights of the homeowner. EVEN if the homeowner uses yelling and profanity, it is protected speech. -A.S. 

RESPONSE : If you try that in a an open session of Congress, a city council meeting, or a court room, you will discover that your free speech rights are not unlimited. It is never appropriate to yell and use profanity in a board, committee, or membership meeting. You can be ejected from the meeting and fined for your disorderly conduct. (Robert's Rules, 10th Edition, p. 627-629.) 

CC&R AMENDMENTS
BY THE BOARD  

QUESTION  Another board member says that the board can change our CC&Rs and bylaws without a vote of the members if there are changes in the Davis Stirling Act. I thought all amendments required a vote of the members. Can you clarify? 

ANSWER : The Davis-Stirling Act empowers boards to remove discriminatory provisions. Civil Code §1352.5. If your governing documents authorize it, the board could also unilaterally amend the CC&Rs to make them comply with changes in the law. However, I don't believe this issue has been tested in the courts so you should consult with counsel. 

SOLAR PANEL LOAN  

QUESTION : Regarding the question on solar heating of pools. I've always thought that the very act of installing solar heating would be a capital improvement. In that case a 3/4 positive vote would be required. Exactly the same if a new (not replacement or repairs) spa or parking garage was to be constructed. Can a board just do that? 

ANSWER : Unless the governing documents prohibit the board from making capital improvements, boards may add upgrades within budgetary constraints. Boards also have the authority to special assess on their own authority up to 5% of the budget for improvements. 

UNCONTESTED ELECTIONS  

QUESTION : You have an article under "uncontested elections" that has sparked a little disagreement in our offices. If the election rules or bylaws allow for nominations from the floor, and if write-ins are accepted, would you not be required to complete the balloting process? 

ANSWER: Yes. If the election rules allow for write-ins and/or floor nominations, the association would be required to send ballots and conduct a full election since the election could be contested. You won't know until you go through the expense of sending out ballots and hiring an Inspector to open and count the ballots. To avoid this expense, you need to amend your documents to eliminate write-ins and floor nominations. 

POLITICAL PROCESS  

Feedback . You frequently suggest if homeowners are unhappy with board decisions they should just ''vote in new directors''. . . easy to say, very difficult to do in most cases. Too bad there aren't other realistic alternatives. What you suggest is just a cop-out. -C.G. 

RESPONSE . If you have any easy alternatives (legal ones), send them my way. I’m open to suggestion. 

FINED FOR E-MAILS

QUESTION : I have been told that I will be fined if I continue to email the board instead of directing my comments and questions to the management company. Is this legal?  

ANSWER : Yes, you can be fined for continuing to send emails once you've been told to stop. Directors are volunteers and have private lives. They don't sign on for round-the-clock emails (or phone calls) from members. Matters affecting the association can be addressed via the management company or during open forum at board meetings. Accordingly, the board may rely on the nuisance provision of the CC&Rs for the fines or it may adopt specific rules regarding harassing emails and phone calls. 

PAYING TAXES  

QUESTION : We are a 6-unit unincorporated condo association. Do we have to file a tax return? We have never done so and were now wondering if we are out of compliance. 

ANSWER : Being an unincorporated association does not exempt you from filing an income tax return. For federal purposes, unincorporated associations still file as if they were incorporated. For California, if taxable income is less than $100, a California corporate return is not necessary. Additionally, most associations have filed for exemption status under Revenue & Tax Code §23701t and must file an annual information return (Form 199). If the association's average revenue falls below $25,000, Form 199 is not required. 

Thank you to Steven Schonwit of the Schonwit Consulting Group for his information on answering this question.  

TURNING OFF WATER  

QUESTION : In regards to suspending privileges, is it possible to suspend partial water privileges? For instance, can a plumber go into an owner's unit who lives below the deadbeat and install turn-off valves for the unit, so they have some water but making it difficult for them to either bathe or do their dishes? 

ANSWER : No.  

SOLAR PANEL LOAN  

QUESTION : Our board is considering securing a 5-year loan for the purpose of installing solar panels to generate electricity and solar heating for our pools. We estimate the costs will be almost completely off-set by the savings in our gas and electric expenses. We plan to submit a ballot to all home owners to confirm approval from a majority before we proceed. Is this required? And how will this indebtedness impact individual home owners? 

ANSWER : If the loan requires a special assessment of more than 5% of the budget, you need homeowner approval. The indebtedness should have no effect on owners' credit since the loan will be to the association and not to individual owners.  

CHANGING POOL HOURS  

QUESTION : Can the board change the hours of the pool without a vote from the homeowners? 

ANSWER : As part of its management authority, the board can establish and modify pool hours without a vote of the membership. If members are unhappy with the decision, they have recourse by electing directors who are more responsive to their wishes. 

ARCHITECTURAL COMMITTEE  

QUESTION : Is it a requirement that HOAs have an architectural committee? Or can the board of directors make architectural decisions? 

ANSWER : It depends on your governing documents. If the documents do not call for an architectural committee, then none is required and the board can review and approve architectural submittals. Most governing documents require the appointment of a committee. If so, the board must appoint members to the committee. Some documents allow the board to serve as the committee if no committee members are formally appointed. I recommend amending your CC&Rs so the board automatically becomes the architectural committee if committee members are not specifically appointed. Otherwise, you may have legal challenges to architectural decisions. 

NUMBERED BALLOTS  

QUESTION : Our board recently mailed secret ballots to homeowners to vote on a proposal brought to the board by a homeowner. However, we noticed that every ballot was given a number before mailing them. Doesn't the ballot numbering effectively make them no longer secret ballots, since the board may have a list identifying which ballot went to which residence? 

ANSWER : The numbering on ballots might be an innocent control mechanism to ensure there are no duplicate ballots so as to prevent ballot box stuffing. This system was used by many management companies prior to the new election requirements in the Davis-Stirling Act. However, since all voting must now be done be secret ballot (Civil Code §1363.03(e)) there should be NO markings on ballots that could be used to identify voters. 

MANAGEMENT PROXIES  

QUESTION : At our last annual meeting, some homeowners designated the management company as their proxy. Other owners voiced concern over possible conflicts of interest since the next board would determine if that company's contract would be continued. When the question was raised as to who could act as a proxy, the manager claimed that even a dog could be designated as a proxy. Is that true? 

ANSWER: Although the Corporations Code does not restrict who may act as a proxyholder, the Davis-Stirling Act does. It limits proxyholders to members only. Civil Code §1363.03(d)(1)(A). As a result, neither a dog nor the management company may serve as a proxy. 

SIGNED BALLOTS  

QUESTION : If owners sign their ballots, does it invalidate them? 

ANSWER: No, signing ballots does not cost owners their votes; they simply lose their anonymity. Restrictions on signing are imposed on associations, not owners. As such, associations can not require that members sign their ballots. Civil Code §1363.03(e). Hence, inspectors of election should not invalidate an owner's vote just because they inadvertently signed their ballot. 

CHECK SIGNER MARRIED
TO CHECK MAKER

QUESTION : Our treasurer is the primary check signer; he is also married to our office clerk who prepares the checks. Is this spousal relationship in conflict with the Davis-Stirling Act??? 

ANSWER : The arrangement is not illegal, but the board could be deemed negligent because the arrangement lacks internal controls. Because the check maker and the check signer are married, (i) the signer might not examine checks and invoices for accuracy or (ii) the two could conspire to embezzle funds. It does not mean they will, but the association is vulnerable. The more prudent course of action is to make someone else treasurer and remove the existing treasurer as a signer on the bank account. This protects everyone, including the office clerk and her spouse/director. 

AUTOMATIC VICE PRESIDENT?   

QUESTION:  The vice president of our board has sold his place and is moving. Another person will be appointed to take that board member's seat. Does the new director automatically become vice president? 

ANSWER : No. The office remains open until the board decides who to designate as vice president. 

WRITE-IN ELECTION
FOR RESIGNED DIRECTOR  

QUESTION : I had a temper tantrum and resigned last summer after a dispute with another director. At our annual election, homeowners voted for me as a write-in, so I was elected. I just received a letter from our management company that says the "nomination is considered invalid due to my resignation." Can they keep me off the board? 

ANSWER : Unless your governing documents state otherwise, your resignation from one board does not disqualify you from being elected to future boards. As provided for in Civil Code §1363.03(a)(3), qualified candidates may nominate themselves to serve on the board. 

PRESIDENT IS
ALSO PAID MANAGER

QUESTION : Our board president for the last 9 years has ALSO been the manager of our HOA. He RULES the board and claims the board appointed him as manager. He gets $30,000 a year. Since we are a nonprofit corporation I thought directors are NOT supposed to get a salary.  

ANSWER : Undoubtedly his salary is earned as a manager, not as a director. However, the two roles are hard to separate and this creates significant conflicts of interest. It is not "illegal" for the president to also be the paid manager but it is an unhealthy arrangement. If the membership were smart, they would end the arrangement by (i) removing the manager from the board or (ii) replacing the manager with an outside management company. If the membership is content with the current set-up, at some point they will suffer the consequences and will have no one to blame but themselves. As de Tocqueville observed, "In a democracy, people get the government they deserve." 

MANIC BEHAVIOR  

QUESTION : When I was manic last year, I put trash in front of another homeowner's door and during the period of one hour, I walked back and forth to her door 13 times which was on the surveillance camera of the pool deck. The board fined me 13 x $200 = $2,600 saying it was justified even though it was one incident. Now they are threatening to file a lien on me if I don't pay it in 30 days. They refused internal dispute resolution and alternative dispute resolution. Can they refuse my request? 

ANSWER : Your manic behavior probably scared the daylights out of everyone and earned you a well-deserved fine. The size of the fine may or may not be deemed reasonable by a judge. It will depend on whether the judge believes your actions constitute one incident or 13 incidents. You're lucky the owner didn't seek a restraining order. Regarding the threat of a lien, the board cannot lien your unit for unpaid fines. Civil Code §1367.1(e) As for ADR, the board is not required to accept your request for mediation or arbitration. However, the board should not refuse your request for "internal dispute resolution."  

READER FEEDBACK  

Firing Contractors . I strongly disagree with your advice about terminating contractors in executive session since it only further promotes a lack of transparency. Any and all issues regarding contractors that the general membership is asked to underwrite, vis-à-vis their association dues should not be kept from those who attend meetings as it will only promote further clandestine actions and/or discussions by the board if they can get away with discussing issues (such as terminating contractors) that are not in fact reserved for executive sessions. -K.D. 

Response  Balancing transparency and protecting the association from liability is never easy. Feedback from Tom Frutchey below may offer some balance -Adrian Adams 

Transparency . I think the board’s discussion regarding termination of a contract should, as you relate, take place in executive session. I suggest the best practice should be to notice the consideration of termination of the contract as an open session item and, after the executive session discussion, to hold the board vote for the termination in open session. -Thomas Frutchey, CCAM, AMS  

Verifying Violations . I do not think you addressed the question asked in "verifying complaints." Note that the question of the homeowners being anonymous was not raised in the question. It appears to me that the question simply asked if the board can take their word or does a board member have to witness it. I cannot imagine that the latter is correct. -J.S. 

Response . The board still needs to hold a hearing but it does not need to independently verify the complaint if the witnesses are willing to testify. If neighbors testify to the violation and the accused denies it (he said, she said), the board can still decide whom to believe and impose penalties if appropriate. -Adrian Adams 

Quorum Failure. I do not share the same view as Richard Neuland in not holding meetings if continued quorums are not met. If the CC&Rs include a provision or clause requiring annual meetings, the HOA is in violation of the CC&Rs if the meeting is not held annually, whether quorums are met or not. -W.H. 

Response . I’m not aware of any statutory or appellate case opinion which compels such efforts. Rather, I subscribe to the position that CC&Rs are to be interpreted as the courts look at contracts and statutes. That view requires the reading of the word “reasonable” whenever an act is required but there is insufficient information or direction in the writing to cover the situation in question. For example, if the writing specifies that a fee will be paid for some privilege or activity, but the amount of the fee is not specified, the courts will consider it to require the payment of a “reasonable” fee. I view the CC&R or Bylaw provision requiring an annual meeting as compelling a “reasonable” effort or attempt to conduct a meeting. Nothing less is sufficient, and nothing more is required. -Richard Neuland, Esq. of Neuland, Nordberg, Andrews & Whitney 

Board Positions if Quorum Fails. With regard to ending further attempts at holding an annual meeting, what would happen if there was competition for the board positions. Does the existing board continue or what? -A.Z. 

Response . The Corporations Code explains that a currently seated director remains in his/her position as a director until the expiration of his/her term and the election of a successor. If a meeting is not held because no quorum is established then the current director remains the director until the successor is elected or the current director is lawfully removed and is replaced or resigns. -Richard P. Neuland, Esq. 

Flowers. In your example of a side discussion leading to the board scheduling an item for decision, there is a suspect element; that is, the suggestion that money could be borrowed from the reserves for planting new flowers. There are pretty strict limits on borrowing funds from the reserves, and a relatively routine thing like plantings would seem an odd action for such borrowing. Would it not make more sense to spend funds from operations? -S.F. 

Response . That's why the issue needs to be discussed at a board meeting in open session. The board needs to determine what it will cost and how to properly fund the project. If they have a line item in the reserves for plant replacement, it can be paid from reserves. If not, it should come from operations. If operational funds are not available, the board will need to special assess the membership. Membership approval will depend on the amount being assessed.  

FIRING CONTRACTORS IN
EXECUTIVE SESSION  

QUESTION : I received two conflicting attorney opinion letters on whether the termination of a contractor must be done in open session. What is your opinion? 

ANSWER : Although terminating a contract is not one of the approved categories for executive session (Civil Code §1363.05(b)) canceling contracts should be done in executive session. Before ending a contract, boards often engage in a wide-ranging discussions about problems with the contractor, possible legal consequences related to the termination, and input from legal counsel on how best to minimize legal exposure. If the debate were done openly, it would compromise the association's legal position and expose the board to potential claims from the contractor. Accordingly, discussions related to the termination should take place in executive session. It goes without saying that anytime the board contemplates terminating a contract, it should get advice of counsel. 

REMOVING COMMITTEE MEMBERS  

QUESTION : Is it possible to vote a member off a committee if he/she works against the committee and gives out inaccurate information presented by the committee? 

ANSWER : Unless your governing documents provide otherwise, committee members may be removed at any time, with or without cause. Unless the committee has been established by your governing documents and its members elected by the association, committees serve at the pleasure of the board. Accordingly, the board can remove committee members at will and without explanation. The board can also delegate such authority to the committee chair or to the committee itself. 

VERIFYING COMPLAINTS  

QUESTION : I know you've had a lot of comments already about owners' due process rights when there are violation complaints. If we have a number of owners complaining about the same thing, does someone from the board have to see/hear it for themselves to verify it, or can we take them at their word?  

ANSWER : Because people have the right to know the evidence against them and to present a defense (due process), claiming that two or three anonymous owners complained is not sufficient "evidence" to discipline a member. If the complaining parties refuse to be identified and the board cannot independently verify the complaint, the board cannot levy penalties.  

FAILURE TO ACHIEVE QUORUM
FOR THE ANNUAL MEETING  

At some point there is no benefit to continued attempts at an annual meeting when quorum (either in person or by proxy) is not even close to being achieved. Directors have a duty not to waste the corporation’s income, so at some point they should stop. I recommend that the board decide how many times they must try before stopping. The board should take into consideration the cost of noticing the members, the likelihood of success in reaching quorum, and any other factors which should be taken into consideration when making their decision. For example, if the association has 400 homes that must be noticed of the annual meeting, the board can expect to spend at least $500 in costs for paper, envelopes and postage. There may be additional expenses from the management company for a 2d and 3rd try which should be considered. I believe that they must try a second time. But beyond that, there is no obligation I’ve ever found stated in any statute or published appellate opinion for any follow-on meetings. -Richard P. Neuland, Esq. of Neuland, Nordberg, Andrews & Whitney 

MEETING AT A BARBEQUE  

QUESTION : In your June 28, 2009 newsletter, you stated it was okay for a majority of directors discuss matters if they are not scheduled to be heard. The Civil Code also notes that a board cannot discuss anything that is not on a published agenda. Therefore, shouldn't the quorum of board members refrain from any discussion of a matter unless the matter being discussed is published on an agenda of a duly noticed board meeting? 

ANSWER : The statute does not prohibit directors from talking to each other outside of a board meeting; it only prohibits discussing matters scheduled to be heard by the board. 

For example, if a majority of directors attend a barbeque and one of them says, “The landscaping is looking tired. I think we should tear out all the shrubs and plant flowers.” The other directors nod and one of them asks, “What kind of flowers and how do we pay for them?” The first director responds, “I like Geraniums and I think we can borrow money from reserves to pay for it. Let’s put it on the agenda for our next meeting." The other directors agree. 

In my opinion, their flower discussion did not violate the Davis-Stirling Act. It does not meet the definition of a "board meeting." Civil Code §1363.05(j) Once the flower proposal is on the agenda, the board can discuss the matter in front of the members, debate the type of flowers to plant, investigate costs, and appoint a committee to make recommendations.  

BOARD MISMANAGEMENT  

QUESTION : We get minutes from past meetings some 6 months later, reports by CPAs are inconclusive as they clearly state improper and inadequate information. Delinquent assessments are not being pursued. Our funds are mostly unaccounted for or miserably spent. How can we get the board to follow the rules of conducting our business?  

ANSWER: You have four options. The first is political--actively campaign to elect responsible directors. If you run into paralyzing apathy from the membership, you have a legal option--go to court and seek an order forcing the board to follow its statutory obligations. Unfortunately, the legal option has no guarantees and can be costly. Your third choice is to live with the mismanagement. However, this could result in  large special assessments when the board's negligence catches up with everyone. The fourth option is to sell and get out before the poo hits the fan. 

WHEN IS A MEETING A MEETING?  

QUESTION : I have been told that if a majority of the board is at a meeting called for some other purpose, such as a discussion group or advisory committee, that this is an illegal board meeting. This seems prohibitive. Just being in attendance, it seems to me, is not a board meeting. Could you clarify?  

Directors are not prohibited from attending barbeques, birthday parties or committee meetings, unless a majority of the directors "hear, discuss, or deliberate upon any item of business scheduled to be heard by the board." Civil Code §1363.05(j) If the matters discussed in a committee meeting are not scheduled to be heard by the board, a majority of directors can attend and participate. It's entirely possible the committee's discussions will result in recommendations that will ultimately be scheduled to be heard by the board. This appears to be permissible. For example, directors attend a landscape committee meeting where the removal of a tree is discussed by the committee. This matter has not been scheduled for board action but may be added to the agenda after further research by the committee. Even so, the safest course of action is to give notice of committee meetings whenever a majority of directors plan to attend. That way, you avoid any controversy. 

QUORUM PROBLEMS  

QUESTION : I have an HOA that has not amended their voting rules. They have had 2 meetings to open ballots but still do not have a quorum. We are on the 3rd meeting and still no quorum. What's next? 

ANSWER: The board can (i) continue rescheduling meetings until they get a quorum, or (ii) go into court and ask the court to lower the quorum requirement for this election to the number of votes cast, or (iii) end their attempts at meeting quorum, leave the existing board in place and pour their energies into amending the bylaws to end quorum requirements for the election of directors. I recommend amending your bylaws; it’s the only option that makes sense.  

CC&R AMENDMENTS
AND CALIFORNIA

QUESTION : I thought the CC&Rs were a California state document. If we were to change something, doesn't the state have to amend everyone's CC&Rs?  

ANSWER : CC&Rs are not "state" documents and the state does not oversee the amendment process once the developer transfers control to the association. CC&Rs are unique to each common interest development and are recorded with the County Recorder's Office. Amendments approved by your membership do not effect the CC&Rs of any other developments in California. Although amendments do not require state review, they should be reviewed by your association's legal counsel. They must then be sent to the membership for approval using secret ballots. Once an amendment has been approved by your membership, it becomes effective upon recordation.  

ZERO VOTES
FOR A CANDIDATE  

QUESTION : What happens if one of the three candidates (for a three member board) receives 0 votes? 

ANSWER : That person is not elected. The seat remains empty until the new board appoints someone to fill it. Unless the governing documents state otherwise, the new board is not required to appoint the loser to the empty seat. The board may appoint anyone who meets the qualifications to serve on the board. 

TREASURER CONFLICT  

QUESTION: We have a board member, the treasurer, who is working for our management company and is a signer on the checks. I think this is a major conflict of interest. What do you think?  

ANSWER: It depends on his/her role in the management company. If the treasurer’s work does not involve anything related to the association, then the potential for conflict is relatively low. Even so, the treasurer must be recused from all matters related to the management company's contract. If your treasurer works in the management company’s billing department depositing monies for the association, preparing checks for signature, and preparing the association’s financial statements, then you have significant exposure to financial loss. The treasurer may be completely honest and nothing may ever happen but the potential problems are too great to ignore. In that scenario, the director should immediately step down as treasurer and cease being a signer of checks. 

NO-SHOW DIRECTOR  

QUESTION: We have a board member who never attends meetings. We asked him to stop running for election if he isn't willing to participate, but he has ignored this request and is guaranteed reelection because of the shortage of candidates. Can we remove him for non-attendance? 

ANSWER : Your no-show is in breach of his fiduciary duties for refusing to attend meetings. Under Corp. Code §7231(a) "A director shall perform the duties of a director . . ." Under the Davis-Stirling Act, he has a further duty to monitor the association's finances (Civ. Code §1365.5). His failure to attend meetings means he is missing the treasurer's report, not reviewing financial records, and not asking questions about finances--a further breach of his fiduciary duties. A person who consents to being a director and then refuses to participate loses the protections of Civil Code §1365.7(a). As such, he may face personal liability if something happens. 

Bylaw Amendment. To remove your problem director from the board you need to amend your bylaws. As provided for in Corp. Code §7151 the membership can prescribe qualifications for directors, including meeting attendance, and give your board the power to declare vacant the seat of any director who fails to meet those qualifications. 

PROS AND CONS OF
CUMULATIVE VOTING  

QUESTION: Our board is discussing whether or not cumulative voting should be removed from our governing documents. Although your website encourages the removal of cumulative voting, three board members disagree, saying it gives the minority a voice. In order to present accurate information to the membership, what are the pros and cons of cumulative voting? 

ANSWER : For established associations, there are no true benefits to cumulative voting, i.e., if there are 5 open seats, you can cast all 5 votes for a single candidate. There is not a single municipal, county, state, or federal election that uses cumulative voting. This kind of voting was intended for stock corporations so small shareholders would have a voice. Otherwise, companies would be completely dominated by large shareholders. Cumulative voting is automatically included in new HOA bylaws to give owners a voice when the association is controlled by the developer. Once the developer is out of the picture, there is no need for cumulative voting.  

Problems . The problems with cumulative voting far outweigh any theoretical benefit related to minority interests. Cumulative voting makes it easy for disruptive, fringe, and single-issue candidates to get on the board. Moreover, once a bad director has been elected, cumulative voting makes it almost impossible for the membership to remove that director from the board. With a conventional voting system, i.e., casting one vote for each candidate, candidates must seek a broader base of support thereby increasing the likelihood that more moderate, business-like candidates are elected. 

Amendment . Because cumulative voting is optional under Corp. Code §7615(a), associations can amend their governing documents to remove it. 

DYSFUNCTIONAL DIRECTOR  

QUESTION: Our bylaws have cumulative voting but the board wants to stop using it because we have a dysfunctional owner who keeps getting elected by his friends. The rest of the board can't work with him and is threatening to resign. If that happens, I'm afraid we won't be able to recruit anyone to serve on the board. Can the board vote to eliminate cumulative voting?  

ANSWER : If cumulative voting is in your bylaws, you are required to use it. As provided for in Civil Code 1363.03(b), "An association shall allow for cumulative voting . . . if cumulative voting is provided for in the governing documents." To get rid of it, the membership must vote to amend the bylaws. You should check your CC&Rs as well, they sometimes contain a cumulative voting provision. 

RESTRICTED TO ONE-YEAR TERMS?  

QUESTION: An attorney told me that cumulative voting can be used only with one-year terms for directors. I don’t see that anywhere in the Corporations Code.  

ANSWER : I am not aware of anything that restricts cumulative voting to 1-year term elections. Many associations use cumulative voting for elections involving two-year and three-year terms.  

FEEDBACK ON ROBERT'S RULES  

Majority Defined . 50% + 1 is NOT the definition of a majority. A majority is the next highest whole number above 50%. If you have 10 members, 50% = 5 and 5+1 is 6, that works, BUT if you have 11 members 50% is 5.5, and 5.5 + 1 is 6.5, you have not solved the problem. Rather than rounding, just use the above definition and it will always be correct. (see Roberts page 387)  

Chair's right to vote. The Chair may vote at any time, however to maintain an appearance of neutrality, the Chair normally only votes when it matters, such as to break, or make a tie, or a 2/3. However, there are special rules for small boards, 10 or less, found on page 470 of the 10th edition of Roberts which states in part that in small boards the chair is a fully participating member, makes motions, debates and votes as any other member. -James Stewart, Mister Parliamentarian 

DUPLICATE BALLOTS  

QUESTION: We are getting duplicate ballots from owners who want to change their vote. Some attorneys say the first ballot received counts and others say the two ballots cancel each other. 

ANSWER:  The first ballot counts. Although California's Election Code allows absentee voters to retrieve their ballot and cast a new one, no such provision was adopted in the Davis-Stirling Act. In fact, the opposite was adopted. The Act specifically provides that once ballots have been received by the Inspector of Elections, they are irrevocable. Civil Code 1363.03(f) 

No Cancellation. Therefore, the second ballot does not cancel the first ballot. If the Inspector allows a second ballot to invalidate the first, then the first ballot has been "revoked" by the second contrary to statute. The Inspector of Elections should instead mark any subsequent ballots as "invalid" and put them in a separate pile where they remain unopened. 

DATING DIRECTORS

QUESTION : Two of our residents started dating before they ran for the board. They were voted in, one as president the other as secretary. Is this okay or does one have to resign? 

ANSWER . Neither one needs to resign; they are allowed to date. It's possible their judgment may be clouded from time to time but there are no inherent conflicts of interest in their relationship. 

BAD DIRECTORS  

QUESTION : There are many poor to bad board members who have a cavalier attitude regarding what they do as a director and the effect it has on owners. Do you have an opinion regarding this?  

ANSWER : True, there are many bad directors with cavalier attitudes--I've suffered through my share of them. But for every bad director, there are ten good directors who receive little or no credit for their contribution to the association. Truly bad directors make everyone miserable and there is very little that can be done about them except for the board to censure them and the membership to remove them through a recall. Perhaps the only consolation is that bad directors can actually be removed from office, unlike bad government bureaucrats with cavalier attitudes. 

FALLING BRANCHES  

QUESTION : Our association has a tree limb extending into the back yard of a neighboring property. If it breaks and causes damage are we liable? 

ANSWER : As a rule, owners are responsible for injury caused to others by their want of ordinary care or skill in the management of their property. If the tree belongs to the association, the board is responsible for properly caring for the tree so as to prevent any foreseeable damage to the neighboring property. 

Negligence . If the tree has dead or dying branches and the board was warned they needed pruning, and the board fails or refuses to do so, and a dead limb crashes into the neighbor's house, you will likely be liable. If there is nothing wrong with the tree, you are not required to remove a healthy limb just because your neighbor dislikes it. Even so, your neighbor may treat the overhanging limb as nuisance. 

Nuisance . Even though the neighboring property has sustained no injury by the overhanging limb, branches and roots that intrude onto the property of another are considered a nuisance and your neighbor may abate the nuisance by cutting the offending branches and roots at the boundary line--so long as he acts reasonably not to seriously damage your tree. (Civil Code §3346) 

Falling Leaves. Your neighbor might also be unhappy about falling leaves from your tree. If so, he cannot demand that you control or clean up the leaves, so long as you reasonably maintain your tree. 

ABSTENTIONS  

Feedback. If a board is using Roberts Rules of Order, they usually call for a president to not vote except to make or break a tie. Since it takes 50% + 1 to pass. A tie means the motion fails. An abstention would have the same affect. -Stephen F. 

COMMENT . You are correct. However, unless an association's bylaws or CC&Rs require it, boards are not obligated to follow Robert's Rules of Order (or any other parliamentary system) for their board meetings. The Davis-Stirling Act calls for the adoption of a parliamentary system only for membership meetings. Civil Code §1363(d) 

Feedback #2. In a four-unit condominium (four votes total), if two of the four board members vote "yes" on a motion and two abstain, does the motion pass? 

ANSWER : The motion fails. That is why there should always be an odd number of directors--it's too easy for an even numbered board to deadlock. You should amend your documents to reduce the number of directors to three. 

PLAYGROUND RECYCLED RUBBER  

The Environmental Protection Agency (EPA) is having second thoughts about its endorsement of the use of shredded tires as a substitute for sand in playground tot lots. The concern is that shredded tires could contain carcinogens or other chemicals that could be a hazard with repeated contact with children's skin.  

Association boards may want to delay the purchase of such materials pending the EPA's decision. If the EPA reverses itself and requires the removal of shredded tire materials, the cost could be significant. The results of a long-term study are expected within the month. Thank you to manager John Kevin Dillon for alerting me to this issue. 

COURT UPHOLDS BAN ON
EXCLUSIVE CABLE CONTRACTS

On May 26, 2009, the United States Court of Appeals upheld the FCC’s order banning cable companies from entering into exclusive contracts to provide telecommunications services in multi-unit developments such as condominiums. The court also upheld the portion of the FCC order prohibiting the enforcement of such exclusivity provisions in existing cable contracts.  

The court agreed with the FCC that these exclusivity agreements “which involve a cable company exchanging a valuable service like wiring a building for the exclusive right to provide service to the residents”, have an anti-competitive effect on the cable market and significantly impair the ability of their competitors to deliver programming to consumers. 

Undecided Issues. There are several related issues which are still pending before the FCC:  

• Should private cable operators be covered by the exclusivity ban?  

• Should the FCC regulate exclusive marketing agreements between cable companies and multi-unit developments?  

• Should contracts for bulk services be banned or otherwise limited?  

We will be monitoring the FCC’s actions on these issues and will provide updates in future newsletters.  

Existing and Future Contracts. Any association which currently has an exclusive cable contract should have counsel review their particular agreement to determine how to proceed. Additionally, associations should carefully review the proposed terms of any future contracts with telecommunications service providers (including those which are not covered by the FCC order such as satellite companies and phone companies). Watch out for provider attempts to use side “exclusive marketing agreements”, “inside wiring control agreements” or “bulk rate agreements” as de facto exclusivity agreements which indirectly keep competitors out of the association for long periods of time. Also, check to see if the provider seeks to retain the right to unilaterally increase prices after these side-agreements are executed, or if the provider wants to obtain long term exclusive control over inside wiring.  

REPEAT VIOLATIONS  

Feedback #1. Sheesh, it is scary that Ed [who opposes hearings on repeat violations] has been doing this work for years and seems to have a "shoot first and ask later" attitude. Seriously, in this country a person is innocent until they have due process. Ed assumes that no matter what, a person is guilty because of their past. Pretty sad in my opinion. Every case CAN be different. -SL 

Feedback #2. We do not push fines with our clients. Generally they are insufficient to recover the time and effort incurred by management. We prefer to charge, after due process, a charge which is based on the cost that the association has incurred. As you know, getting a judgment so that you can collect a fine is difficult. So, our management contract says that compliance administration, which consist of many administrative actions leading up to meetings/hearings, is accounted for in the same way as most law offices do. We use “Time Slips,” and account for the effort and expenses. We keep track of our services either routine or extra from time slips. The routine services are provided on a fixed monthly fee and the extra services, including compliance administration and the like, are identified so that we can gage our costs of services. -Doug Christison CCAM, PCAM 

After my newsletter last Sunday announcing the addition of Google to the website, we had a meltdown because of the number of users on the site. The system slowed to a crawl. That was not supposed to happen so I want to apologize to everyone. Our website provider made adjustments so it shouldn't happen again. -Adrian Adams 

APPROVING LIENS  

QUESTION : With more homeowners falling behind on assessments (dues?), pre-lien warnings have increased in our association. To go to lien, the law requires that "The board shall approve the decision (to record a lien for delinquent assessments) by a majority vote of the board members in an open meeting." Does this mean that we have to do this for each lien we record, or just for the initial decision to establish an association policy that liens will be recorded 30 days after pre-lien if no payment is received? 

ANSWER : In addition to establishing a collection policy, boards must vote to authorize each lien. Boards can approve them one by one, or vote on a single motion to "file a lien on the following three units.” The lien authorization must be made in an open meeting and recorded in the minutes. Foreclosure resolutions must be done separately in executive session. 

VOTE TO "ABSTAIN"  

QUESTION : Our board has 11 members; if 5 vote yes, 5 vote no and 1 abstains, does the abstention fall with the yes or the no vote? 

ANSWER : Neither. If a director abstains from voting, that means the director has not voted. An abstention does not count as a yes or a no vote, it is a non-vote, a decision not to make a decision. 

REPEAT VIOLATIONS vs.
CONTINUING VIOLATIONS  

Probation Analogy. I not only disagreed with your opinion regarding hearings and fines, I disagree even more with your definitions of repeat vs continuing violations. I have been advised by separate legal counsels over the years that if a member continues to violate the governing documents in a similar fashion, no matter how it’s done, fines can be assessed without a further hearing as long as the determination of future violations is made by the board at the hearing.  

The law allows probation and I am a big fan of time-frames. If a member violates a restriction and has a hearing, then the board can rule that he/she must not violate for a time-period (6 months/18 months/etc.) without further fines. In the alternative, a board could say that if a time-frame expires, then a new violation occurs, which would require the due process to start again. Your too strict interpretation gets in the way of practical fairness. The spirit of the law is sometimes more important than the letter.  -Ed V. 

COMMENT . I disagree. In the criminal justice system, those who violate probation still get a hearing before further penalties are levied. Simply being accused of violating probation is not sufficient to impose automatic penalties; a hearing must be held to prove that probation has actually been violated. Due process may be a hassle but it ensures fairness. -Adrian Adams 

3-Strikes Rule. I agree with you that there is a difference between a repeat violation and a continuing one. Another example of a continuing violation is a front door that has been painted, without ARC approval, a color that is not acceptable by the ARC. The violation continues until the door is repainted or the ARC approves it in writing. I have my own personal “rule” regarding fines that I try to get boards and compliance committees to adopt. Don’t impose more that 3 fines for the same violation. Fines are imposed for a past bad behavior which violates the CC&Rs (as compared to some uncertain belief that a violation will continue into the future). A fine is also imposed to change the owners bad behavior into compliance. If three fines haven’t done the job, then fines are not going to work and the board must either stop wasting its time on enforcement attempts for this violation, or move on to injunctive relief. -Richard Neuland, Attorney at Law Neuland, Nordberg, Andrews & Whitney LLP 

COMMENT . Mr. Neuland's "3-Strikes" rule is a good idea. Boards should not endlessly impose fines on repeat offenders. At some point, they must take legal action against habitual offenders. -Adrian Adams 

EXECUTIVE SESSION MINUTES  

QUESTION : We were advised not to put names or unit numbers in executive session minutes but to use APN or account numbers because of confidentiality issues if executive session minutes are accidentally lost or misplaced. 

ANSWER : Boards can and probably should put names and unit numbers in executive session minutes. It provides a clear record of the board’s actions. Since executive minutes are not open to membership inspection, there are no issues of privacy or defamation. However, boards should take care to keep executive minutes separate from open meeting minutes so they are not accidentally distributed to members. 

IT'S OKAY IF OLD PEOPLE DROWN  

QUESTION: We closed our swimming pools until we can get them in compliance with the new Virginia Graham Baker Pool & Spa Safety Act. Some board members want to open the pools anyway with a stipulation that they can only be used by people over the age of 18. Your thoughts and comments on this please. 

ANSWER : I'm amazed at how some people keep looking for ways to avoid compliance with the new law. If persons over the age of 18 drown because the pool violates Federal law, the association will get hit with the same lawsuits and fines.  

LAWYERS ON BOARDS

QUESTION : Is there a conflict of interest when one board member is a practicing attorney & makes pronouncements on all issues that come before the board? He often twists the law to suit his own personal wishes, and intimidates the other two members who are not lawyers. 

ANSWER : There is no conflict of interest unless the lawyer or his firm has been hired by the association.  

Good Lawyers. A lawyer on the board can be a valuable asset to an association. Legal training brings unique analytical skills to problems faced by boards and a good lawyer can be invaluable at spotting potential liability issues. 

Problem Lawyers. Where lawyers get themselves and everyone else into trouble is when they freely offer legal advice. The problem is that they often have no experience with community association law. They mean well but but their advice is sometimes dead wrong. Associations should hire good corporate counsel and follow their advice. Seasoned lawyers on boards will defer to corporate counsel. 

Nightmare Lawyers. The nightmare lawyers are the ones with the giant egos--the bullies. They constantly remind everyone that they are the smartest person in the room (or so they think), and they regularly threaten and intimidate fellow directors to get their way. They are an embarrassment to the profession. The membership should replace them as quickly as possible--either through a recall petition or by electing someone else to the seat at the next annual meeting. 

REPEAT VIOLATIONS vs.
CONTINUING VIOLATIONS  

I received a number of inquiries about last week's article on automatic fines. I wrote that each violation requires a hearing before fines can be levied. They wanted to know if there is a distinction between repeat violations and continuing violations. There is.  

Repeat Violations. An example of a repeat violation is where an owner violates a rule by letting his dog off the leash. The board holds a hearing and fines him. The next month the owner's dog is off the leash again. That requires another hearing and another fine. The following month he does it again--a third hearing and another fine. The rules may allow for escalating fines, $50, $75, $100, but each incident requires a notice, a hearing, presentation of evidence, and a written decision. 

Continuing Violations . A continuing violation is a single violation that persists. For example, If an association limits owners to one dog of no more than 25 pounds (typical for dense condominium developments with elevators) and an owner moves in with a 200-pound Mastiff (scary for people in narrow hallways and tight elevators), the board may impose a daily fine against the owner until such time as the dog is removed from the property. The board holds one hearing and imposes a continuing fine for the continuing violation. 

Carrot and Stick . I like the carrot and stick approach when using daily fines. The goal is to eliminate the violation not to make money. Once the fine is levied, the board should simultaneously offer to waive the fine if the owner complies within 30 days (or some other reasonable time period set by the board). Offering to waive the fine encourages compliance and eliminates trips to court. We include a provision for daily fines in our documents and I recommend that boards update their documents to allow for such fines. 

BANKS AND SPECIAL ASSESSMENTS  

QUESTION : We have two foreclosed units in our complex. If a special assessment becomes necessary can we require the banks to pay their share of the assessment in addition to the monthly HOA dues? 

ANSWER : If the special assessment is imposed after the bank foreclosed and took ownership, the bank is responsible for paying its portion of the assessment. The same may be true if an assessment is imposed prior to a bank's foreclosure but payments are not due until after the transfer of ownership. You should ask your association's legal counsel for an opinion regarding your particular assessment. 

AUTOMATIC FINES  

QUESTION : If an owner is fined for a violation one month, then repeats the violation the following month, can we go straight to a fine or does the hearing process start over again? 

ANSWER : You cannot levy fines without hearings. Like speeding tickets, getting one ticket does not mean all subsequent citations result in automatic fines. The accused gets an opportunity to contest each citation. The same applies to rules violations; each requires a hearing before fines can be levied. 

TELECONFERENCING FOR
MEMBERS  

QUESTION : Regarding directors joining meetings via teleconferencing, is the same right available to owners who cannot attend in person? 

ANSWER : The Corporations Code provides for teleconference attendance by directors but not members. However, boards can voluntarily provide for remote membership attendance. Some associations broadcast their meetings over a private cable TV channel. Others are exploring internet broadcasts. 

AREA CODE OVERLAYS  

New area code overlays for telephones continue to be added throughout California. If your association has fire alarm monitoring equipment that alerts a company or the fire department whenever an alarm is activated, you need to make sure the automatic dialer has been upgraded to handle the new ten digit dialing requirement. This may also be true for elevator phones as well. To avoid potential liability, associations should immediately update their automatic dialers. Thank you to Craig Jacob of Management Emporium for pointing this out.  

FLOOR NOMINATIONS  

QUESTION : At the annual meeting, nominations from floor were requested. One person wanted to volunteer but wondered how anyone could vote for him if they had already voted with a mail-in ballot. What is the purpose of floor nominations if the voting is already complete? 

ANSWER : That is one of the unintended consequences of the new election law. To fix this and other problems, we add director qualifications, eliminate floor nominations, get rid of cumulative voting, and drop quorum requirements whenever we amend an association's bylaws. It makes director elections run a LOT smoother. 

18-YEAR OLD PRESIDENT  

Feedback #1. Regarding your statement "I think 18 is too young to drink or vote," it amazes me that people do not think 18 is too young to go to war! There are some very bright 18-year olds out there. I say let's give them a shot at it. As the o'le saying goes, actions speak louder than words. Judge them on that. -Ingrid K. 

Feedback #2. I was first elected to my community's board at age 17. I was the Secretary and Treasurer and was placed in that position as I was the most qualified of those elected or serving on the board. I was able to read and understand the financial statements and had better language skills. I was also the only one on the board that read the governing documents cover to cover and understood them. Age doesn't have much to do with it, maturity and common sense are better factors to judge by. As long as there is no conflict of interest and the person has the maturity and common sense to deal with the issues facing the community, let the person serve without judging them based on their age. Twenty years after first being elected and with a long break in between, I am again serving on the board and own my own management company. Funny how the future writes itself.... Maureen McCormick, Common Interest Community Management LLC, Rancho Cucamonga. 

Feedback #3. I’m not a prude by any standard, but the 2nd paragraph in the answer to the 1st question seems wholly inappropriate. “Very close” can be an old friend from school, or a friend of the President’s parents, or any number of things other than painting this picture of promiscuity for the thousands of people who read Davis-Stirling.com. Perhaps it could have been left to suggesting that the President divulge to the association owners who elected her to the board the exact nature of her relationship with the manager, and that the manager should probably recuse himself or herself and have another manager assigned to the project. -Jim A. 

RESPONSE : I agree, "very close" might be an old friend from school. When the writer used "extremely close" in quotes, that suggests more than just an old school friend. For that reason, a different manager should be assigned to the account--one who is not "extremely close" to any of the directors. 

PRIVATE RECORDING
OF MEETINGS  

QUESTION : I understand that it is illegal to record a conversation without the consent of the participants. Am I correct? Wouldn't everyone at the meeting have to give their okay to have the meeting recorded? 

ANSWER : The Penal Code makes it a crime to record confidential conversations without the other person’s consent. However, it does not apply to open board meetings or to membership meetings. Such meetings are considered public forums for free speech purposes. As a result, recording an open meeting (as opposed to executive sessions) does not violate the Penal Code. However, the board can adopt rules against private recordings. For a more complete discussion on this subject, see " Private Recordings of Meetings." 

18-YEAR OLD PRESIDENT  

QUESTION : How young can someone be to be on the board? There are "extremely close" ties between our offsite manager and the president, an 18-year-old daughter of an owner. 

ANSWER : Unless the bylaws set an age limit, an 12-year old can serve on the board. Most bylaws created by developers have zero qualifications for directors. That means anyone can serve on the board, including the homeless person sleeping next to the association's dumpster. I think 18 is a bit young to be a director--but then I think 18 is too young to drink or vote. If you want to establish qualifications for who may serve on the board, you need to amend your bylaws. 

If by "extremely close," you mean the manager is sleeping with the president, that creates ethical issues that need to be addressed by the board. Let's hope the manager isn't charging for his extra meetings with the president. 

NOTICE OF MEETINGS  

QUESTION : I told the board that I expect written notice of the meetings because I rarely notice posted signs because of my schedule. The board maintains that a posted sign is all that they need to do. 

ANSWER : Civil Code §1363.05(f) requires that in addition to posting a  notice in a prominent place the common areas, notices must be mailed to each owner who requests notification by mail, at the address requested by the owner. The notice must also contain the agenda for the meeting. 

PAYING TWICE MEANS VOTING TWICE  

QUESTION : One of our members owns two units. Whenever there is a vote on a subject, she only gets one vote--correct? Also, there is going to be an assessment to paint the building. She will have to pay twice--correct? 

ANSWER : If she owns two units, she not only pays twice but she gets to vote twice. 

DISRUPTIVE OWNERS  

QUESTION : Can a member of a homeowners' association be removed from a board meeting because their behavior is disruptive? Where is this covered in the Davis-Stirling Act? 

ANSWER : Ejecting disruptive members is not in the Davis-Stirling Act; it’s part of parliamentary procedure. 

RECORDING MEETINGS  

QUESTION : Can a homeowner record board meetings if there are no prohibitions in the bylaws? 

ANSWER : Absent any restrictions in the CC&Rs, bylaws, or rules adopted by the board, yes. 

EXECUTIVE SESSION MINUTES  

QUESTION : A board member has informed me that I was discussed in executive session under the heading "disciplinary." I have requested those minutes that concern me and have been told I will need to have an attorney subpoena them.  

ANSWER : Members are not entitled to executive session minutes. Civil Code §1363.05(d). This would be true even if the board is discussing a subject relating to the requesting member in executive session, since there is no such exception in the statute. 

SCHEDULING MEETINGS  

QUESTION : Yesterday's board meeting was canceled due to a lack of quorum. The president is trying to push for a meeting within two weeks even though there are no emergency issues. However, two of us have very busy work schedules and can't meet. Is the board obliged to accommodate ALL schedules rather than proceed without two board members? 

ANSWER : The board should try to accommodate schedules whenever possible but there is no legal obligation that it do so. Unless otherwise provided in the articles or in the bylaws, board meetings may be called by the chairman or president of the board or any vice president or the secretary or any two directors. Corp. Code §7211(a)1. Even though you may not be able to get away from work, you still have the right to attend meetings by phone. If you request it, the president must make arrangements to have a speakerphone at the meeting. It must have a conferencing feature so your other busy director can attend as well. 

SWIM DIAPERS

The Center for Disease Control ("CDC") has adopted a "Vessel Sanitation Program" that strictly prohibits children in diapers or who are not toilet trained from using public swimming pools and whirlpool spas on cruise ships. This is to prevent pool contamination and the spread of gastrointestinal illnesses. 

The CDC has determined that swim diapers are not effective in preventing contamination. Although swim diapers prevent solid feces from escaping (assuming they are properly fitted and changed often), they cannot prevent leakage of urine or diarrhea, which contain infection-causing germs. Some refer to swim diapers as "fecal tea bags." 

Based on CDC's rulings, it is our opinion that associations may adopt similar restrictions for their pools and spas. However, boards should be aware that various anti-discrimination laws prohibit discrimination based on age. Accordingly, boards should consult legal counsel to ensure their rules are properly drafted to apply neutrally to all persons  who cannot control their bladder or bowels, not just children. 

ADULTS ONLY POOL  

QUESTION : Our facility has a children's pool and an adult pool. The children's pool has been closed for a few months now and the board has allowed children in the adult pool. This is a health issue since many small children cannot wait to go to the bathroom and go in the pool. Is there a time requirement for the board to fix the children's pool or remove the children from the adult pool? 

ANSWER : Prohibiting children from using swimming pools, establishing adults-only pools or adults-only times violates the Fair Housing Act as discrimination against families with children. Your board should be diligent in repairing the "children's" pool but there is no a specific time frame by which it must be fixed, especially since children are allowed to use the "adult" pool. In the meantime, your board should consider adopting a rule prohibiting all persons who cannot control their bladder or bowels from using the association's pools and spas. 

CHILDREN IN THE STREET  

QUESTION : Should children be allowed to play in HOA-owned streets? 

ANSWER : The answer depends on the community. Gated communities with minimal traffic or dead-end streets might be okay with children playing in the street. Others with busy streets, blind alleyways, and cramped parking areas might prohibit playing in such areas. Some might allow children in designated parking areas under adult supervision. There is no one rule that fits all situations. Instead, each association must adopt reasonable rules to address the safety concerns of their particular community. 

REALTOR/DIRECTORS  

I am a Realtor who has served on an HOA board for many years without providing favoritism, nor compromising my ethics or that of the HOA. I have handled all of my decisions without regard to my status as a Realtor. If fact, I have fought the cronyism of other board members, even those that are retired, who did engage in favoritism for their friends and used their position to attack their enemies. I think it is unfair to single out Realtors on a regular basis. Realtors have a tremendous wealth of knowledge about real estate law and what is in the best interest of an HOA. A Realtor who abuses his/her position as a board member is not going to be very successful in obtaining listings, etc. The process should police itself no matter the profession. -John M. 

RULES POLICE
(final words on this subject)  

On the issue of making the names of complainants known to violators, I'm against it because it discourages legitimate complaints from being lodged. When I represented a city government, I refused to disclose the names of neighbors who made complaints regarding code enforcement violations. The reason was that our investigators could develop sufficient evidence on their own and the informant's identity became irrelevant. If, on the other hand, we couldn't make the case without the informant's testimony, I would either get permission from him to disclose his name or drop the case. HOAs can follow the same procedure. -Bill S. 

INSURANCE BLANKETS
(last words on this subject too)  

I have seen a few comments in your newsletter about blanket programs so I thought another comment from me would be important. I have seven blanket programs and am restructuring each one to comply with new Fannie Mae "no blanket" regulations as each renews. The insurer for each one that has not been restructured yet is splitting out to cover separately at no added charge any HOA that have pending new loans being processed so these will go through. Blanket programs grant their participants way more coverage than they could obtain on stand alone policies–-such as huge code upgrade limits, often no sublimits at all, much more water coverage such as unlimited backup of sewers and drains, rain damage to interior without requiring exterior damage, slow leak water claims occurring over a period exceeding 14 days, all excluded on stand alone policies. Also pollution liability for cigarette smoke, hot tar roofing fumes, diesel spills, and mold liability are also included in my programs at a very inexpensive price. Premium saving and coverage security of a consolidation are also important benefits, especially in this economic climate. -Dorothy McCorkindale, CPCU Senior Vice President Wells Fargo of California Insurance Services, Inc. 

CHILDREN IN THE BUSHES

QUESTION : My association has children who like to play a hide and seek game they call cops and robbers. The 'cops' try to find the 'robbers' and bring them back to the designated home area. It is good clean fun, however some residents and board members dislike the running between buildings and hiding behind shrubbery. They are talking warning letters and fines. I feel that as long as they stick to common areas and do no damage, let them have their fun. 

ANSWER : I agree. Children should be allowed to be children. Requiring children to calmly walk from point A to point B in the common areas and to never speak above a whisper is unrealistic. Children need to play and laugh and occasionally yell. It's part of the growing process. It gives them needed exercise and they learn how to socialize. Older people sometimes forget they went through the same process--if they didn't, that may explain some of the sour personalities in our associations. 

GETTING OUT OF THE
INSURANCE POOL

Feedback #1 . I would never recommend that an HOA allow itself to be insured under a "blanket" policy of its management company. The risks are simply too great. First, because insurers typically send premium and cancellation notices only to the first-named insured (that would be the management company), the HOAs will never receive any notices affecting coverage. 

Second, if the management company does not have sufficient funds to pay the premium (because, say, some of its HOAs have insufficient funds on the day premium payments are due or are insolvent), what are the chances that the management company will advance the funds to make sure the premium is paid? -Stephany Yablow, Esq. 

Feedback #2. Some important points were not noted in past insurance discussions: (1) Some of the group programs offer specific blanket limits for the individual association insured, but they do not take on the responsibility of assuring that the "insured limits" are adequate to meet a) the actual replacement cost on a total loss, or b) meet the minimum insured limits required by the Association's governing docs. (2) Some of the group programs require a $5,000 Liability deductible without any commensurate premium discount. This may be appropriate for a certain large size association, or a large property management company insuring many large owned, or client properties, but not necessarily for the smaller property owner, or association that can easily get the same basic coverages, and premiums without accepting such a onerous condition. -Anthony Verreos, VERREOS Insurance Agency 

DUES vs. ASSESSMENTS  

As a grammar nut, I liked the comment about “dues.” It’s plainer and better understood by owners. I use it for monthly dues, since they’re fixed and regular. They’re “due” every month, like rent or a mortgage payment. I use “assessment” for something levied or something extraordinary, such as a special or emergency assessment. (Plus “dues” is easier to type.) -Mark O. 

CONFLICTS OF INTEREST  

Realtor/Director: There’s a worse conflict of interest [than the president-management company employee described last week]. We had a board president who was a real estate agent who fought to keep dues low so sales would be easier. As a result, the HOA was under-funded for the four years he was president and subsequent boards were forced to make major dues increases to catch up. 

RESPONSE : A realtor on the board does not automatically create a conflict of interest. Realtors can offer great insight into many aspects of the of the development. Conflicts arise, however, when realtor/directors are actively listing and selling property in their associations. They sometimes exert pressure to shift limited funds away from needed repairs and into discretionary cosmetics. For example, they might push the board to plant flowers and paint buildings when money should be spent on plumbing repairs and a new roof. Low dues and pretty flowers make it easier for the realtor/director to sell units and earn commissions. This is in the director's best interest but not the association's best interest. To avoid conflicts, a realtor/director should either cease all listing and selling of units in his/her association or step down from the board.  

Insurance/Director: Do you see any problem with a board president who works for an insurance agency requesting that the HOA insurance be placed with the insurance agency where the board president is employed? The board president in question does not work in the capacity of an insurance agent and is not employed in sales.  

RESPONSE : The situation you describe is less of a problem than realtor/directors described above. If the president does not personally benefit from the board's action and recuses himself from any discussion and vote on the matter, i.e., leaves the room so the board can freely discuss the issue, I don't see a problem. I would hate to see a perfectly good insurance product excluded from the board's consideration simply because a director is affiliated with the company. If the director sells insurance and receives a commission from the board's decision, or demands the board buy his company's policy, then there is a problem. If the president demand it, the board should refuse. If he simply offers it for consideration, the director should not only recuse himself from the decision-making process, he should voluntarily give up his commission so as to avoid any accusation from members that he was self-dealing. 

RULES POLICE  

Feedback #1. I don't think publishing names [of complainers] in the newsletter is a positive manner to run a community. There is no need to add to the animosity already found in communities. 

I find that if the association has a policy (for reporting violations), it will take pressure off everyone. 1. All complaints must be in writing and signed by the complainant. 2. In cases where the complaint is against another resident, a copy is sent to the owner for response prior to any hearing or fine process. 3. The response is part of the record and will be forwarded to the original complainant. 

If there is a second written complaint submitted on the same issue, a hearing is scheduled and all parties invited to attend along with their witnesses to defend their position.-Sue L. 

Feedback #2. Are you guys kidding??? Are you actually advocating that the owners who complaints are filed against get to know their “accusers”?? This is not a court of law and would create a very hostile environment, and possibly a liability from retaliation related events.
-Rick R. 

RESPONSE : In any disciplinary hearing, the accused has a right to know who his accusers are. It is one of the basic elements of due process. -Adrian Adams 

Feedback #3. You are totally wrong. No one will turn in a CC&R violator if it is known who they are. You would be putting their lives in danger. You would then have to have a condo witness protection program. Please rethink your answer. -Patsy O. 

RESPONSE : I did not say publishing the accuser's name was a good idea, just that I was not aware of any law that prevented an association from reporting in its minutes or newsletter that a particular owner lodged complaints with the board. However, when it comes to disciplinary hearings against a member, the witness (the accuser) must appear at the hearing and testify against the accused unless the association independently verified the violation, i.e., through a security camera recording, a security officer's report, a staff member, etc. -Adrian Adams 

Feedback #4. I noted a word I didn't know: officious, and upon looking it up, I find that the person who wrote in used it redundantly, as one of it's meanings is meddlesome. Your advice is correct, but the implication of the person who wrote in implies that we should all just mind our own business. In a condo you can't mind your own business. You can't protect your own interests independently of the community. The community needs to be aware of setting rules that make sense, and keep to them. Otherwise change the rules. People who expect to complain anonymously also need to understand the basic rules of law which you noted. If everyone agreed on what good behavior is, and followed it, maybe we wouldn't need so many rules, but they obviously don't, and your newsletter proves that case regularly. -Anthony V. 

RULES POLICE

QUESTION : Is it acceptable to identify serial complainers who seem to fashion themselves as self-appointed HOA police? We have two such officious meddlers who frequently single out other homeowners for perceived rule violations. It doesn't seem fair for them to remain anonymous while stirring up the HOA. 

ANSWER : I’m not aware of any law that prevents an association from reporting in its minutes or newsletter that a particular owner lodged complaints with the board. Moreover, as part of due process requirements, owners accused of rules violations have a right to know who their accusers are. 

BOARD PRESIDENT'S
CONFLICT OF INTEREST  

QUESTION : If the board president works for the association's management company, is this not a conflict of interest? 

ANSWER : I can't think of a worse conflict of interest--the president personally benefits from both his board decisions and his management decisions. Recusing himself from votes involving the management company is not sufficient; your president should either resign from the board or end his relationship with the management company. 

DISCIPLINARY HEARINGS  

QUESTION : When holding a disciplinary hearing regarding tenants, one of our members has a "manager" who has a record of flouting HOA rules, disrupting board meetings, and bringing in problem tenants. The HOA member in question insists on this personal "manager" appearing for the hearing in her stead. Is the HOA required to grant this demand? 

ANSWER : There is no law requiring you to allow the "manager" to appear on behalf of the owner. You could require the owner to make her own appearances. However, if you follow the small claims model for your hearings, the "manager" could present evidence as to why the owner should not be fined for the misbehavior of her tenants. Once the manager is done and has left the executive session hearing, the board can deliberate and make its decision.  

The manager cannot disrupt the hearing or attack the board any more than he could disrupt proceedings or attack the judge in small claims court. If he does, you can end the hearing and dismiss him from the room. You can then make your decision based on the evidence presented and send the owner your decision. Make sure you meet all appropriate deadlines.   

FARM ANIMALS  

QUESTION: We are a horse community zoned for horses & limited animals. The new board is allowing a conditional use permit for farm animals in our community (pigs & cows). The new board refuses to enforce our CC&Rs. What can we do?

ANSWER : Owners have two remedies available to them. The first is political--by rallying the membership to pressure the board to enforce the CC&Rs or replacing the board if it refuses. The second is legal--going to court for an order. The political route is a less expensive than going to court but a lot more work. The legal route involves less work but it's expensive and the outcome is not assured--you may get a judge who loves pigs.  

DUES vs. ASSESSMENTS  

With regard to the issue of "dues" vs. "assessments," one of my pet peeves is folks who like to point out that the word "dues" is incorrect. It's not. A quick visit to the Oxford English Dictionary will show that "dues" is a more general term covering any type of monies due (including assessments). Assessments is a more specific term dealing with a certain type of dues, specifically a type of tax that was assessed. 

So while the word "assessments" is a better word if you wish to be more specific, all assessment are, in fact, dues by definition. So the word "dues" is never incorrect, just less specific. -Dave C. 

WELLS FARGO
INSURANCE PROGRAM  

Dorothy McCorkindale, Senior Vice President Wells Fargo of California Insurance Services contacted me about their CCCASA program. She reported that as of its 2/1/09 renewal, CCCASA complies with the December 2008 FNMA regulation of no blanket coverage for unaffiliated HOAs. 

"We also have blanket programs for six property management companies and as each of those renews, it is being restructured to comply as well. For any condo unit loans that come up mid-year on those programs, the property insurer is separating out the complex in question, and issuing separate limits to comply as well." 

Ms. McCorkindale stated that Wells Fargo is working with FNMA to have its programs accepted with blanket coverage because of the "huge benefit to the insureds as long as the selected blanket limit is adequate given the values at risk." She also provided insight into why Fannie Mae imposed a "no blanket" regulation--it heard about a $100 million limit on a $1.9 billion Florida property and freaked.  

RELEASING
CONFIDENTIAL MATERIAL

QUESTION:  What is the amount of time for executive sessions to remain confidential?  

ANSWER: For most executive session matters, confidentiality should extend indefinitely. This includes personnel matters, an owner's delinquency payment plan, the identity of rules violators, and most legal matters. Releasing confidential information could result in claims of defamation, invasion of privacy, violations of statute, etc. The Legislature made such matters confidential for a reason, so boards should be cautious about releasing executive session information. 

Who Can Waive Confidentiality? The authority to release information is held by the board as a whole, not by individual directors. Once the information is released, it cannot be taken back. Accordingly, directors who release information without board approval may be in violation of  their fiduciary duties and may be personally liable for any damage that results. 

FANNIE MAE REQUIREMENTS
Reader Feedback  

#1.  Your comment about [insurance] pooling is off the mark. If that were the case every carrier that is set up as an interinsurance exchange would no longer be an acceptable policy for Fannie Mae. That would include Farmers, and Auto Club to just name two. I think you have some bad information there. If that were the case it would have been on the front pages of every major newspaper in the country. Not to mention that it would shut the real estate industry down completely. CIBA is a risk purchasing group not a risk retention group. The property portion has an automatic reinstatement after every loss. They don’t share anything, that would impinge upon their ability to be acceptable to a financial institution, including Freddie an Fannie. -Elliot Katzovitz, Elliot Katzovitz Insurance Agency, 8503 Washington Blvd. Culver City, CA 90232 

#2.   Your comments about pooling are correct. What Fannie Mae considers unacceptable is "a blanket policy that covers multiple unaffiliated condominium associations or projects." In my opinion, CIBA is both. It is a "blanket policy" and it "covers multiple unaffiliated condominium associations or projects." While there is a large shared limit ($500,000,000 for All Risk, $150,000,000 for Earthquake), there is nothing in Fannie Mae's guidelines currently that would suggest an exception for CIBA, regardless of whether or not the limits are automatically reinstated after each loss or not. -Timothy Cline, Timothy Cline Insurance Agency, 725 Arizona Avenue, Suite 200 Santa Monica, CA. 90401 

#3.   As to Fannie Mae and Announcement 8-34, your initial comments in "HOA Master Policy" are correct with respect to "multiple unaffiliated condominium associations"--Fannie Mae does not approve of them. The word "pooling" as you use it is also correct in that Fannie Mae does not like pools. Their position on multiple unaffiliated condominium associations and pools arose in part out of the Florida situation where the Florida Condominium Act was allowing associations to form self-insurance pools with high attachment points as long as the "pool" met certain stringent criteria. Fannie Mae simply decided the risk was too great. These types of arrangements also meant that any given association would not be the First Named Insured in the policy--whomever put the group or pool together would be the First Named Insured (i.e. CIBA, to use your example). Some misunderstand the use of the word "pool" with respect to Farmers--Farmers is a reciprocal insurance exchange (a pool of sorts), but all of its policies are issued with the entity being insured as the First Named Insured. This is not the type of "pool" that Fannie Mae is referencing. -Clifford J. Treese Association Information Services, 7724 Creekside Drive Pleasanton, CA 94588 

#4. I agree with the response from Mr. Treese. And truly, it isn’t in the best interest of any association to be part of an insurance pool unless it is absolutely necessary (i.e., loss issues carry the risk toward un-insurability). Michael Berg, Berg Insurance Agency, 23651 Birtcher Drive, Lake Forest, CA 92630 

COMMENTS : Michael Marino, President/CEO of CIBA Insurance Services, contacted me about the CIBA program. He believes his program complies with the new Fannie Mae guidelines. He reported that the Program is not a shared aggregate or pool as previously reported and that CIBA is currently under review by Fannie Mae. I've asked Mr. Marino to let me know the outcome of the review so I can pass on the information to everyone. -Adrian Adams 

RESIGNING DIRECTOR
CONTINUES TO VOTE

Dear Adrian, While it may seem best to avoid the confrontation with the former director, and simple to just overlook or ignore the fact that the director resigned, doing so can create other serious problems for the board and the corporate association. 

If the association’s attorney attends a board meeting with the former director in attendance, the attorney client privilege may be lost. This can have serious repercussions when board members have spoken freely believing their remarks cannot be compelled to be disclosed to others since the lawyer is present and the attorney client privilege (“ACP”) is operative. However when there are present during the conversation with the lawyer other persons (like the former director) who are not part of the client control group (the board) or those necessary to carry out the board directives and decisions (the manager and staff) then the ACP does not attach to the communication. 

Furthermore, if before the board replaces the resigned director, the board allows the former director to vote on issues of great import and the result is a 3 to 2 vote to approve, with the former director voting to approve, the result if challenged in court will not stand. The real vote in this simple example is 2 to 2, and it does not pass since it didn’t get the affirmative assent of a majority of the board members in attendance. Remember there are only 4 directors present as the 5th person is no longer a director.  

There may be other issues as well but these are both significant and make the point that the directors should not simply ignore the former director’s presence, attempting to act as if no resignation took place.
-Richard P. Neuland Attorney at Law Neuland, Nordberg, Andrews & Whitney LLP 

RESPONSE. I agree. A director who resigns cannot continue to participate in board meetings and vote on issues (unless the resignation was made effective at a future date). Doing so seriously compromises the association as Mr. Neuland described. -Adrian Adams 

RAISING DUES  

#1.  Didn't you mean assessments?? -Harry I. 

#2.   I do not mean to be picky but one of my pet peeves is when people use the term dues instead of assessments. I have learned the difference: dues are voluntary (just like when you pay your membership dues to a health club) and assessments are mandatory. The term “assessments” is the right term. And that’s what we use in the CC&Rs. -Lorna L. 

Response:   Owners often use the term "dues" when referring to regular assessments and "assessments" when referring to special assessments. The person who sent the question used the term "dues." It may not be correct technically but it is widely used and understood, and I’m okay with it. -Adrian Adams 

RAISING DUES IN
DIFFICULT ECONOMIC TIMES

QUESTION: Can the board continue raising dues, without ever asking the individual homeowners to vote about such an issue in these very difficult economic times???

ANSWER : As long as the board stays within limits set by Civil Code §1366 (5% special and 20% regular assessments), it can raise dues without a membership vote. Even though board members are owners just like everyone else in the association, legal duties are imposed on them as soon as they are elected to the board. They may not want to raise dues any more than you do but they face potential liability if they fail to repair the common areas.  

Spending. Boards have narrow budgets with little or no discretionary spending. At best, they can defer some maintenance and implement limited reductions on a few expenses. Maintenance deferrals can, however, pose considerable risk if a leaky roof results in significant water damage, mold, and litigation. In the end, the deferral may be much more expensive than the original repair.

Easy Answers? There are no easy answers. Boards can defer what is reasonable to defer, squeeze every penny out of the budget, and limit dues increases. But associations still have to pay their utilities, buy insurance, update reserves, collect assessments, prepare financial statements, mow the lawns, and make repairs. If service providers raise their rates, boards may have no choice but to raise dues. 

The Federal National Mortgage Association (Fannie Mae) recently changed its lending guidelines. Changes that went into effect on March 1 will impact attached condominium developments throughout California.

Fannie Mae is the nation's largest player in the secondary mortgage market. First, it insures lenders against losses on condominium loans, thereby making lower-cost loans available to buyers. Second, it buys mortgages from lenders, serving as a source of funds for banks and making it possible for more buyers to borrow at affordable rates. As a result, lenders that want access to these funds can only lend in associations that comply with Fannie Mae guidelines. Following is a summary of some of the relevant provisions: 

10% Ownership. No more than 10% of the units in the development may be owned by a single entity.

Delinquency Rate. No more than 15% of the total units in may be 30 days or more past due on their HOA dues. For example, a 100-unit project may not have more than 15 units that are 30 days or more delinquent.

HOA Master Policy. The following insurance is no longer permitted: (i) blanket policies that cover multiple unaffiliated condominium associations, and (ii) self-insurance arrangements whereby associations are self- insured or have banded together with other unaffiliated associations to insure all of the general and limited common elements of the various associations. NOTE: This means that management company "pool" programs (as well as programs such as CIBA and CAASA) where unaffiliated homeowner associations share a single property limit on a blanket basis no longer qualify for Fannie Mae financing.

Unit Coverage. Buyers will now be required to purchase an HO-6 insurance policy, also known as “walls-in” coverage, unless the association's master policy provides equivalent coverage. This means insurance must cover all unit improvements, not just original construction.

Fidelity Insurance. Condominium projects with 20 or more units require fidelity insurance.

Developer Control. There are additional requirements for developments still under developer control or in transition to owner control, and mixed-use developments with more than 20% percent of its space devoted to non-living areas. 

RECOMMENDATION . If associations subject to the new guidelines do not meet them, potential buyers cannot get Fannie Mae backed loans. Financing will still be available but the costs will be higher and fewer buyers will qualify. This may have the effect of driving down property values in the development. To make their associations Fannie Mae compliant, boards should consider the following:

1.  Investors. Associations should amend their CC&Rs to limit persons or entities from owning more than two units. This will have the added benefit of reducing rentals.

2.  Pooled Insurance. Boards should have legal counsel review the lender provisions in their CC&Rs to see if the association is required to comply with Fannie Mae guidelines. If so, their association can no longer be in a pooled insurance program. If the CC&Rs do not require compliance, boards must make a business decision--they must decide whether they want lower insurance premiums or increased loan eligibility.

3.  Unit Insurance. When it comes to insuring unit improvements, associations can (i) leave it to buyers to obtain their own HO-6 policies, or (ii) increase the association's master insurance policy to include replacement of unit improvements. This means improvement such as Berber carpet, hardwood floors, tiled entryways, silk wall coverings, granite countertops, walnut cabinets, exotic plumbing fixtures, etc. For those associations with "bare walls" policies, increasing the master policy's coverage to expensive unit improvements will increase premiums. If an association's CC&Rs require owners to provide their own insurance, no action is required by the board. If the CC&Rs are silent, boards should consider amending their documents to require owners to carry their own insurance and to allow the association to purchase "bare walls" policies. This will keep premiums down.

4. Fidelity Insurance. This protects an association's funds against embezzlement or fraud, thereby preserving funds for maintenance, repairs, reserves and operating expenses. This type of insurance is not expensive and all associations should carry it regardless of Fannie Mae guidelines.

5.  Collection Policy. Associations must be aggressive in collecting delinquent assessments.

6.  Future Fannie Mae Requirements. Our firm is now amending CC&Rs with language that gives boards the ability to amend their documents to meet Fannie Mae requirements without the slow, costly, and uncertain process of a membership vote every time Fannie Mae changes its requirements. Boards should check with their legal counsel about doing the same.

7.  PUD Insurance. Some rumors have been circulating that PUDs need to buy condominium insurance. The rumor appears to be inaccurate. In light of the new Fannie Mae guidelines, all PUD and Condominium boards should have their insurance brokers review their policies and make recommendations.

Thank you to Michael Berg of the Berg Insurance Agency and Tim Cline of the Timothy Cline Insurance Agency for their input on Fannie Mae guidelines. Their contact information is in our Vendor Directory. For more information on Fannie Mae's lending requirements see Announcement 08-34 

PROTECTING VOLUNTEERS  

I work for a public agency that allows volunteers on public owned land. These volunteers are not covered under workers compensation laws and if injured are on their own for medical care etc. Although our private insurance carrier would cover them under the medical part of our liability insurance policy if they did not have private medical coverage. Each Volunteer is made aware of the policy and sign waivers to the fact that they understand they are not covered by workers comp insurance. -Anon. Reader 

POOL SAFETY REVISITED

QUESTION: Our pool only has one drain. We called the Los Angeles County Department of Public Health’s Bureau of Environmental Protection Swimming Pool Program. We were advised that we will not have to have another drain installed until such time as we resurface, renovate or drained for any reason. Since we currently do not plan to resurface, renovate, or drain the pool, are we still required to close the pool and lock the gate?

ANSWER: Ask the LA Public Health Bureau the following question, "Does our pool comply with the Virginia Graeme Baker Act?" If the answer is "Yes," get it in writing and open the pool. If the answer is "No," close the pool until your are in conformity with the Act. If you are not in compliance and someone dies in your pool, in addition to having a death on your conscience, you face crippling lawsuits and massive fines.

WITHDRAWING A RESIGNATION

QUESTION : One of our board members used exactly those words, "I quit!!!" in written board communication when things did not go to her liking -- but now she acts as if nothing ever happened and is making decisions for the board. Is she on or is she off?  

ANSWER: She is off the board. As provided for in Corp. Code §7224(c), a resignation takes effect upon written notice to the board and does not need approval by fellow directors to be effective. 

If your resigning director had made her resignation effective at a future date, she could have withdrawn it. From your question, it appears the director did not qualify her resignation nor did she withdraw it. Accordingly, she is no longer on the board and the remaining directors may appoint someone to fill the vacant seat. 

MORE COMMENTS
On Protecting Volunteers 

Gentlemen: The last item in your newsletter [by the Workers' Compensation Specialist] refers to amending bylaws to incorporate reference to "volunteers" under a section of Labor Code §3363.6 as employees of an HOA and thereby limit liability from the civil arena. I think the advice is flawed in that the section referred to applies to volunteers of a "public agency" and the Labor Code defines a public agency as quasi-governmental and section 1720.4(a)(1) specifically defines the public agency as a non-profit 501(c)(3). 

The Labor Code does include language that certain volunteers are excluded from coverage under workers' compensation and not deemed employees, but that applies to ski patrol and a few limited areas. The other exceptions are the 501(c)(3) categories only. 

As you know, HOAs are 501(c)(4) organizations. Consequently, it would appear that advice to modify the bylaws to incorporate section 3363.6 as applicable to volunteers being included in the category of "employee" of an association may be in error. -David Caine, Lake Arrowhead, CA 

COMMENT:  I invite those with workers' compensation expertise to send information and comments on this issue. -Adrian Adams 

COMMON AREA STORAGE  

QUESTION: Our association was built in 1960 and, since then, has allowed residents to share use of a storage room in the underground parking. People have stored boxes, mattresses, appliances, etc, at their own risk. The board suddenly wants to order everything removed so they can use it for storing documents and cleaning items. Can the board make this decision, or does it have to put the question before owners? 

ANSWER: If the room is part in the common area it is under the control of the board on behalf of the membership. If the board decides the space is needed for storing corporate records and cleaning supplies, the board can use it for that purpose without a membership vote. 

OWNER WEBSITES  

QUESTION: I am a resident in an over-55 condominium community. I also operate an unofficial website for the community. Do I have a right to post on my website public documents of the association, such as Articles of Incorporation, Rules and Regulations, and CC&Rs? 

ANSWER: Yes, but you need prominent disclaimers making it clear that your website is not the association's website and you do not speak for the association. Otherwise, you may incur potential liability for misrepresentation. 

RESIGNATION LETTERS

QUESTION : If a director resigns from the board, does a member have a right to inspect their letter of resignation? We had three directors resign and I would like to know why. 

ANSWER : Yes, you have the right to review letters of resignation. They are part of the corporate records of the association. 

DELINQUENT DIRECTORS  

QUESTION : I am a board member in a new HOA. We asked three current directors to resign due to delinquent assessments. They refused to do so. One of them has just gone into foreclosure. Is there a California law that would force these board members to be removed? Our bylaws do not address such an issue. 

ANSWER : There is no law requiring delinquent directors to resign. Your association needs to amend its bylaws to require that all directors be current in their assessments. Then, if they fall behind (by at least 60 days), they can be removed from the board. 

TERM LIMITS  

QUESTION:  How long can board members be on the board?  

ANSWER : If your documents have no term limitations, directors can stay on the board forever (as long as they remain alive and keep getting elected). This can be changed by adopting term limits. However, there is disagreement in the industry over the value of term limitations. 

Strict Limits. Strict term limits that allow owners to serve one or two terms and then forever bars them from the board are unworkable. It is much too difficult to recruit members to serve on the board. Also, what happens when everyone in the association has served on the board? Accordingly, strict limits should not be adopted.  

Flexible Limits. A more common term limit is one that allows directors to serve two terms and then requires them to step down for a year. This allows other owners the opportunity to serve on the board without permanently barring seasoned directors from serving at a later date. Even this kind of limitation can be problematic if no other owners are willing to serve on the board. To avoid this problem, term limitations should only take effect if there are people willing to run for the board.  

STACKING THE BOARD  

QUESTION: Our bylaws state that if a director fails to attend a specified number of regular board meetings, then that director is deemed to have resigned from the board. Our bylaws allow the remaining directors to appoint someone to fill the vacant seat. It seems to me that filling a vacancy by appointment gives the board the opportunity to "stack" the board with like-minded directors.  

ANSWER: It is quite common that bylaws allow for the appointment of directors. Although this creates the potential for uniformity of approach to problems, that's not necessarily bad. Also, appointmentsare never permanent since there is always another election just around the corner. Amending your bylaws so that all vacancies are filled by special election may satisfy your concern but it creates unnecessary cost since the association must solicit nominees, print and distribute ballots, and hire inspectors of election every time there is a vacancy. It makes more sense to appoint someone to fill the seat until the next general election. 

READER COMMENTS
On Protecting Volunteers  

What I have done for my HOA and my union is to have the board pass a resolution that states, "In accordance with Labor Code section 3363.6, all volunteers are considered to be employees for workers' compensation." I much rather have volunteers availing themselves of workers' compensation rather than suing the association for negligence or board members for intentional torts. -Glen Grossman, State Bar Certified Specialist, Workers' Compensation 

USING VOLUNTEERS

Because of the economy, readers have been asking about volunteers. 

QUESTION #1 : Our landscape committee would like to do pruning instead of using the landscape service. Will this create liability for us? 

QUESTION #2 : Several owners asked if we could use volunteers for small maintenance jobs around the complex. Our funds are low so this seems like a good idea. What do you think? 

ANSWER : There is always risk whenever an association uses volunteers. However, depending on the task, the risk may be acceptable. There are two sources of potential liability, (i) injuries to volunteers, and (ii) negligence by a volunteer that results in a lawsuit against the association. 

Injuries. When it comes to injuries, there are steps boards can take to reduce risk. 

   a.  Workers' Compensation Insurance . If a board member or committee member is injured while carrying out his/her duties, most insurance carriers will not cover the injuries because volunteers are not considered employees under Labor Code §3352(i). According to Tim Cline of the Timothy Cline Insurance Agency, only two carriers offer coverage for volunteers, OneBeacon Insurance and Republic Indemnity. To receive coverage, boards must appoint volunteers to committees and the appointments must be recorded in the minutes. Otherwise, the volunteers are not covered. 

   b.  General Liability Insurance. According to Carol Fulton of the LaBarre/Oksnee Insurance Agency, if volunteers are not covered under the association's workers' comp policy, injuries should be covered under the medical and general liability coverage on the association's master insurance policy. Like Tim Cline, Carol Fulton cautioned that volunteers should be on committees approved by the board of directors. 

   c.  Hold Harmless Agreement. Another precaution is to have volunteers sign a hold harmless agreement releasing the association of liability in the event the volunteer is injured. However, this may discourage volunteers if they have no protection in the event of an injury. Boards need to discuss this with legal counsel. 

   d.  Safety. Another way to reduce risk is to make sure volunteers have safe working conditions. This means no faulty ladders or damaged tools. Another is to only allow low-risk tasks (clerical work, picking up trash, sweeping sidewalks, planting flowers, etc). Boards should avoid high risk tasks--anything involving heights (cleaning gutters, replacing roof tiles) or power tools (chain saws, lawn mowers, and so on). 

Negligence . Another source of potential liability involves injury or damage to third parties. If a volunteer makes a plumbing repair that results in water damage to an owner's unit, the association could be liable. These kinds of actions should by covered by the association's general liability and D&O policies. However, the coverage may be conditional on whether the volunteer was named to a committee in the board's minutes. 

RECOMMENDATION: Boards need to make a business decision regarding the benefits of volunteers versus the potential risk. If associations want to use volunteers, boards should check with their insurance broker and, if available, extend coverage to them. In addition, boards should be diligent about naming volunteers to committees and recording the appointments in the minutes. 

Contact information for the Timothy Cline Insurance Agency and the LaBarre/Oksnee Insurance Agency are in our Service Directory.  

READER COMMENTS
About Last Week's Newsletter  

#1. Architectural Committee. I noticed in the Q&As that there was no reference to what an association's corporate docs say on the matter. For instance, our documents require an architectural committee of 3 members, one being an architect. -Sue L.

COMMENT: The board's actions must be in concert with the governing documents. If a board wants to reduce the size of the committee to one, it needs to amend the CC&Rs. -Adrian

#2. Architectural Committee. Your comments on whether or not architectural review committee proceedings need to be open to the members needs a minor qualification. Specifically, I don't think that conclusion follows during the period when the ACC is under developer control because, at that time, the committee is not a true committee of the Board and is not technically under the control of the Association (even though the committee has an Association representative). -Curt S. COMMENT : Good point. -Adrian 

#3. Rules Committee. I did not think a board could delegate its responsibility on member discipline. -Sue L. COMMENT : Boards can delegate their duties but not their liability. Boards routinely assign their duties to managers. Even so, directors remain responsible for overseeing their committees and managing agents and may be liable for their actions. -Adrian

#4. Pool Safety. Thank you for taking the time to put together such helpful and encouraging information. May I comment on the pool closing question? I did not realize how SERIOUS a situation it was until I started researching it on the net because of an article I was working on for our newsletter. Please encourage all to dig deep into their research, and vote to CLOSE those pools until they are fixed. -John F., Branson, Missouri. COMMENT : It becomes deadly serious if the board ignores the law and someone dies as a result. When a child drowns (the whole point of the law), a board's argument that, in their judgment, the risk of harm was not great enough to justify closing the pool will not save them from liability. They will be sued and they will lose. -Adrian 

WATCHDOG COMMITTEE  

QUESTION: Can members and tenants form a committee to monitor the board for the enforcement of the governing documents?  

ANSWER: Residents always have the right to assemble, to discuss issues of mutual interest, to monitor board activities, and to petition the board. However, they should be careful not to adopt a name that would mislead members into thinking the group has some sort of official position in the community. Since only the board may appoint committees, use of the word "Committee" in your name is probably not a good idea.  

ARCHITECTURAL COMMITTEES  

QUESTION: A number of my associations do not have a formal Architectural Committee. Instead an architectural consultant reviews the plans. Since this is an individual, and not a formal committee, would there be a requirement to keep minutes like a regular committee?  

ANSWER: Yes. If the consultant is making the decisions, then he/she functions as the Architectural Committees and must maintain an official record of the applications reviewed and decisions made. The "minutes" of the consultant/committee must be available for review by members, Civil Code §1365.2(i)(2)  

RULES COMMITTEE  

QUESTION: Our Rules Committee was appointed by the board to hold monthly disciplinary hearings for violations of the CC&Rs. A member has requested a copy of the minutes of those meetings. The Committee minutes include lot numbers, addresses, and the action taken against each offender. Are we required to produce these?

ANSWER: No, members do not have a right to Rules Committee's minutes. Even though the Committee has decision-making authority, member disciplinary hearings fall into the executive session protections afforded by the Open Meeting Act. However, the decisions of the Committee should be generally noted in the minutes of the subsequent open meeting of the board.  Civil Code §1363.05(c) 

OPEN COMMITTEE MEETINGS  

QUESTION: Are committee meetings open to homeowners?  

ANSWER: There is no law requiring that committees hold open meetings or post agendas. The Open Meeting Act applies only to meetings of the board. Most committees are advisory and deliver their recommendations to the board of directors in open meetings where members can hear the committee's recommendations. 

Exceptions. Committees with decision-making authority, such as architectural committees, should be open to the membership and should post agendas. In addition, if a majority of directors were to serve on a committee, meetings of that committee would meet the definition of a "board meeting" if the committee were to discuss any item of business scheduled to be heard by the board.  Civil Code §1363.05(j) Such meetings require four-days notice to the membership and the posting of an agenda. 

VOTING ON POOL SAFETY  

QUESTION: With regard to the Virginia Graeme Baker Pool and Spa Safety Act, the board is looking into getting the necessary drain systems to bring our association into compliance with the law. However, the board does not want to close the pool until the work is done because they say the risk of anything happening is so small. What can I do, as the lone board member who wants to close the pool, to protect myself?

ANSWER: Make sure your vote to close the pool is recorded in the minutes. If your fellow directors refuse to record your vote, send a letter to the board and management company making your position clear. Save a copy in your files. Your fellow directors may be correct that the risk of injury is low. If they are wrong and someone is injured, the association and all its directors will likely be sued. Your letter will be important in your defense.  

50 SMALL CLAIMS ACTIONS
AGAINST A PROBLEM OWNER

QUESTION: Our homeowners association has a few owners who are constantly suing the HOA. Even though we end up winning, it costs our association many dollars as well as hours of manager and staff time to fight these issues. Is there some way we can take the sue-happy owners to small claims court? If we had numerous complaints against them, it might deter their continuous lawsuits. I know of over 50 homeowners who would be excited to file in small claims against them. 

ANSWER: A lot of associations share your frustration. A few disruptive, litigious owners can create a lot of turmoil. They also drain the association's resources. I like the idea of giving them a taste of their own medicine and making them defend against 50 small claims actions, but you need a reasonable basis for 50 owners to file 50 actions. I’m not sure you have one. 

MANAGER ON THE BOARD  

QUESTION: The association I live in would like me to be on the board and manage the association. Can I do this? 

ANSWER : The plan is fraught with peril. You should do one or the other but not both. 

RECORDING MEETINGS  

Dear Adrian, We own and operate our own TV station. All open meetings are video taped for multiple delayed broadcasts to any resident hooked to our cable system. This benefits those who cannot attend the monthly meetings. Now, some of our more technologically savvy members are talking about webcasting the meeting. As long as we adhere to the practice of calling the minutes the official record of the meeting and those minutes are not rife with errors (a board responsibility), I don’t see the value in worrying about tape and video recordings.  -Mel Standart 

COMMENT : I fully support broadcasting open meetings and keeping those tapes on file. Doing so makes it much harder for rogue directors and unethical dissidents to misrepresent what was said at meetings. Moreover, broadcasting the meeting may moderate the behavior of bullies, whether owners or directors, since their actions would be on display for all to see. My objection is to individual owner recordings being made of the meeting. That recording can then be altered or portions taken out of context and put on the internet. Without a master recording to expose the tampering, refuting the distortion becomes very difficult. -Adrian Adams 

WIFE'S FREE SPEECH RIGHTS  

Regarding your response to the wife's free speech, her actions or communications may touch upon tort law. She should be advised (1) if the [board member] husband has communicated to her any board trade secrets or confidences, she may not be free to communicate them without liability to her and/or her husband; (2) If she has acquired the information through theft or snooping into her husband's confidential documents, that will also be a problem, for her and/or her husband (he may be liable for failing to secure the confidences, etc.); (3) although she may have some fair comment, she needs to be careful not to defame the board of directors and/or the management company, or disparage the management companies' goods, products, or services. My own experiences dealing with condominium owners is that they tend to, perhaps understandably, become over-zealous when dealing with issues impacting their own property. -J. Drudi 

WIFE'S FREE SPEECH RIGHTS

QUESTION : My husband is a board member. I want to do a mailing and posting on a website expressing my concerns about board and property management actions, non-actions, unethical behavior, secrecy, and lack of fiduciary duty (my husband is not a part of the behavior). I also want to circulate a petition to bid out the property manager. Can I do this if my husband is a board member?

ANSWER : You do not give up your free speech rights when your husband goes on the board, so you can mail letters, make phone calls, and post information on websites until your heart's content. However, your actions may significantly impact your husband’s ability to work with fellow directors. A little discretion may go a long way. Also, a membership petition seeking bids from other management companies is not binding on the board. Direct democracy is quite limited. 

CUMULATIVE VOTING  

QUESTION : A few years ago, we amended the bylaws & CC&Rs to eliminate cumulative voting to stop people from soliciting proxies and abusing the voting/election process. This year the current board decided to allow cumulative voting even though the bylaws prohibit it. Is that legal?  

ANSWER : If cumulative voting is not provided for in your association's governing documents, it cannot be used. Corp. Code §7615(a). If the board wants to use cumulative voting, the bylaws must be amended to provide for it. 

MEETING TAPES  

QUESTION : Regarding the taping of a board meeting by the secretary, prior to the approval of the meeting minutes and then the destruction of the tape, does a director have the right to hear the tape of the meeting in which he participated? 

ANSWER : Normally, taping by the secretary is solely for his/her use in the preparation of minutes and, in my opinion, should be erased once the draft minutes have been prepared for the board's review.  

Some boards have the unfortunate experience of suffering the ranting of a rogue director who is constantly disrupting meetings, intimidating fellow directors, and threatening litigation. His/her bullying and threats will inhibit free and open discussion by directors if they fear (i) the recordings may be used in an alleged defamation action or (ii) snippets of the recordings will end up on the internet. For that reason, boards can and should adopt a policy requiring that tapes be erased once the minutes have been prepared. Accordingly, the board can deny the director's request to listen to tapes before they are erased. For more information, see Recording Board Meetings. 

CONDOMINIUM RIDERS  

Hi Adrian: [Regarding delinquent owners] I'd like to point out that it is possible for banks to pay association assessments if they wanted to. Each mortgage lender attaches a Condominium Rider or Planned Unit Development Rider to each mortgage that is written. Paragraph F of each rider states:  

F. Remedies. If the borrower does not pay condominium [PUD] dues and assessments when due, then the Lender may pay them. Any amounts disbursed by Lender under this paragraph F shall become additional debt of Borrower secured by the Security Instrument. Unless Borrower and Lender agree to other terms of payment, these amounts shall bear interest from date of disbursement at the Note rate and shall be payable, with interest, upon notice from Lender to Borrower requesting payment. 

Although the word "may" is used above, making it discretionary on the part of the Lender, the Lender can call this paragraph into effect. The Lender can pay the assessments, add it to the principal of the mortgage plus the interest rate of the Note. Mostly likely the banks will never do this if the mortgage is in arrears as it increases their loan. Then if they have to foreclose they have to ask for more money. However, in cases where the Borrower is not delinquent in the mortgage payment, but delinquent in the assessments, this is a possibility. -Sam Dolnick 

NONPERFORMING BANKS  

QUESTION : I was informed that banks that hold defaulted mortgages while the occupants still reside in the units do not collect dues and are not obligated to pay assessments on defaulted homes. This means that the association has to absorb the revenue losses and pass the losses on to the other members of the association. This has become a substantial problem. Can the delinquent dues be added to the mortgage liability so that when the house is sold the delinquent dues will be satisfied? 

ANSWER : You cannot make a bank responsible for an owner's delinquent assessments. Banks are obligated to pay only those assessments that come due after the bank takes ownership of a unit. That explains why some banks drag their feet on foreclosures. With a defaulting owner, a bank loses mortgage income. If the bank forecloses, it not only loses income, it must also reach into its pockets and pay the association's assessments. As a result, many banks sit on their hands and do nothing. This leaves a delinquent owner in possession of the property and the association without assessment income. 

Options . Since banks are not responsible for an owner's delinquent assessments and they can indefinitely delay their own foreclosure actions, associations are left with two options. The first is to sue the owner for the delinquent assessments. Unfortunately, this often produces a meaningless judgment because the owner has has no assets. The second option is to move as quickly as possible to foreclose on the delinquent owner.  

Foreclosure . If the association forecloses and someone buys the unit, the new owner starts paying assessments. If no one buys the unit, the association takes ownership subject to the mortgage. Once it has ownership, the association can either pay the mortgage (a further drain on resources) or refuse to pay and invite the bank to foreclose on the association.  

Rent . If the bank continues to sit on its hands, the association can rent out the unit. Then it does not matter how long the bank sits on the sidelines. The association can receive rental income until such time as the bank finally wakes up and forecloses on the association or takes a deed in lieu of foreclosure. 

RECOMMENDATION:  No matter which course of action an association follows, it will have bad debt that will ultimately need to be written off. This will continue until the economy gets back on track--probably another two years. In addition to budgeting for bad debt and filing liens as quickly as possible to protect the association's position, boards should record a "Request for Notice" as described below. 

REQUEST FOR NOTICE  

In the event a lender actually forecloses on a defaulting owner, a change in the law that went into effect on January 1 requires the trustee to mail to the the association a copy of the deed within 15 days of recordation. This speeds up the process of billing the new owner for assessments as they come due. To take advantage of the law, associations must record a "Request for Notice" as described in Civil Code §2924b. Boards should contact legal counsel for the proper form and recording procedures. 

BAD DEBT DEFINED
  

QUESTION : My question is regarding bad debt. Our association has not deposited the entire money budgeted for our reserves. Can we claim this as bad debt or does bad debt pertain only to the amount lost specifically from non-payment of dues?

ANSWER : Unfunded reserves do not count as bad debt. Assessments (regular and special) which are unlikely to be repaid, either because the debtor doesn't have any money or because the debtor cannot be found, are classified as "bad debt." 

COMMENTS ON SMOKING BAN  

The following reader comments concern the recent case on smoking in the common areas. 

#1   Ah Civil liberties - how many have I had to give up because of other people's children? They should be careful about expecting the world to accommodate them while clamping down on other's rights, that is a slippery slope. I must say condo living does give us lots of behavior-science experiments. I am single, own my own business, pay for my own mortgage, employ folks, pay lots of taxes for schools, et al. and I smoke occasionally. I will stay out of your playgrounds and away from your fast food mania world (fat will kill faster than anything) if everyone will let me smoke a cig every once in a while in peace. I say set up areas with huge ventilation systems and make everyone else pay for it! -Rose C. 

#2  Very timely newsletter in regards to some recent events at the Association that I am president of. However, the question we have is: Can smoking be banned in 'exclusive use' areas, specifically outdoor patios? -Mark D.
ANSWER : Yes. 

#3  Banning smoking in all "indoor units"!? I do not smoke and I think that is ridiculous! That would never hold up in court. -Steven N. 
COMMENT : It would probably hold up in court. 

#4  Very timely. Our board is about to consider a draft resolution with respect to smoking. The issue we face relates to smoking inside a condominium apartment. The smoke penetrates into neighboring apartments to the annoyance of other residents. -S.F. 

#5  This is most interesting as my HOA sells cigars in their Golf Pro Shop, provides pedestal ashtray's outside bar area for smokers as outside Public is allowed into our facilities as well. -Connie B. 

#6  Here, the city [of Novato] has done it for us. Trudy Morrison, CCAM 

BANNING SMOKING

A case came down this past week that may effectively eliminate smoking in the common areas of condominium complexes. 

Facts : The Oakwood Apartments banned smoking in all indoor units and indoor common areas, but permitted it in the outdoor common areas (including locations near swimming pools, common BBQs, playgrounds and outdoor dining areas) in order to accommodate residents and guests who smoke. 

Furthermore, Oakwood encouraged smoking in its outdoor common areas by providing ashtrays for smokers, by permitting its employees to smoke in outdoor areas, and by making a business decision to allow such outdoor smoking to aid its efforts to market their residential units to an “international clientele.” 

One of the Oakwood residents was a five year old girl, Melinda Birke, who had allergies and asthma. The secondary smoke in Oakwood’s outdoor common areas exacerbated Melinda’s symptoms and caused her to suffer through three bouts of pneumonia. Although Melinda’s father requested that Oakwood ban smoking in the outdoor common areas, Oakwood denied these requests. 

Melinda filed a lawsuit against Oakwood, claiming that Oakwood’s failure to ban outdoor common area smoking constituted a public nuisance and a violation of the Americans With Disabilities Act (ADA). 

Ruling of the Court: In Birke v. Oakwood Worldwide (January 12, 2009), the California Court of Appeal ruled that Melinda could continue with her nuisance claim against Oakwood, but her ADA claim must be dismissed. 

Reasoning of the Court: Melinda’s public nuisance claim could proceed because Oakwood “plainly has a duty to maintain its premises in a reasonably safe condition” and her complaint properly stated that: 

1) Oakwood’s decision to allow smoking in the outdoor common areas created a condition which was harmful to health or obstructed the free use of the common areas, and which interfered with the comfortable enjoyment of life or property; 

2) allowing smoking in the outdoor common areas affected a substantial number of people at the same time; 

3) an ordinary person would be reasonably annoyed or disturbed by smoking in the common areas; 

4) the seriousness of the harm caused by second hand smoke outweighed the social utility of allowing smoking in the outdoor common areas;  

5) neither Melinda nor her parents consented to Oakwood’s conduct; 

6) Melinda suffered harm which was different from the type of harm suffered by the general public; and 

7) Oakwood’s conduct was a substantial factor in causing Melinda’s harm. 

However, Melinda’s ADA claim was dismissed because the court was persuaded that “the ADA does not apply to apartments and condominiums.” 

COMMENTS : This decision was based upon the court’s legal interpretation of the facts which Melinda wrote in her court complaint. In order to obtain a judgment against Oakwood, she will still have to present evidence establishing each of the above seven points at a trial. Nevertheless, this case demonstrates that those associations which allow smoking in their common areas are subject to potential liability to residents for nuisance. To limit such exposure, Board of Directors and managers should consider, in consultation with their counsel, amending their governing documents to ban or restrict common area smoking. 

MANAGER
QUALIFICATIONS  

QUESTION : We have a management company comprised of one person. He has disclosed no training or qualifications. I understand that such people do not need qualifications, but is he not obliged by law to disclose this information during the yearly disclosures? Is there anything we can do about this? 

ANSWER : There is no requirement that managers be certified. However, there is a requirement that they disclose whether or not they are certified. Although certification is no guarantee of competence, it shows the manager has basic knowledge of the industry. 

Certifications . Professional certifications are offered through the California Association of Community Managers (CACM), Community Associations Institute (CAI), and the National Board of Certification of Community Association Managers (NBC-CAM). 

Board Expectations. Even though your manager is not currently certified, he may be taking classes that will lead to certification. If not, your board may be satisfied with the level of service he is providing for the fee charged. Another point to consider, the manager may already have enough experience that he has no need for certification, i.e., he's been managing HOAs for 15 or 20+ years. 

PAID PROFESSIONAL
DIRECTORS? 

QUESTION : Since no one in our association is willing to serve on the board, can we hire professional board members? 

ANSWER : Theoretically yes but you would need to amend your governing documents to allow for paid non-member directors. 

Hold Harmless & Indemnity. Paid professional directors are held to a higher standard than volunteer directors. Homeowner associations being what they are, the constant risk of being sued by disgruntled homeowners would discourage anyone from serving without appropriate safeguards.  

In the event you found individuals willing to serve as professional directors, it is unlikely they would do so unless your association signed a written agreement holding them harmless from their own negligent acts and indemnifying them against third party lawsuits. If they were smart, they would also require that your association provide them with professional liability insurance. 

Higher Dues. Since professional managers don't work for free, your dues will go up. 

FEEDBACK RE
UNTRAINED BOARDS  

Agonizing Over Apples & Oranges. Directors with no experience but willing to learn is fine when the condo is new and needs no repairs. We watched our board over the last six years agonize over bids for this or that, not realizing they were often comparing apples with oranges. They have no idea of alternative ways of doing things. We have a management company but the girl assigned to us has all the repair savvy of the usual 20-year old. We have taken to attending every board meeting (my husband is an ex-homebuilder, property manager, and electrical engineer) just to make sure they understand what they are reading. If you ask, so why isn't he on the board--it's because he's not very tactful telling other people... well, anything. We really enjoy your column and have learned a lot. -Sylvia W. 

RESPONSE : Unfortunately experienced volunteers, your husband excepted, often take the General Sherman approach to service. When Civil War General William T. Sherman was being considered as a candidate for the presidential election of 1884, he declined, saying, "If drafted, I will not run; if nominated, I will not accept; if elected, I will not serve." Because volunteers are usually inexperienced, knowledgeable managers are worth their weight in gold. Boards should not skimp when it comes to hiring good management. 

Duty to Remain Informed. I look forward to your newsletter every Sunday. It's a wonderful resource, insightful, on-target, and often, damned funny. I loved your response to the writer who complained about the pot-growing resident. Yes, as directors (even as members) we have a duty to remain informed. No, we don't need to be legislated into it (which would fail anyway). But you really nailed it when you suggested the qualification most needed by anyone who thinks of running for a CID board is a healthy sense of humor. -Tim P. 

RESPONSE : I agree, further legislation is not the answer. Even courts use untrained citizens to decide cases ranging from capital punishment to civil actions involving millions. Using volunteers is an imperfect system but it’s better than the alternatives. 

J & N Realty, Inc. -- real estate, property, planned unit development (PUD), townhouse, townhome, hoa, condo, condominium, homeowner association, common interest development (CID)management in Los Angeles