Nov 16

QUESTION: The battle goes on in our community… the second recall election in six months! If they can’t make quorum, the petitioners believe they can adjourn the meeting to a new date with a lower quorum. I thought a recall died if it failed to meet quorum.

ANSWER: It depends on your bylaws. As you already know, special membership meetings are ridiculously easy to call. Only 5% of the membership need to sign a petition to trigger a recall meeting. That means quorum is the key issue.

Bylaws. Following is a typical bylaw provision:

In the absence of a quorum at a Members’ meeting, a majority of those present in person or by proxy may adjourn the meeting to another time… The quorum for such a meeting shall be at least twenty-five percent (25%) of the total voting power of the Association, present in person or by proxy.

No Exception. The provision makes no exception for recall meetings. Since recall meetings are membership meetings, a majority of those present can adjourn to a later date where the quorum drops to 25%. The unintended consequence is that a small number of members can recall an entire board. If only 25 of 100 members cast ballots, the recall meets the reduced quorum. Of the 25, only a majority, i.e., 13, are needed to approve the recall.

I find it troubling that in a 100-unit association, five members can trigger a special meeting and 13 members can recall an entire board. This scenario lends itself to a great deal of abuse as described in my October 26 newsletter. However, a careful reading of the bylaws with the Davis-Stirling Act provides some balance.

Majority of Those Present. The bylaws state that “a majority of those present…may adjourn the meeting” and the Davis-Stirling Act provides that:

each ballot…shall be treated as a member present at a meeting for purposes of establishing a quorum. (Civ. Code §5115(b).)

That means ballots count as members in the room. If 30 ballots were cast and only ten members physically attend the meeting and all ten vote for adjournment, ten is not a majority of forty. Therefore, the motion fails and the recall dies.

RECOMMENDATION: Rather than go through mental gymnastics, associations should amend their bylaws. I recommend eliminating cumulative voting, proxy voting, and quorum requirements for the election of directors (which eliminates the need for reduced quorums). All other meetings (including recalls) require a majority quorum.

Easy-Peasy. With those amendments, elections are easy. There are no reduced quorums and no cumulative voting calculations to create confusion. It’s a straightforward, two-step process. Did the petitioners make quorum? If not, the recall dies–there are no reduced quorum meetings. If they made quorum, did a majority approve the recall? It’s a straight up or down vote to remove a director or an entire board. No further calculations are needed.

If association’s have not already done so, they should update their documents with the above changes along with recall restrictions I described in prior newsletters. Doing so makes for low-cost, low-litigation elections. Contact me if you need assistance.

ABCs of HOAs

I will join a panel of experts in a program for board members that covers new laws affecting associations, insurance issues, collections and foreclosure, management responsibilities, budgeting and maintenance, plus questions from the audience.

This is a free event with a catered lunch and raffle prizes (including an iPad). The program will be held:

  • Saturday December 6, 2014
  • 11:00 a.m. to 3:00 p.m.
  • 7100 Hayvenhurst Avenue, Lake Balboa, CA 91406

Please RSVP to info@hoaorganizers.com or fax (818) 286-9434 or phone (818) 778-3331.

FEEDBACK

Director Loyalty #1. What if a board knows that rules are being violated and chooses not to enforce them? Would a director be expected to publicly support such a decision and keep silent about continuing violations? I think not. I don’t think a board member has a duty to support a decision that is contrary to CC&Rs or the law. -Bob W.

RESPONSE: Refusing to enforce rules is akin to the President refusing to enforce immigration laws–it makes a good campaign issue at election time. If your board actually approved a motion to stop enforcing pet restrictions (such as leash requirements), the board needs to make a rule change and put it before the membership for review and comment. If directors refuse, campaign like heck in the next election.

Director Loyalty #2. As long as a dissenting board member plays within legal, ethical and moral boundaries, they should be free to act as the respectful loyal opposition, to push their alternate agenda, and use whatever legal and appropriate tools at their disposal to challenge decisions and change outcomes. -Don H.

RESPONSE: I agree, provided they are respectful and play within legal, ethical and moral boundaries. Too often they don’t and that’s when I get pulled into the dispute.

Panty Thief. Earlier this year it was discovered that under-aged teens were having sex in one of the pool bathrooms. The board handled the situation in a timely manner and the activity, at least in the common area of our complex, ceased. Timeliness is the essence in such situations. -John A.

Ethics Policy. We need to remind boards that they should be looking to get a code of ethics in place before they need it. In addition, boards should not be emailing one another between meetings and should not put anything in writing that they do not want on the six o’clock news. Board members should remember that anything in an email can be inadvertently passed along. -Steve S.


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight, and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

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Nov 09

QUESTION: Does the “duty of loyalty” mean I have to support, in public, a position reached by a majority of the board? Am I precluded from publicly dissenting and making adverse comments?

ANSWER: You can dissent and make adverse comments in a board meeting when the matter is under discussion by the board. But once a decision is made, it’s time to move on. You don’t have to become a cheerleader for the board’s decision but a director goes too far when he undermines the board or the agreed-upon course of action. Such behavior can result in a breach of the director’s fiduciary duties.

Business Judgment Rule. When a homeowner is elected to the board, he/she automatically becomes a fiduciary and must follow the business judgment rule. That means the actions of a director must be in good faith, in the best interests of the association, and with prudent care. (Corp. Code §7231(a).) Stating you voted against the motion but support the board’s decision is okay. Disrupting operations, attacking fellow directors and undermining an agreed-upon course of action is not okay. It is harmful to the association and falls outside the Business Judgment Rule. When that happens, disruptive directors face personal liability.

Dealing with Rogues. If a director goes rogue, the board may have no choice but to censure him/her and, where appropriate, form an executive committee to exclude the director from sensitive issues. Any director who believes he must win all votes is really not suited to be on the board. If needed, the board can call a membership meeting to remove the director.

RECOMMENDATION: Once the board makes a decision, dissenting directors should either publicly support the decision or keep silent. They should in no way undermine the board. If the director cannot follow this policy, he/she should immediately resign from the board. Once off the board, the former director can publicly oppose the board’s decision, provided he/she does not disclose any privileged information.

CHANGING RESERVE
SCHEDULES


QUESTION: Our past board had a reserve study done. However, much of the information is inaccurate. As a new board are we bound by the study? Many items are in need of repair or replacement but we feel we may get in trouble if we act outside the reserve study. What should we do?

ANSWER: Facts on the ground, not the reserve study, dictate your maintenance needs. The study is merely a guideline and boards have the authority to take appropriate action when it comes to repairs. Moreover, they have the right to notify the reserve specialist of the changed circumstances so adjustments can be made to the study. If the reserve company refuses to update the study with more accurate information, it’s time to change companies.

NOTE: For a more complete explanation of the balance between reserve practitioners and boards, see reasonable reserve alterations.

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UPGRADE


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FEEDBACK

Panty Thief #1. Years ago there was a teenager in our neighborhood who was a panty thief. That escalated to arson. Non-action by a board in situations such as this probably will result in larger and more serious crimes. -John R.

Panty Thief #2. The problem that disturbed me much more than stolen laundry is that the man is “tugging on a girl’s underwear.” I would not want my girls touched by anyone with this fetish, disabled or not. Let something more happen and the board could be in trouble. Love your newsletters. -Trudy H.

Panty Thief #3. I read your article about the laundry thief. Ha. That happened to me decades ago. The police told me the same thing–it escalates and escalates. In our case, it had been escalating from one pair to two to… They also told me not to go to the laundry room by myself day or night. Scary! Thank you for addressing the topic. -Patty M.

Panty Thief #4. Congratulations on the article you wrote regarding boards who ignore potential liability. The article was informative and well written. -Roy S.

*****

Abusive Recalls. Your emails are must-reads for me. I appreciate the discussion of trying to limit abusive recalls. But one point may have been left out. In the association I live, the requirements for recalls are in our bylaws. There is no limit on the frequency in the bylaws. With what little I know about the law, I’d doubt the board could enact rules that go against the bylaws. -Henry C.

RESPONSE: You’re right, election rules cannot contradict your bylaws (unless your bylaws conflict with the law). If your bylaws are silent on the number of recalls, your election rules can establish reasonable restrictions. If your bylaws specifically state that recalls cannot be limited, then you must follow your bylaws.


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight, and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

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Nov 02

QUESTION: There is a man living in our complex who appears to have Down’s syndrome. He goes to the laundry facilities and steals women’s underwear and bras. He has even tugged on a girl’s underwear as she was bending over. The board is afraid of lawsuits and refuses to send the owner a letter. If anyone complains, they say “go to the police.” What can we do?

ANSWER: I passed this hot potato to attorney Jasmine Fisher. Following is her response:

Disability Rights. Your board may be unduly concerned about disability rights. Fortunately, the law only requires “reasonable” accommodation of disabilities. There is no law or case on record (yet!) that gives a disabled person the right to steal undergarments. That means your panty thief may create liability for your association if the board refuses to act.

Association Liability. While the association is normally not responsible for the criminal acts of a third party, Frances T. v. Village Green made an exception when the crime is foreseeable. In Frances T, the board knew about the increased crime in the area, failed to install exterior lighting Frances T. had requested (to make her unit safer) and actively prevented her from installing lighting. She was subsequently raped and robbed in her unit. The court found the association and its directors liable because the harm was foreseeable and they did nothing.

With your panty thief, it is foreseeable the thefts will continue and may escalate into something more physical. If so, your association could be liable for your board’s failure to act. Simply saying “Go to the police” will not remove the liability exposure.

Board’s Options. The courts provide a wide degree of latitude to board decisions so there is no right or wrong option, aside from doing nothing. The board can use the nuisance provision of your CC&Rs to call a hearing to warn the owner. If the behavior continues, fines can be levied (following another hearing). If that does not work, a letter from legal counsel threatening litigation can be next. Ultimately, a lawsuit may be necessary. If needed, the board can skip the early steps and jump to a lawyer letter and potential litigation.

Notice to Members. Should the members be warned? Notifying owners can be tricky. If you don’t notify the membership and your panty thief escalates to sexual assaults, your board could be sued for failing to warn the members. If the board says too much, they could be sued by the panty thief. It’s the same problem boards face when a registered sex offender moves into a complex. They can’t post a notice that sex offender Dilbert Smith moved into unit 301. They must be more circumspect.


Jasmine Fisher, Esq.
Adams Kessler PLC     

RECOMMENDATION: As JFK said, “There are risks and costs to action. But they are far less than the long range risks of comfortable inaction.” To minimize legal exposure, boards who are aware of criminal activity in the development should coordinate with legal counsel for appropriate (i) action against the perpetrator and (ii) notice to the membership.

ASSESSMENT
COLLECTION

QUESTION: As part of our assessment collection policy, should late fees, interest, collection and management fees be listed in the our fee schedule and policy?

ANSWER: You can but you don’t need to. I asked my collection guru, attorney Richard Witkin. He pointed out that according to Civil Code §5310(a)(6) and (a)(7) associations must distribute information on collection policies and procedures to the membership. Section (a)(6) specifically requires distribution of the “Notice Assessments and Foreclosure” set forth in Civil Code §5730.

This notice requirement is somewhat general in nature but does review many of the specific code sections controlling collection of delinquent assessments. Section (a)(7) requires distribution of “A statement describing the association’s policies and practices in enforcing lien rights or other legal remedies for default in the payment of assessments.”

However, this latter section does not specify how detailed a description must be. Collection policies can vary from one page to ten pages or more. A specific listing of the exact amount of fees and costs is not required. Too much detail can make it difficult to comply 100% with the policy. These two sections are not to be confused with Civil Code §5310(a)(8) and §5850 which require distribution of a specific schedule of monetary penalties (fines).

WE ARE HIRING
A CLIENT RELATIONS
PROFESSIONAL

We are looking for a full-time client relations professional to assist our law firm’s growing client base and territory. The person must possess high energy, self-motivation and an understanding of the HOA industry.

The position requires travel, so a flexible schedule and reliable transportation are a must. The person will work out of our corporate offices in West Los Angeles.

Please contact Nathalie Ross at nathalie@adamskessler.com or by fax: (310) 945-0281.


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight, and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

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Oct 26

QUESTION: Our board is proposing election rules that prohibit more than one recall per year. What is your opinion?

ANSWER: It makes sense. There are dysfunctional elements in some associations that launch recall after recall to torment boards. They hover over each ballot count with another recall petition in hand in case the board survives their recall. The petitioners will force three or four recalls in a row to wear down directors to get them to quit.

Disruptive. This little band of crazies does not care that they disrupt operations and burden the membership with needless expenses. It is not unusual for them to become abusive with vendors and staff, make repeated demands for records inspections, and threaten lawsuits in an effort to coerce people into giving them what they want.

Reasonable Restrictions. Such behavior need not be tolerated. Associations can adopt election rules to deal with serial recalls. Because neither the Davis-Stirling Act nor the Corporations Code address this issue, we can turn to California’s Elections Code for guidance. California puts the following restrictions on recalls:

Recalls may not be started against an officer of a city, county, special district, school district, community college district, or county board of education if: (a) the officer has not held office during the current term for more than 90 days; (b) a recall election has been determined in the officer’s favor within the last six months; (c) the officer’s term ends within six months or less. (Elections Code §11007.)

RECOMMENDATION: Boards should adopt something similar. I recommend the following:

Recalls may not be started against the board as a whole or any individual director if: (a) the board or director has held office during the current term for less than 90 days; (b) a recall election has been determined in the board’s or director’s favor within the last six months; or (c) an annual meeting will be held within six months or less. Additionally, if a recall of the entire board fails, a six-month waiting period must be observed before recall petitions may be filed against individual directors.

This should limit abusive recalls. If you need assistance, contact me.

POLICIES VS. RULES 

QUESTION: What is the difference between a policy and a rule? When we create a policy, do we need to send it to the membership for thirty days for review and comment?

ANSWER: The difference confuses a lot of folks, so much so that rules are sometimes mislabeled as policies and vice versa. Rules tell residents what they can and cannot do, a violation of which can result in penalties. A policy or procedure describes how things are done. For example,

It is the policy of the Architectural Committee to only review signed, written applications submitted through the management office. The procedure, for submitting a written application is to obtain a form from the management office, fill it out completely, sign it, and return the application to the management office so it can be logged in. As part of our architectural rules, no work may commence without the prior written approval of the Architectural Committee. Violation of this rule may result in a $500 fine.

Adopting Policies & Procedures. Unlike proposed rules, the adoption of policies and procedures, whether by management, committees or boards, does not require a 30-day waiting period for member input. The reason for the difference is that rules have penalties attached to them, whereas policies and procedures do not.

RECOMMENDATION: If you’re not sure, have legal counsel review your rules, policies and procedures.

FEEDBACK


Missed Meetings. I think you made a mistake. I believe the Corporations Code allows boards to remove directors for missed meetings. -Jen M.

RESPONSE: You’re thinking of Corporations Code §7221(a). It does not give separate statutory authority for removing absent directors. Instead, it defers to a corporation’s bylaws. It states:

The board may declare vacant the office of a director…if at the time a director is elected, the bylaws provide that a director may be removed for missing a specified number of board meetings, fails to attend the specified number of meetings.

As I noted last week, the board cannot remove a director for missed meetings unless they first amend their bylaws to add attendance as a requirement. Even then, it would not take effect until the next election cycle for the absent director.


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight, and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

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Oct 19

QUESTION: I need to know how many times a board member can miss meetings consecutively before being removed from the board.

ANSWER: There is nothing in the law about removing a director for missed meetings. That would be covered by your bylaws.

Bylaws. If your bylaws are silent, a director could miss every single meeting and the board would be powerless to address the problem. At best, the board could censure the missing director and ask the membership to remove him via a recall election.

RECOMMENDATION: You should consider amending your bylaws to make attendance at meetings a qualification for serving on the board. A common provision I use is if a director misses three consecutive regular meetings or a total of four regular meetings in a 12-month period, the board can vacate the director’s seat and appoint a replacement. If you amend your bylaws, you should include other qualifications as well. Let me know if you need assistance.

NONPUBLIC
BOARD MEETINGS

QUESTION: I recently read a statement of a local HOA with whom I do a lot of business (I’m a Realtor) that all association meetings are private. I believe this statement is false under Davis-Stirling.

ANSWER: No, it’s a true statement. Meetings are private in the sense they are not open to the general public. Associations are membership organizations–only those who own property in the development are members and only members have a right to attend meetings. (Civ. Code §4925.)

Board Meetings. Even so, boards often open their meetings to members’ guests and to tenants (unless they become disruptive). If a board decides to exclude non-owner Realtors from their meetings, they have the right to do so. Executive session meetings are closed to everyone, including members of the association, so the board can address matters of a confidential nature, such as personnel issues, member discipline, litigation, etc.

Membership Meetings. As with board meetings, membership meetings (such as the election of directors, special assessments, CC&R amendments, recall elections, etc.) are member-only meetings. Nonmembers frequently attend but do not have a legal right to do so.

PARTIAL PAYMENT
COURT DECISION

A court decision came down this week changing how associations handle partial payments from delinquent owners.

Previously, once an association initiated foreclosure it could refuse partial payments so as to ensure full payment of all monies owed including collection costs.

The court of appeals decided that homeowners associations must accept partial payments from owners who are in the lien or foreclosure stages of collection. If the partial payment reduces the owner’s delinquent assessments to less than $1,800, the association cannot foreclose (judicially or non-judicially) unless the remaining overdue assessments are more than twelve months delinquent.

Payment Priority, Fees & Costs. The court reiterated that any payments made by the owner must be applied to assessments first. (Civ. Code §5655.) The court did not say that the order of application of payments could not be waived by the owner in a payment plan. Nor did it say that owners who reduce their balances can avoid payment of foreclosure fees and costs.

Liens Remain in Place. Although this decision may impact some pending and future collection actions, the court did not require that liens be released when partial payments are made. So long as the delinquent owner is not misled into believing that his partial payment cures the default, the foreclosure can proceed (unless the balance falls below $1,800).

Payment Plans. The court did not state that associations are required to accept payment plans. As provided by statute, an owner may submit a written request to meet with the board to discuss a payment plan but agreement to the terms remain discretionary between the parties. To read the case, see Huntington Continental v. Miner.

RECOMMENDATION: Every HOA billing service, attorney and foreclosure trustee should have a “partial payment letter” that acknowledges receipt of partial payments but states that (i) the payment does NOT cure the owner’s default and (ii) the collection process will continue until payment in full, including all collection fees and costs (subject to the various requirements set forth in the Civil Code and case law).

Thank you to collection attorney Richard Witkin of Witkin & Neal, Inc. for his analysis of this case.

FEEDBACK

Management. Good response to the management question. In addition, the newly elected board should hold a meeting with management to review the past performance for areas of improvement, if any, as well as establish the board’s vision and expectations for management moving forward for the next year. -Tom Freeley, EVP Packard Management


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight, and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

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Oct 12

QUESTION:Our management company is trying to take over all board duties. I for one am against that. Can a board member perform certain duties within the association–like talking to vendors and current contractors to get information for possible work that may be planned?

ANSWER: A management company cannot take over an association on its own. It has no legal authority for such action. The company serves as a managing agent of the association and is given direction through the board of directors. As such, it has as little or as much authority as the board gives it. If a management company is out of control, it’s the board’s fault. 

Director Limitations. The same limitations are true for directors. Board members function within guidelines established by the board. Although directors have a duty of due diligence, they do not have the right to individually start questioning (interrogating as interviewees often see it) employees, contractors, members, and tenants without board approval. Doing so can lead to claims of harassment, interference with contractual relations, discrimination and constructive wrongful terminations.

Potential Liability. A director’s due diligence obligation can be satisfied by other means that don’t create potential liability. It can be done through the managing agent, industry experts and legal counsel. If a director wants to personally investigate a particular matter (and is qualified to do so), he should first get board permission. Otherwise, he may be incurring liability for himself as well as the association.

RECOMMENDATION: Each year following their annual meeting, incoming boards should meet with legal counsel to go over their rights and responsibilities as directors. It will help them avoid stepping on landmines during their tenure and function more cohesively as a board.

WHO OWNS THE
BALLOTS?

QUESTION: A third-party inspector of elections is denying a post-election ballot inspection by claiming the election materials belong to him, not to the association. He will permit an inspection when ballots are returned to the association in one year, at the point when the election can no longer be challenged! We say the election materials belong to the association and the inspector is merely the custodian.

ANSWER: You are correct. The association owns the ballots not the inspector. The election inspector is hired by the HOA to perform a service…count the ballots and hold them for one year so no one can tamper with them. As such, the inspector is the custodian not the owner.

Inspection Rights. Although limited, members have inspection rights.

If there is a recount or other challenge to the election process, the inspector or inspectors of elections shall, upon written request, make the ballots available for inspection and review by an association member or the member’s authorized representative. (Civ. Code §5125.)

Some take the above language to mean that an inspector is not required to produce ballots except for a recount or challenge. Refusing to produce them creates suspicion the inspector is hiding something. Moreover, to satisfy the statute a member need only state he intends to challenge the election. Accordingly, the better policy is to produce the ballots upon demand by a member.

No Right to Copy. Election materials do not fall under the list of records that members have a right to copy. (Civ. Code §5200.) There is no provision in the Davis-Stirling Act, the Corporations Code or the Election Code that provides for the copying of ballots or other election materials. Hence, members have a right to inspect but not to copy ballots.

Inspection Costs. Since professional inspectors do not work for free, there will be a cost associated with the inspection. The issue of who pays for the inspection is not covered by the Davis-Stirling Act. For guidance, we can turn to California’s Election Code. The Code requires the person requesting a recount to deposit monies with the election official to cover the cost. (EC §15624.)

CONCLUSION: Accordingly, it would be reasonable to require the person demanding the inspection to bear the cost. He can either pay in advance to the inspector or reimburse the association for the cost.  The Davis-Stirling Act gives associations general authority to impose fees to defray costs (Civ. Code §5600(b)). The payment method would be at the discretion of the inspector of elections, not the homeowner.

FEEDBACK

Dropped? Did not get my newsletter…did my email get dropped? It is like an institution for me to read it each Sunday. -Bill B.

RESPONSE: I took a week off and spent it doing some construction work for my folks. Now it’s back to the computer keyboard. Because of my schedule, there will likely be no newsletter next week as well.

Ethics. I read with great interest your article on “Good Faith Requirement” and how HOA boards should adopt an ethics policy and make sure directors follow it. I urge everyone to read your ETHICS POLICY for it goes far beyond a director’s financial conduct. Your well written policy goes a long way toward defining personal ethical conduct as well! -Sam R.

RESPONSE: Much obliged for the plug!

Executive Sessions
. Regarding your article on managers attending executive sessions, Yikes! Other than issues with the management contract, what other circumstances would it be in the best interest of the board/assn to exclude management from executive sessions? How could management be held accountable for carrying out board decisions if those decisions made cannot be disclosed to third parties (i.e. management)? Can you clarify? -Bob F.

RESPONSE: The industry standard is for managers to attend executive session meetings so they can provide information to the board, take minutes, and carry out any decisions that may come out of the meeting. When the meeting is about the manager, e.g., evaluations, raises, disciplinary actions, etc., the manager does not attend the meeting or is recused from that portion of the meeting.


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight, and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

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Sep 28

QUESTION: I listened to your webinar last week on reserves and have a question. You said that directors must carry out their duties in “good faith.” What does that mean?

ANSWER: As fiduciaries, boards are held to a higher standard. To avoid personal liability for their decisions, the Business Judgment Rule requires directors to act in good faith, in the best interests of the association, and with reasonable inquiry. The good faith element is sometimes referred to as bad faith or lack of good faith when the requirement is violated by a director.

Common Area Repairs. An example of bad faith is for a board to knowingly cause a vendor to breach his contract so the association can cancel the agreement and enter into a less expensive one with another company. The board is arguably acting in the best interests of the association (saving money by reducing the cost of the construction project) but they are doing so in bad faith. One enterprising board did this following the Northridge Earthquake.

Scheming. Their association suffered significant earthquake damage and entered into an agreement with a contractor for extensive repairs. After work commenced, a new director was elected to the board. He convinced his fellow directors they could save a lot of money if they hired a different company to do the work. The problem was how to get rid of the existing contractor. They met in executive session and schemed how to disrupt the work and make it impossible for the contractor to meet his obligations so they could fire him. Being conscientious directors, they recorded their meetings.

Judgment. The board carried out their plan and fired the contractor. He sued. The board’s tape recordings became Exhibit “A” in the proceedings. The damage award against the association was substantial and drove it to the edge of bankruptcy. Not only did the directors breach the requirement of good faith and fair dealing with the contractor, they breached the good faith element of the Business Judgment Rule and exposed themselves to personal liability.

RECOMMENDATION: Boards should adopt an Ethics Policy and make sure their directors follow it. They should reprimand or formally censure directors who violate the policy. And, depending on the seriousness of the breach and if permitted by the bylaws, remove the misbehaving director.

20-POUND DOGS 

QUESTION: Our CC&Rs say we can’t have a dog over 20 pounds. Does this violate Civil Code 4715?

ANSWER: Weight pound limitations on dogs are not uncommon in condominium projects, especially midrises and highrises.

Condo Limitations. In stacked condominiums with long elevator rides, a German Shepherd, Mastiff or Pitt Bull can be a scary proposition for passengers. Even if it’s friendly, a large dog can do a lot of damage if it is hyperactive and likes to jump onto people. Imposing a weight limitation resolves the safety problem for residents.

Pet Prohibitions. In my opinion, Civil Code §4715 does not apply to reasonable restrictions on size and breeds of dogs. Instead, it addresses blanket prohibitions.

No governing documents shall prohibit the owner of a separate interest within a common interest development from keeping at least one pet within the common interest development, subject to reasonable rules and regulations of the association.

Service Animals. Service animals are the exception to weight and breed restrictions. Such limitations do not apply to a service animal assisting a disabled person.

WHO CONTROLS
EXECUTIVE SESSION?


QUESTION: I am wondering if the board can exclude the manager (an employee of the management company hired by the HOA) from executive session meetings?

ANSWER: Yes, the board can exclude the manager. It’s the board’s meeting, not the manager’s. The only exception is if the board contractually obligated themselves to have their manager at every meeting or, in the reverse, never hold a meeting without the manager being present.

Save Money. If such a provision is in the contract, it tells me the agreement was not reviewed by legal counsel. Bypassing the association’s attorney allows the board to save a few dollars in the short term so they can pay a lot more later. It’s a business model used by many but not one I recommend.


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight, and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

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Sep 21

QUESTION: Our board approved next year’s budget with an increase in the monthly dues. The increase was not on the agenda and was not the subject of a separate board motion. Our manager said the increase did not require a separate notice and vote. Is this practice permitted by Davis-Stirling?

ANSWER: Your manager is correct. Approval of the budget is sufficient for any increase in assessments (up to 20%) that might be contained in the budget.

Assessment Approval. Approval requirements for an increase in regular assessments are found in Civil Code §5605. The statute requires that any increase must comply with reporting obligations found in Civil Code §5300(b). In summary, an increase is effective only if the board issues an “annual budget report” with the following:

  • A pro forma operating budget.
  • A summary of the association’s reserves.
  • A statement re any deferral of reserve item repairs.
  • A statement whether special assessments are anticipated related to reserves or reserve components.
  • A statement of how reserves will be funded.
  • A statement of how the reserves were calculated.
  • A statement regarding any outstanding association loans.

Budget Approval. The statute does not require a second, separate approval of the assessment increase. Once the budget has been approved by the board, the report must be distributed to the membership not less than 30 nor more than 90 days before the end of the association’s fiscal year. (Civ. Code §5300(a).) It can either be a full report or a summary. (Civ. Code §5320.) Failure to distribute the report within the reporting deadline nullifies the increase. (Civ. Code §5605(a).)

VOTING RIGHTS


QUESTION: We distributed a ballot for a CC&R amendment. One owner turned in his vote and then sold his unit. Must we discard his ballot and issue one to the new owner?

ANSWER: No. The owner of record when the ballots were mailed (the record date) is the one who votes, not the buyer.

DIRECTORS
ON COMMITTEES


QUESTION: Is there a law that limits the number of board members on a committee?

ANSWER: There is no limit on how many directors may serve on a committee. However…

Board Business. Once a quorum of directors gather at the same time and place to “hear, discuss, or deliberate upon any item of business that is within the authority of the board” a committee meeting becomes a board meeting (Civ. Code §4090(a).) When that happens, notice (with an agenda) must be given to the membership so they can attend.

FEEDBACK

Renter #1. Our association defines “renter” as anyone living in the unit who is not the legal owner. Is that wrong? -Jan Y.

RESPONSE: Your definition is too broad. What if the owner’s spouse is not on title? Is he/she subject to rent restrictions and exclusion from the property? So as to avoid potential legal problems, you should rewrite your definition. Contact me if you need assistance.

Renter #2. What about resident owners with roommates? What about guests? What about a resident owner who leaves a “home or pet or child sitter” while traveling? -Terence G.

RESPONSE: You need to cut back on your coffee. If the owner’s roommate occupies the same bed with him/her, they’re not a renter. If they occupy separate rooms, you can restrict room rentals if they are not “family” members. For guests, you should adopt rules defining them. Someone who stays a week is a guest. Someone who stays a year is not. A new guest every night means something else is going on. If you try to kick out a house or baby sitter while the owner is on a business trip, a judge would likely deem it unreasonable.

Renter #3. An owner (California) wants her son (New York) to keep his car parked in our condo association. We have limited space for parking and have a rule of one car per unit, two if there are two full-time residents with two cars. She is trying to say he is a full-time resident by having him open a checking account here and putting him on her deed, but he still lives in New York and visits a few times a year. The board says he is not a resident, she says he is. What determines a “resident” in this case? -June K.

RESPONSE: I agree with your board; he is not a full-time resident. You should amend your rules to define full- and part-time residents. A good start is defining a full-time resident as someone who receives his mail at the address and spends at least 20 days a month sleeping in the unit. You should work with legal counsel to develop your criteria.

Renter #4. Just wondering when Black’s Law Dictionary became legal precedence. -Mark G.

RESPONSE: The dictionary’s definitions provide case law cites which I purposely left out. Good I was not writing a Law Review article—I would have been dinged for the incomplete cite.

Renter #5. If an owner rents his condo, can he hold a position on our board? We have a small 5-condo HOA and our board president rents his condo here and resides in Washington. -George G.

RESPONSE: That depends entirely on your governing documents. If your bylaws are silent on the issue, he can serve on the board. If your bylaws restrict directors to full-time residents, he cannot.

Renter #6. I’m on a board of an association with high tenant occupancy, so we’ve had trouble refinancing. I’m also an appraiser and find it interesting that appraisers are not allowed by FNMA and others to state a property reflects “Pride of ownership,” ostensibly because tenants can have pride of ownership. So then why do they ban loans on properties with high tenant occupancy? -Brian C.

RESPONSE: I see the problem…you’re expecting rational behavior from a federal agency.


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight, and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

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Sep 14

QUESTION: What is considered a rental unit? We have individuals purchasing units, not living in them, but putting their children and grandchildren in them to reside.

ANSWER: Good question. If a nephew is given the unit while in college and pays the utilities but nothing else, is he a renter? If a man lets a woman stay in his unit because she provides him love and affection, is her affection considered rent? The Davis-Stirling Act does not define renter, lessee or tenant. For that, we must look elsewhere.

Generally Defined. Civil Code §1940 defines tenant as “persons who hire dwelling units…including tenants, lessees, boarders, lodgers, and others…” Civil Code §1925 defines hiring as “a contract by which one gives to another the temporary possession and use of property, other than money, for reward, and the latter agrees to return the same to the former at a future time.” Civil Code §1951 defines rent as “charges equivalent to rent.”

Conclusion. Rent is defined as consideration for the use or occupation of property. (Black’s Law Dictionary.) Consideration can be money, goods, services or other value. Accordingly, the gratitude of a relative or the affection of a mistress could both qualify as rent and the occupant deemed a tenant.

RECOMMENDATION: How associations define renters/tenants will impact how they answer lender questionnaires and how they regulate the use of HOA amenities. To avoid ambiguity, associations should work with legal counsel to clearly define “tenant” and tenant-related issues. If you need assistance, contact me.

Thank you to attorney Wayne Louvier in our Orange County office for his research on this issue.

30TH ANNIVERSARY
CELEBRATION

Next year is the 30th Anniversary of the Davis-Stirling Act. The Board of Directors of the Davis-Stirling Foundation will honor those who brought stability and transparency to community associations.

They did so by creating financial safeguards, disclosures, insurance protections, meeting guidelines and reserves that allow the now 14.5 million residents of HOAs to govern themselves.

For the Honorees, the Foundation is holding a black-tie dinner for 500 guests at the Fairmont Hotel in Newport Beach. The keynote speaker and other aspects of the celebration will be described as we get closer to the event.

To reserve your seat, you need to purchase a dinner ticket. You can also donate and/or join our growing list of sponsors for this once-in-a-lifetime gala. Go to DavisStirlingFoundation.org for more information.

LIEN NOTICE
TO MEXICO

QUESTION: Pre-lien notices must be sent via certified mail. What do we do if a homeowner lives in Mexico? Certified mail is not offered in Mexico.

ANSWER: According to the US Postal Service website, you can send First Class International mail and add a Certificate of Mailing. While this is technically different than Certified Mail, it offers the same function–it provides evidence that you sent the notice.

Since the return receipt feature and proof of delivery are not required by Civil Code §5660, the important feature in both Certified Mail and Certificate of Mailing is proof of mailing. Registered Mail is also available with First Class International mail but is more expensive. Although the primary purpose of Registered Mail is the insuring of valuables, it also provides proof of mailing.

Therefore both the Certificate of Mailing and Registered Mail options should be acceptable substitutes for Certified Mail when sending a pre-lien notice to someone in another country.

Many thanks to collection attorney Richard Witkin and attorney Wayne Louvier for their assistance with this question.

IGNORING YOUR
RESERVE STUDY

I will join Robert Nordlund, CEO of Association Reserves, Inc. in a webinar that will address three real-life scenarios and the natural, practical, financial, and legal consequences of different board decisions played out over 20 years:

   1.  Selling out (ignoring the advice in the reserve study and continuing to make woefully inadequate contributions).

   2.  Settling (ignoring the advice in the reserve study and making “baseline” funding  contributions.

   3.  Succeeding (following the advice in the reserve study and making “full” funding contributions).

Sign Up. The webinar will be held Wednesday, September 17. Click on the time you wish to attend: at 11:00 a.m. or at 1:30 p.m.

ASSEMBLY BILL 1738
UPDATE

Dear Readers,

Thank you for sending emails and letters to Governor Brown. You sent over 1,300 requests for a veto (and still counting). We are hoping your letters will turn the tide on this anti-consumer legislation.

I will keep you posted on the bill’s status.


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight, and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

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Sep 08

Dear Readers,

It’s not often I urge you to write letters. This is one of those times.

Existing Law. Currently, homeowners can informally resolve disputes without involving lawyers. It’s called Internal Dispute Resolution. It’s done without any expense to owners.

Legal Expenses Introduced. Unfortunately, an organization backed by lawyers pushed through Assembly Bill 1738. It is now on the Governor’s desk awaiting signature. This ill-conceived legislation inserts lawyers into IDR, thereby making the process adversarial and expensive. It means higher legal expenses for associations and increased potential for litigation.

 
Assb. Ed Chau

More Exposure. Moreover, the author of the bill, Assemblyman Ed Chau, rejected any attempt to protect statements made by homeowners from being used against them in subsequent litigation. He also rejected amendments that would have prevented “ambushing” parties with legal counsel.

Because lawyers can show-up unannounced and statements can be used in future litigation, parties may feel compelled to have legal counsel attend all IDR meetings so as to avoid inadvertent exposure. This is costly and harmful to homeowners and associations alike.
Train Wreck. To stop this train wreck from becoming law, you need to send letters and emails to Governor Brown urging him to veto the bill. Below is a sample letter you can use as-is or modify. You can do either of the following:

1.  Copy and paste the sample letter into an email and send it to office@caiclac.com,

OR

2.  Paste the letter onto your letterhead, sign it and fax it to (916) 558-3177.

Once received, emails and letters will be delivered to the Governor. Please share this with others and ask them to oppose AB 1738 TODAY.

*****
SAMPLE LETTER


Honorable Edmund G. Brown, Jr.
California State Capitol
Sacramento, CA 95814

Re:   Veto AB 1738

Dear Governor Brown,

Please veto Assembly Bill 1738.

Our existing Internal Dispute Resolution (IDR) statute provides a no-cost way to settle differences in community associations. AB 1738 takes away our rights by inserting lawyers into the process.

We already have a mechanism that uses lawyers through Alternative Dispute Resolution (ADR). We don’t need to ruin IDR by turning it into another ADR.

Not only does AB 1738 take away our no-cost resolution rights, it puts us at risk. It introduces lawyers without providing confidentiality protection. That means anything said in IDR can be used against us in subsequent litigation.

This anti-consumer legislation is harmful to homeowners. To protect our existing no-cost, low-risk resolution rights, I ask that you veto AB 1738.

Sincerely,


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight, and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

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