Condo Law in California

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

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

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

ADULTS ONLY POOL

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

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

CHILDREN IN THE STREET

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

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

REALTOR/DIRECTORS

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

RULES POLICE
(final words on this subject)

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

INSURANCE BLANKETS
(last words on this subject too)

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

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

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

GETTING OUT OF THE
INSURANCE POOL

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

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

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

DUES vs. ASSESSMENTS

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

CONFLICTS OF INTEREST

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

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

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

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

RULES POLICE

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

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

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

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

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

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

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

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

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

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

BOARD PRESIDENT’S
CONFLICT OF INTEREST

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

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

DISCIPLINARY HEARINGS

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

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

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

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

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

DUES vs. ASSESSMENTS

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

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

WELLS FARGO
INSURANCE PROGRAM

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

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

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

The Case of the Tenants’
Right to Sue

An owner leased his property within an association, and executed a power of attorney/ assignment authorizing the tenants to handle all property related matters. After a dispute arose with the Association concerning the property, the tenants sued the Association for breach of the CC&Rs and violation of the Davis-Stirling Act.

Did the tenants have the right to bring this lawsuit against the Association? Find out how the Court of Appeal ruled in this new case decided last week.

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

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

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

FANNIE MAE REQUIREMENTS
Reader Feedback

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

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

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

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

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

RESIGNING DIRECTOR
CONTINUES TO VOTE

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

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

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

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

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

RAISING DUES

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

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

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

The Case of the Disabled Resident’s Home Business

Steven Nelson, a “world renowned Homeopathic Nutritionist and religious counselor†with a doctorate in pharmacology and a doctor of clinical religious counseling, suffered an illness which prevented him from leaving home or driving. As a result, Nelson relocated his religious and medical counseling practice to his residence within the Avondale HOA, where he would see up to eight patients per day for half hour sessions, five days per week.

When the Association tried to enforce its rule prohibiting home businesses, Nelson sued the association. Find out how the court ruled in a new case published on March 26, 2009.