QUESTION: Our association pays for the lunch of the board of directors.  Could the directors be considered paid directors as a result of the free lunch?

ANSWER: No, feeding them does not make them paid directors. When directors miss meals to attend board meetings they get cranky. When their stomachs are rumbling, their blood sugar is low and they are looking at their watches, board members cannot give proper attention to the business at hand. When directors are fed, their patience seems to improve and I’ve noticed they make better decisions.

Industry Practice. Some boards have popcorn and M&Ms at their meetings, others order veggie platters, still others have pizza or Subway sandwiches. As long as the cost is modest, the practice is more than reasonable and should not raise any eyebrows.

BILL SIGNED INTO LAW

Occasionally a good bill gets signed into law. On August 13, Governor Schwarzenegger signed AB 2016, which allows associations to record a single blanket notice requiring foreclosure trustees to provide boards with (i) the name and mailing address of the new owner, and (ii) the date the sale took place. Civil Code 2924b. Previously, boards had to record a separate notice for every unit in the association. The new law should significantly reduce the cost of obtaining billing information on foreclosed properties. The bill takes effect January 1, 2011.

WHEN BOARD MINUTES
ARE “OFFICIAL”

QUESTION: When are meeting minutes effective–after the meeting adjourns or after the minutes are approved?

ANSWER: Actions approved by the board take effect immediately. Minutes are merely a record of those actions. Minutes do not become “official records” of the association until approved by the board.

DO BANKS GET BALLOTS?

QUESTION: If a unit is foreclosed does the bank receive a ballot for voting? What does this do to the overall number to establish a quorum?

ANSWER: If a unit is bank-owned, the bank has a right to vote just like any other owner. If the bank is current in paying its assessments, it is in “good standing” and its units are included in the calculation of a quorum.

Problems with Banks. There are two problems with bank-owned properties–knowing who to send the ballots to and getting them to vote. Banks almost never participate in anything. If the board can identify someone at the bank who handles the REO Department and develop a working relationship with that person, the HOA could probably talk them into returning a ballot for quorum purposes. To eliminate this problem altogether, associations should amend their bylaws to eliminate quorum requirements for the election of directors.

NON-DAMAGE LAWSUITS

QUESTION: Reading your newsletter, I was stopped by the term “non-damages lawsuits.” I don’t understand how anybody can sue when there are no damages.

ANSWER: Most lawsuits seek monetary damages for injuries suffered by a plaintiff, whether real or imagined. With homeowner associations, plaintiffs might seek a declaratory judgment or injunctive relief in addition to or instead of damages. In other words, they want the court to clarify a disputed governing document provision, order the association to do something (such as enforce the CC&Rs), or stop doing something (such as giving an exclusive easement to the common areas in violation of the Davis-Stirling Act). These kinds of lawsuits are often not covered by the association’s insurance and, therefore, may result in a special assessment against the membership.

COMMITTEE QUALIFICATIONS

QUESTION: Our HOA has qualifications for serving on committees such as members in good standing, no spouses on the same committee, and anyone found at fault in any litigation are banned for 12 months. Can they limit committee members like this?

ANSWER: Unless committee qualifications are established in the governing documents, boards can set whatever qualifications they choose for the committees they appoint.

FEEDBACK

FDIC Insurance. Regarding the increase in the limit of FDIC insurance, you should perhaps mention, as our auditors did to us, the funds in a checking account earning 0.05% or less are FDIC insured without any limit. This is important to us because our annual dues tend to come in huge lumps at assessment time. -Robert W.

Lions, Tigers & Bears. Boards should not assume that everyone knows about the problem [of wild animals], or would be willing to say they knew under oath. In a case involving a large retirement community in the mid-80s, the trial court found the security company, the management company, and the association liable for failing to warn the owners about a suspected cat burglar.

The defendants, following a series of break-ins and thefts from homes in the association, concluded that a vendor was the likely burglar. They believed the vendor would “case the joint” while providing services to owners and then return at night to burglarize homes. The defendants did not warn owners. Instead, they devised a plan to catch him, using the owners as bait.

What followed was the break-in and robbery of an elderly resident who was frightened out of her wits. They caught the burglar but the resident sued. The trial court found that the defendants had a duty to warn the owners. In my opinion, boards should publish all sightings of coyotes, bears and mountain lions. -Rich Neuland, Esq. of Neuland and Whitney.

RESPONSE: I agree. Residents can then take appropriate action to protect themselves. It also undercuts any argument that the association had a duty to warn and then breached that duty.

ANSWER: Frequent encounters with wild animals is almost as scary as frequent encounters with lawyers.

Normally Non-Aggressive. Most wild animals naturally fear humans and keep their distance. Problems arise when animals have access to food and garbage left out by homeowners. They develop an appetite for easy pickings and keep coming back for more. When that happens, they lose their natural fear of humans become aggressive. This is especially true with bears, which is why feeding them is illegal with penalties of fines and jail time.

From your question, it doesn’t sound like the animals are aggressive. Instead, you have a handful of owners who don’t like them. I’ve run into the same situation with equestrian associations struggling with owners who hate horses. Makes you wonder why they bought into the development in the first place. In your case, when owners buy a house in the mountains, it comes with wild animals. It’s a package deal.

Relocate the Animals? According to California’s Department of Fish and Game, moving mountain lions is not an option because it causes deadly conflicts with other mountain lions in the relocation area. When it comes to bears, you can find the State’s official policy on their website. Apparently they may refuse to relocate bears as well. When it comes to coyotes, they play an important role in keeping rodent populations under control. Unfortunately, they love to supplement their diet with pets. According to Fish & Game, “Relocating a problem coyote is not an option because it only moves the problem to someone else’s neighborhood.”

Kill the Animals? California will allow the killing of wild animals that threaten people. Also, “Those that prey on pets or livestock can be killed by a property owner after the required depredation permit is secured.” Killing endangered animals that eat pets is really not a good option. The best way to minimize problems is to (i) never leave small children or pets outside unattended, (ii) keep garbage in tamper-proof cans, and (iii) trap and relocate owners who feed wild animals.

Stop the Animals? If the association takes steps to protect the membership by installing fences or some other barriers to keep wild animals away from owners, the association will be assuming a duty it does not have. With that comes potential liability. Here is the argument you will hear in court: “The board undertook the duty to keep my clients safe from wild animals; my clients relied on the association’s safety measures; because of the board’s negligence those measures failed and my clients lost their only child as a result. Their child can never be replaced but piles of money can help lessen the pain.” Or something to that effect.

It’s like the person driving by a car wreck. If he keeps on driving, he has no liability. If he stops and helps the injured victim, he could be sued if he does not exercise a certain level of care. As a result, the association is better off limiting their actions to warning residents to protect themselves. There are good resources on the internet about dangerous wildlife for residents to read.

Rules & Regulations. The association could also adopt rules and regulations regarding garbage bins and feeding animals. Unfortunately, that may also create potential liability. If a board adopts rules, it has a duty to enforce them. For example, if Ms. Jones feeds the big kitty on her deck and the board fails or refuses to fine her because she is elderly and it’s the only pleasure she has in life, you have a potential problem. If the mountain lion mauls her neighbor’s daughter, the association will likely be sued. Plaintiff’s attorney will argue to the jury that “Because the board failed to enforce its rule against feeding wild animals, a mountain lion became aggressive. That lion then attacked my once stunningly gorgeous client. The severe, disfiguring injuries forever destroyed her budding career as an actress/model . . .”

Bottom Line. Let’s say the board does everything right and a bear mauls a birthday party of toddlers, the association will get sued anyway. That’s because plaintiffs sue everyone in sight and let the courts sort out the responsible parties. As an association, you want no discernible liability so you can get out of the action as quickly as possible.

RECOMMENDATION: Plaintiffs’ lawyers will look for every way possible to read into the CC&Rs some sort of duty by the association to protect the health, safety and welfare of its members. To minimize potential liability, associations should amend their CC&Rs to specifically relieve themselves from any duty or liability related to wild animals and obligating owners to take affirmative steps to protect themselves from wild animals. In addition, boards should regularly warn residents in the association’s newsletters not to feed wild animals, use tamper-proof trash bins, etc. The reminder should make it clear the association is NOT responsible for keeping them safe and residents should call the game warden or an animal control expert because dealing with wild animals is outside the association’s authority.

Thank you to attorneys Curt Sproul and Gregory Maxim from the law firm of Sproul Trost for their input on this interesting question.

ELECTRIC VEHICLES

Charging Station. Why not do what a few HOAs have done and install their own EV charging systems and then assign that space to the EV homeowner who then is charged for the electricity directly by the power company? The EV owner would of course have to pay a small monthly fee to the HOA to cover the cost of the meter installation. Normal cost to install an EV charging station depends upon the vehicle and may run as much as $7,000.00. -A.C.

Fixed Fee. Rather than get involved in another installation for charging electric cars why not arrive at an acceptable figure per month for the cars as specified in their test literature. For example a Chevy Volt is advertised to require about $1.50 worth of power for a forty mile drive. If the charge is done during the night the rate will drop to about a dollar. -Eric D.

Electric Company Info. The association might want to install charging stations for use by all EV owners, either on an exclusive license or shared basis depending on demand. SCE has a good website that discusses many of the issues surrounding EVs. In addition, there are many online sources for submeters. -Jim S.

MANAGEMENT COMPANIES

Management Costs. Who works for $10 a door? -MH

RESPONSE: I not sure any companies work for $10 a door anymore. Also, management costs vary widely depending on the level of service sought by the board and the number of units in the development. The larger the association, the lower the cost per door as economies of scale factor in. A more realistic charge for full service is probably in the range of $20 to $40 per door. -Adrian J. Adams, Esq.

ANSWER: Electric vehicles (EV) are trendy and cute but EV owners don’t have a right to use common area power to charge them. Doing so means their neighbors are paying for the “fuel” that runs them. It’s no different than siphoning gasoline from their neighbors’ cars. Accordingly, EV owners should be prohibited from using common area power to charge their vehicles.

Solution. As the battery life and efficiency of electric vehicles improves and costs go down, Evs will become more prevalent. That means this issue is not going away. Owners will need a way to charge their vehicles. To resolve the problem, associations should allow EV owners, wherever feasible, to run power from their own electric meters to their parking spaces. Before doing so, boards should require that EV owners use licensed and insured electricians and obtain appropriate permits from the Building Department.

FHA FINANCING

QUESTION: I am a real estate agent who is trying to help get a condo association approved for FHA financing. We need a “condo certification” from the management company and an attorney letter. It seems to be in the best interest of the HOA to cooperate by providing the info ASAP. Without FHA financing, the condos are valued at about 20% less than similar condos in the area. Does the management company have a duty to cooperate since it is in the best interests of the association? Or is this strictly a decision of the board?

ANSWER: The management company is an agent of the board. As such, it is not their decision whether the association seeks or cooperates with FHA certification. It is the board’s decision. That said, the best way for associations to improve property values is to qualify their projects for FHA loans. To find out if their own association has certification, owners can check FHA’s list of approved projects.

FEEDBACK

Bid Shopping. Another really BIG reason not to bid shop is that when contractors realize you do this, they will not submit bids to you anymore. -Michael G.

Unrealistic Expectations. Please clarify what a manager’s duties are. Many believe we are experts in all fields and then become angry when we aren’t. I’ve started bringing copies of our management contract to my meetings for board members to read as they seem to forget what they’ve hired us to do be administrators. -Barbara S.

RESPONSE: Many boards expect their managers to be CPAs, advise them on the law, be parliamentarians, have construction expertise, provide psychological counseling and not make any mistakes–all for $10 a door. Oh, and let’s not forget world peace. Sometimes you have to remind them that you can’t walk on water. -Adrian

Paid Directors. On the subject of paying directors, can the board just hire owners and call them “consultants” and pay them to do board work without making the final decisions? The board would still take all facts from these consultants and make the final decisions. Our HOA is having a lot of trouble getting and retaining directors. We also have had directors that just don’t do anything. -Sam M.

RESPONSE: As paid consultants, homeowners would likely lose the protection provided by your association’s insurance. The services you seek are typically provided by managers, attorneys, recording secretaries, and the like. That may require higher membership assessments but there’s nothing like a healthy dues increase to motivate owners to run for the board. -Adrian

CACM Manager Ethics. Quick clarification regarding 5.01(d) of the CACM Code of Ethics, the process of sealed bids opened in front of the board is to be utilized only when a manager, or an allied, related, or affiliated company, is also providing a bid for services. -Marla H.

RESPONSE: I took another look and you’re right. CACM’s Code of Ethics does not prohibit bid shopping. I contacted Karen Conlon, Executive Director California Association of Community Managers to see if this issue is covered in any of their materials. Following is her response:

The CACM Ethics Course discusses this in detail and all managers obtaining their initial certification must complete the course, as well as those who must recertify every 3 years. The key obviously in this circumstance and in this aspect of our Code of Professional Ethics, is disclosure. Once disclosure occurs then the association board can weigh the information and make a determination how to proceed. If the board chooses to waive the sealed bidding process, that would be their choice as long as it is not mandated in their governing documents (which I have never seen). -Karen Conlon

Spec Bidding. One item that I do that I do not feel is unethical because I disclose it to the board and to the vendor is spec bid. If we have a future project that may or may not be done but we need a ball park cost on it I usually contact one or two vendors for the project to give me a bid for budget purposes. They are fully aware that the project is a future one and the board is aware that the costs can change anywhere from 5% on up depending on when they choose to do the work. This works well for the vendor and the board when the association is on a tight budget. -Joyce S.

RESPONSE: Spec bidding for budgeting purposes is a good idea. There is nothing wrong with it and it allows you to set aside funds for capital improvements or to fine tune reserve study line items.

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 again with 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 Conduct posted 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 Fransz for 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 vires act 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.

Posted by Adrian J. Adams, Esq.

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 directors 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. -Adrian Adams

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. -Adrian Adams

ANSWER: The president cannot, after the vote was taken and the meeting adjourned, cast a vote to break the tie. The motion failed when the board deadlocked 2-2. However, under limited circumstances, the matter may be brought up for reconsideration. At that point, the president can cast her vote.

ARE WE A PUD?

QUESTION: How do we know if we are a PUD as well as a CID??? How do I know whether I live in a PUD and whether that affects how the HOA acts under Davis-Stirling?

ANSWER: A PUD (Planned Use Development) is a category of common-interest developments defined by Civil Code 1351(k). With condominiums, members own air space (their unit) plus an undivided interest in the structure surrounding their airspace. In a PUD, members typically own their residential structures and the lots upon which they were built. PUD common areas, which may consist of streets, recreational facilities, clubhouses, etc., may be owned in common by the owners or may deeded to the association.

Residential structures in a PUD might be free-standing homes or may consist of two or more townhomes separated by party walls. With townhouse construction, owners might own a traditional looking lot with fenced front and back yards or they may own a “footprint” lot, i.e., the dirt upon which the structure sits and nothing more.

Maintenance. Maintenance responsibilities in PUDs can vary considerably. In some, owners are responsible for everything on their lots–all structures and all landscaping. In others, the association takes care of the landscaping. In some, usually those with townhouse construction, the association is responsible for exterior structure maintenance such as painting and roofs. The variations depend on how the developer drafted the CC&Rs.

HOA Authority. The HOA’s authority in condominium projects and PUDs are similar. Each enforces the governing documents and each maintains the common areas. The specifics are determined by the governing documents. -Matt Gardner, Esq.

PRESIDENTIAL FEEDBACK

Inexperienced President. I am so offended by your description of our President (that he had no prior management training or executive experience). Let’s see. He attended the best university for undergraduate and graduate studies – and graduated. And he can think! This is exactly what we need in a President. -Diane W.

RESPONSE: Neither presidential candidate, John McCain or Barack Obama, had management training or executive experience. That was the point. If we can elect presidents without prior experience (most of whom do well in office), homeowners can elect condo boards without prior experience. Doing so is not, as the writer called it, a travesty. To be a board member, the best qualifications are common sense and a desire to do well (a bit of humor wouldn’t hurt either). Directors can pick up everything else they need through their managers, the association’s legal counsel and classes offered by the Community Associations Institute (CAI). There are eight CAI chapters in California, all of them offer classes. You can find them in the Business Directory. -Adrian Adams

Humor. I have to say that I completely love your sense of humor when it comes to some of your newsletter responses. My favorite thus far involved your comments regarding prayer at board meetings at God living in a gated community (I actually still laugh at this one till this day). I also, found your most recent comment regarding President Obama’s on the job training to be very humorous as well. I find your newsletters to be very interesting and informative; keep up the good work. -Chad C.

RESPONSE: Gracias! I like it when readers get it. There are always a few who are quick to take offense and send flaming e-mails. As one sage noted, associations are full of willing homeowners, some willing to volunteer and the rest willing to criticize. -Adrian Adams

Untrained Boards, [In last week's newsletter] Pauline raises a good point [about untrained boards]. However, as you noted, legislation to require HOA boards to attend training have failed. This is largely due to the large push of Labor Associations such as Police, Fire, Plumbers, along with other non-profit organizations. In these organizations, members pay dues. To limit a member’s right to run for office is a violation of Federal & State law. To enact such restrictions to HOAs would create an odd-man-out type situation where one type of non-profit is isolated by statute. That said, I would think, an HOA could enact a CC&R, by majority vote, requiring board members to attend management training, at the HOA’s expense. Thus eliminating any legislative need. -Joseph L.

QUESTION: We had an arson at our clubhouse. The prime suspect is living next door to me. The suspect was expelled from school for arson and killing a classroom bird. He is now enrolled in an outpatient mental health program. Are board members acting properly by being secretive about the arson? The only ones that have shown any concern about my safety have been the guards.

ANSWER: What you described is scary both for you and the board. Boards have a duty to exercise due care when it comes to the membership’s safety. That includes protecting members from foreseeable criminal activity. The association’s duty is not unlimited; members must also be vigilant to protect themselves from harm. In this case, your board should at a minimum notify the membership that a possible arson occurred in the clubhouse and ask everyone to be alert to any suspicious activity.

Disciplinary Hearing. If the board has evidence that your neighbor set the fire, it should hold a disciplinary hearing and make a good faith determination as to whether he committed the deed. If there is sufficient evidence, your neighbor can be fined and specially assessed to pay for repairing the fire damage (unless insurance has already paid).

Obligation to Warn? If the board determines that your neighbor set the fire, it may have an obligation to alert the membership of the person’s identity. Doing so allows members to take appropriate steps to protect themselves. Unlike municipalities, associations do not have governmental immunities and can be held liable for injuries and damage caused by their negligence. The courts have likened associations to landlords and have increasingly imposed liability for criminal activity. Consequently, if the board knows of a threat to the community and does nothing to protect the membership, it could be liable for any subsequent injuries or damage.

Juvenile Arsonist. If the arsonist is a juvenile, boards should be cautious about reporting his name to the membership. Not even courts or newspapers publicly disclose a minor’s name when they commit non-homicidal crimes.

RECOMMENDATION: There are no easy answers when boards are faced with potential threats to the membership’s safety. To protect themselves from personal liability, directors need to follow the Business Judgment Rule. To that end, boards should consult legal counsel and follow their advice when faced with these kinds of situations. For an excellent discussion about an association’s duties related to criminal activity, see Curt Sproul and Katherine Rosenberry’s Advising California Common Interest Communities published by the Continuing Education of the Bar.

EXTRA LEGAL ADVICE

QUESTION: Legally can a board president seek generic information from an outside attorney instead of using the HOA legal counsel?

ANSWER: Yes but he does so at his own expense (unless the board approved the consultation).

NO EXPERIENCE
NO TRAINING

COMMENT: Qualifications for being on the board are simply that they want to do a good job. That’s it. They are volunteers. They are not trained to be on the board, there are no requirements or experience in legal issues, property management, executive experience, some of them don’t even hold jobs. This is a travesty. -Pauline B.

RESPONSE: Two years ago voters elected someone with no training, no management skills, and no executive experience to run the United States. If the most powerful man in the world can get on-the-job training, it’s reasonable to expect that condo board members can as well.

Legislation. There have been attempts in recent years to push legislation requiring board members to take classes in HOA law. Such attempts have failed. It is already difficult enough to recruit volunteers to serve on boards. Forcing them to take classes in addition to working without pay and taking abuse from their neighbors would further discourage anyone from volunteering. Most boards are conscientious and do a good job managing their associations. The travesty is when members elect disruptive, self-serving directors and let them stay in power year after year.

MAKING LENDERS PAY

QUESTION: In some transactions, a “Condominium Rider” is recorded along with the grant deed. One paragraph of the rider states “If borrower does not pay condominium dues and assessments when due, then lender may pay them.” Can HOAs force lenders to pay the delinquent amounts?

ANSWER: The rider states that lenders “may,” which is permissive not mandatory. As a result, lenders can choose to pay an owner’s delinquent assessments if they feel generous but their generosity cannot be forced.

UNINCORPORATED ASSOCIATION

QUESTION: We have a small unincorporated HOA built in the 1960s. I recently ran across the instructions for filing form SI-SID with the Secretary of State. However, the board is questioning whether we are actually required to file. While we meet the State’s definition of a CID, some board members have taken the position that because our HOA was formed BEFORE Davis Stirling came into existence, we were not formed under it and therefore the requirement for filing does not apply to us.

ANSWER: I like the logic. I bet it works with the IRS . . . only income taxes enacted before I was born apply to me; higher tax rates passed after I was born do not apply to me because I was formed before they came into existence.

Not to lobby for lawyers but your board really needs to talk to one. The Davis-Stirling Act applies to your association. Moreover, as required by Civil Code §1363.6, every association, whether incorporated or unincorporated, must file Form SI-CID. The instructions on the Secretary of State’s website affirm that “every unincorporated association . . . shall file a Statement . . . biennially, in the month of July.” -Adrian J. Adams

QUESTION: When the board approved a large sum of money ($420,000) to re-do landscaping for the community, there were no bids and I do not feel the community was clearly informed, can we overturn this act?

ANSWER: The membership has no veto rights over the board’s spending any more than citizens have veto rights over the deficit spending now occurring in Washington D.C. Instead, members have indirect veto power through annual elections and board recalls. If enough members agree with you, they will elect directors who reflect your fiscal policies.

YARD SALES

QUESTION: Can the board create rules that are more strict than those at the county or state level? For example, if the law says that you can have garage sales year-round, can an association adopt a rule that states “No garage sales are allowed?”

ANSWER: Yes, associations can adopt rules that are more restrictive than county or state restrictions. For example, the county might allow owners to keep four dogs but the association might restrict pets to one dog. The more stringent restriction applies.

DAVIS-STIRLING WEBSITE

We have a new look to the website. My tech wizards gave it a face lift. You will notice a color change, more graphics, and a more textured background. You can run your browser over the new thumbnails on the front page to maneuver around the website.

We are also in the process of tweaking Google’s search engine to give better search results of the website’s extensive database.

We are still smoothing out the wrinkles but it already looks terrific. Take a look and let me know what you think. -Adrian Adams

MEDICAL MARIJUANA
FEEDBACK

Disabilities Act. Just wondering if the Americans with Disability Act would allow the growing and use of pot within the CC&R restrictions or would a person be able to smoke the marijuana on their balcony? Really can’t stop the odor of roses and flowers from a neighbor’s house. Could this be a violation that the DFEH would look into? -Ted S.

RESPONSE: I don’t know that I would compare the fragrance of roses with exposure to secondhand smoke. My analysis regarding the use of medical marijuana on balconies does not change under ADA or DFEH guidelines. In my opinion, boards can balance the competing interests of pot smokers and nonsmokers and establish reasonable restrictions on where medical marijuana can be grown and smoked.

Disclosure Issues. About marijuana smoke migrating….many, many years ago I was a math teacher in a pretty rough school. One morning, as I was putting up a problem on the blackboard, I started to giggle uncontrollably. Smoke from the marijuana being used in the school hall was migrating into my classroom. On a more recent note. There is a highrise condo building in San Francisco where some of the owners use marijuana regularly and the drifting aroma collects in the hall. Whereas occasional use was first tolerated by fellow homeowners, they are now finding the constant presence of marijuana odors annoying. This has now become a disclosure issue in the building, to its detriment. -A. L.

RESPONSE: There is a trend nationwide toward banning smoking in all housing. See a recent New York Times article on the subject. Even compassionate bystanders are starting to recognize negative aspects of the unfettered use of medical marijuana. -Adrian Adams

Led Away in Handcuffs. Two comments on growing marijuana on a condo patio or balcony: Most CC&Rs prohibit illegal activities in a unit, and possessing or cultivating marijuana is illegal under federal law, and under state law unless with a doctor’s recommendation. My HOA requires the resident to produce a doctor’s recommendation before it will not enforce the CC&R provision. Two residents refused to provide the requested recommendation and the HOA enforced the ban by calling the police, who led both residents away in handcuffs. After that, we never had this issue again. -William R.

Quiet Enjoyment? “Pot” aside, speaking of the “quite enjoyment” per CC&Rs, where does it stop? What if this was a single family home? I am sure the wind would still carry the smoke next door. -Kris M.

RESPONSE: Single family homes are not packed together like condominiums. -Adrian Adams

GRAND CANYON RIVER RAFTING

Running the Rapids. Adrian: Have a great, well-deserved vacation running the rapids in CO! Could not think of anything more beautiful to do, or more distinctly opposite of your daily life! -Carole A.

Best Trip Ever. Adrian, I am 68 and for 50 years have been vacationing every year. The very best trip I took was down the Colorado River on a raft. I know your trip will be amazing. -Elsa R.

RESPONSE: It was magnificent! I went with four of America’s finest–former Army officers. Two were Rangers and one earned two Silver Stars and a Purple Heart. -Adrian

MORE FEEDBACK

Consent Agenda. I applaud your use of the “unanimous consent” to expedite agendas. Most boards are unfamiliar with the process and if it were used more meetings could be dramatically shortened. Caveat – unanimous consent actions ARE ACTION ITEMS and must be reflected in the minutes. Sometimes they are overlooked because the don’t bear the traditional “motion by Smith and second by Jones” or frequently abbreviated “M/S/C.” [When it comes to approving minutes] It is appropriate to place minutes on the consent agenda unless, of course the board has failed to do its duty to review and offer ministerial corrections in advance of the meeting. (See article from Board Source.)I encourage your readers to bookmark http://www.boardsource.org.
-Jim Stilwell, Manager

Earthquake Insurance. I think some clarification should be made regarding the deductible on earthquake insurance. I have not seen a deductible ‘per unit’ of $100k. Depending on the size of the association, that could imply quite a high limit of virtual self insurance. Typically, a ‘unit’ is defined as a building in the earthquake policy because the policy is underwritten on a schedule of buildings. Each building is one unit. Further, it is expected that each owner will share in the loss equally, whether or not their building was actually the one damaged.

Also, it is very rare to have a deductible of an actual monetary value, such as $100k. Carriers issue earthquake insurance with a deductible applied as a percentage of the replacement cost of a building, not a set amount. This is because, again, the policy is underwritten on a building schedule and commonly a complex is composed of a number of buildings in varying configurations. That said, I can see an agent and carrier creating a unique product if need be, especially for a risk where all of the buildings are the exact same configuration. -Michael Berg (MBA, CIRMS, CMCA)

QUESTION: We have a resident who is smoking “pot” and growing marijuana on his patio (2 large plants) in full view of residents. He says he has a permit to do so. Is this allowed?

ANSWER: When faced with a similar situation, one of my condo boards approved, provided the resident shared his stash. Other boards, however, may wish to prohibit the growing and smoking of pot on balconies.

Federal Law. The Controlled Substances Act makes it unlawful to manufacture, distribute, dispense, or possess any controlled substance. 21 U.S.C. 801. The federal government does not recognize any acceptable medical use for marijuana. 21 U.S.C. 812(b)(1). California, on the other hand, legalized marijuana for medical purposes.

Medical Marijuana. Medical marijuana is authorized by Health & Safety Code 11362.5 et. seq. for the treatment of serious medical conditions, and is administered by California’s Department of Public Health. Upon obtaining a recommendation from their physician for use of medicinal marijuana, patients may apply for and be issued a medical marijuana identification card. ID cards may be verified at www.calmmp.ca.gov. With one exception, qualified patients may possess no more than eight ounces of dried marijuana. H&S Code 11362.77(a).

Restrictions. Just because someone has a permit to use medical marijuana does not mean he can light up whenever and wherever he wants. For example, users cannot smoke a joint in a courtroom or inside any governmental buildings (Gov. Code 7597), or within 20 feet of a main exit, entrance, or operable window of any public buildings (Gov. Code 7597), or in any workplace (Labor Code 6404.5), or on school grounds, or while operating a vehicle (H&S 11362.79). Reasonable restrictions may be imposed on the use of medical marijuana.

Quiet Enjoyment. Based on the nuisance provisions in CC&Rs, secondhand smoke, whether cigarette, cigar, marijuana or otherwise, that drifts into the windows of other units, balconies, or common areas can be restricted. Members have a right to the quiet enjoyment of their own units and should not have to endure the problems associated with secondhand smoke wafting into their units. If associations prohibit smoking on balconies, it should be all smoking, not just marijuana. Otherwise, the restriction may be struck down as discriminatory.

Reasonable Accommodation. An association’s power to prohibit medical marijuana inside units is less clear. Health & Safety Code 11362.79 implies that smoking medical marijuana in one’s residence is allowed. As a result, boards should not prohibit pot smoking in units but, instead, should address the nuisance aspects. As long as the smoke does not create a nuisance and provided the person has been authorized to use medical marijuana, smoking it in a unit should be allowed.

Inside Units – Nuisance. If the user cannot confine the smoke to his own unit, the smoke becomes a nuisance that must be abated. The smoker can be required to take appropriate measures to cease his violation of the CC&Rs. The person may need to run HEPA filters inside his unit, seal all penetrations in walls, ceilings and floors, and install weather stripping and door sweeps on doors to stop smoke from migrating into the common areas and surrounding units.

Growing Pot. Qualified persons are allowed to cultivate marijuana (H&S 11362.775) but may not keep more than six mature or 12 immature plants (H&S 11362.77(a)). Just as smoking marijuana has limitations, growing it can be regulated. Boards could require that plants be grown in the person’s unit and not on balconies.

RECOMMENDATION: Boards who encounter this issue should seek legal counsel.

EARTHQUAKE INSURANCE

QUESTION: Our association carries less than 50% earthquake coverage with a $100,000 deductible. If they’re responsible for repairing the common areas, shouldn’t they carry 100% earthquake insurance?

ANSWER: It has been my experience that governing documents do not require associations to carry earthquake insurance. If yours require it, then your board must comply with whatever is called for in your documents. If your CC&Rs are silent, then coverage is at the discretion of the board, i.e., the decision to buy, the amount of coverage, and the size of the deductible. One hundred percent coverage is ideal but not always feasible because of the cost. One way to reduce cost is through higher deductibles.

Deductible. The $100,000 deductible carried by your board significantly reduces the cost of the insurance policy. Unfortunately, the deductible is probably per unit. If so, it puts each owner at risk for special assessments to pay their portion of the deductible in the event of a loss. To reduce their risk, each owner should obtain a personal earthquake policy through the California Earthquake Authority (CEA). The cost of a CEA policy is quite reasonable and will cover special assessments up to $75,000. Because the maximum is limited to $75,000, your board should consider reducing the deductible so as to eliminate the $25,000 gap in coverage. Homeowners can calculate the cost of a personal CEA policy with their “Premium Calculator.”

Total Insurable Value. Boards should consult with an insurance broker and possibly an appraiser to determine the total insurable value of the association’s structures. Boards can then factor in the amount of a potential loss, the cost of coverage, and the ability of the membership to pay higher assessments to cover premiums. Another way to reduce risk is to install a seismic gas valve. Once an association starts carrying earthquake insurance, boards should be cautious about discontinuing coverage without membership approval.

Thank you to Dennis Socher, Executive Broker for the Socher Insurance Agency, for his assistance with this question. -Adrian Adams

BOARD MEETING
CONSENT AGENDA

QUESTION: Do you see any reason why the board could not use a “consent agenda” for routine items that it believes does not require discussion and will garner a unanimous vote?

ANSWER: A “Consent Agenda” is a grouping of non-controversial agenda items that are expected to be approved without discussion. (Robert’s Rules of Order, 10th Ed., pp. 349-350). As such, it can be a significant time saver for board meetings.

Consent Process. Routine items can be grouped together on the agenda with a heading of “Consent Calendar” or “Consent Agenda.” When the board reaches that portion of the agenda, the Chair asks if any member wishes to remove (or pull) any item from the consent agenda. They may do so by stating “I pull item #__.” Pulling an item does not require a second. After all the “pulls” are made, the Chair states, “Without objection, the remaining items (or all the items if none have been pulled) are adopted by general consent.”

Silence is Consent. If any director wants to vote against an item, he/she must pull it from the consent agenda. This is a case where silence not only implies consent, silence is consent. If any items are pulled, the board can either take them up immediately for discussion and vote or put them in their appropriate place in the agenda. The approval of minutes is not considered routine and should not be on a consent agenda.

Notice of Agenda. The consent agenda is part of the board’s meeting agenda that must be posted four days in advance of the meeting.

A special thanks to Mr. Parliamentarian James H. Stewart, PRP for his input with this question. -Adrian Adams

FEEDBACK

Newsletter Typo. There is a typo in your June 13, 2010 newsletter: “Restricting recalled directors would make good directors intelligible along with the actual target of the recall.” -Steve G.

Funny Pun! You made a typo (and a funny pun!). Restricting recalled directors would make good directors intelligible along with the actual target of the recall. -Ken M.

At Last! At last! After many years, a typo: “ineligible” not “intelligible.” -Larry G.

Couldn’t Resist. What’s wrong with having “intelligible” directors? Not usually listed as a qualification, but a characteristic that might be beneficial during board discussions. I couldn’t resist. -H.J.C.

RESPONSE: Gads, I hoop I don’t do that again! -Adrian Adams

Nominating Committees. Don’t know if I agree with you about nominating committees being done away with. I think a nominating committee can nominate candidates and then a letter can be sent to all owners with notice that they have right to self-nominate. -Jim A.

RESPONSE: A nominating committees can still be utilized for soliciting candidates. However, if it nominates candidates and the committee’s candidates are so designated on a ballot, is that a form of campaigning using association media? An interesting question for the courts. -Adrian Adams

QUESTION: Can we amend our CC&Rs to state that a purchaser of a unit must pay delinquent assessment from prior owners?

ANSWER: By statute and case law, the buyer of a property is not personally liable for the delinquent assessments of prior owners. Civil Code 1466, Mountain Home v. Pine Mountain. If you want to increase the likelihood of getting paid, you should record a lien against the property for the delinquent amounts. That gives your association its best protection against loss.

NOMINATING COMMITTEES

QUESTION: Our bylaws require a nominating committee before we have an election. However, our management company said we did not have to follow that provision in our bylaws and do not need a nominating committee. Is the management company correct?

ANSWER: Your management company is correct. Nominating committees were effectively done away with by the election procedures in the Davis-Stirling Act. Traditionally, nominating committees solicited and screened candidates to serve on the board. If the committee did not deem a candidate “worthy,” the person could not run for the board even if he/she met the qualifications in the governing documents. Now, qualified candidates can nominate themselves to run for the board regardless of anything a committee might say or do.

NOTICE OF MEETING
EXCLUSIVELY VIA WEBSITE

QUESTION: Our association recently set up a website. The only manner it now gives notice of board meetings is by posting them on the website. I do not think this is permissible. Am I correct?

ANSWER: You might be correct. To use the website as the exclusive means of delivering notices, the association must have written unrevoked consents from all members. Even then, the association is still required to give a separate notice that information has been posted on the website so members know to check the website for the notice. For more information see electronic notice requirements.

PLANTERS ON BALCONIES

QUESTION: Can the board prohibit planters on exclusive use decks, to protect them from damage from leaks and weight? Can the board adopt rules rather than change the CC&Rs?

ANSWER: Yes, boards can adopt reasonable rules to protect decks from damage, including limits on the size and number of potted plants and prohibitions against planters. Even though condominium balconies are for the exclusive use of the unit to which they are attached, they are still common area structures. Boards can regulate balconies without amending the CC&Rs, provided the rules adopted do not contradict the CC&Rs. Balconies on homes in PUDs would be subject to less regulation since they are not common area structures.

ELECTION VIOLATION?

QUESTION: We had our management company representative and a member of the association (not a candidate for office) act as independent inspectors. That shouldn’t be in conflict with the Civil Code, should it?

ANSWER: Provided your Election Rules allow it, your management company can serve as an Inspector. Association members can also serve as Inspectors, provided they are not members of the board or candidates for the board or related to a member of the board. Civil Code §1363.03(c)(2).

Two Inspectors. Using two Inspectors, however, is a violation. The statute calls for one or three inspectors so as to avoid a deadlock in the event a decision needs to be made (such as a challenge to voter’s eligibility).

FORMED IN THE 1970s

QUESTION: Quick question, since our HOA was formed in the 1970s, our bylaws are the only code we go by, right?

ANSWER: No, not right. Your date of formation has nothing to do with whether or not your association is subject to the Davis-Stirling Act. It depends on whether your development meets the definition of a common interest development. Civil Code §1351. Moreover, your association could also be subject to the Corporations Code, Health & Safety Codes, Labor Codes, and so on. Your board should seek legal counsel.

RECALLED DIRECTORS

QUESTION: Can recalled directors be prohibited from becoming directors again?

ANSWER: Unless your governing documents state otherwise, recalled directors can immediately run for the newly vacated seats. However, the association could amend its bylaws to require recalled directors to remain off the board for a specified period of time. Such a restriction, however, could have unintended consequences.

Unintended Consequences. Sometimes apathy and misinformation can result in good directors being recalled by a small number of owners with personal agendas. Once the recall occurs, the membership may discover that the new directors are far worse than the recalled directors. If your bylaws imposed restrictions on recalled directors, it would prevent the membership from putting the good directors back on the board. Another problem is that HOAs with cumulative voting sometimes need to recall an entire board to remove one bad director. Restricting recalled directors would make good directors ineligible along with the actual target of the recall.

FEEDBACK

Illogical FHA. I’ve brought the FHA issue up to all my elected officials. I don’t think they grasp the illogical requirement they have placed on condo associations in regard to qualifying for FHA financing. They make it tough for first time buyers, less competition for cash buyers (investors) who bring in more renters, continuously going the wrong way with the ratios and for the betterment of the condo communities. -Len M., OC Realtor

RESPONSE: There does not appear to be any adults running the FHA. Their constantly changing and poorly thought-out requirements will only prolong the recession in the condo industry.