Condo Law in California

QUESTION: I live where the board fights a lot and now they’re making a nuisance on the web. Are they allowed to fight online?

ANSWER: I checked your website and saw that you have a board recall in play. It is not surprising that there are a lot of charges and counter-charges flying. If directors are being accused of mismanagement, they have a right to defend themselves. They may have perfectly good explanations for their actions and owners should hear them before casting their vote. The political process is messy but it can’t be helped.

DIRECTOR NOT IN
GOOD STANDING

QUESTION: What about a director currently serving on the board who is in the process of foreclosure and delinquent in his association dues? Doesn’t seem responsible to have someone on the board making financial decisions for the membership if they can’t keep themselves out of financial hot water. Can the board remove the director having the financial woes?

ANSWER: Not all owners with financial woes are financially irresponsible. A lot of people are out of work through no fault of their own. If you want to prevent delinquent owners from serving on the board, you need to amend your bylaws to add director qualifications. Absent any provision in your bylaws, your board cannot remove a delinquent director.

FHA REGULATIONS

The Federal Housing Administration issued new letters regarding mortgage insurance for condominium associations, Letter 2009-46A, and Letter 2009-46B. In addition, the Western Regional HUD office is reportedly backing off its 60% reserve funding requirement and will be following the national guidelines described in the above letters. Discussions are ongoing with the FHA and there may be additional changes to report. U.S. Approvals, a company that provides HUD/FHA and VA project review services published a summary of the requirements.

COMMERCIAL CONDOS

QUESTION: The Davis-Stirling Act requires that an association maintain documents for owners. Section 1368 requires the seller to turn over some of those documents in a resale transaction. Do commercial sellers and associations have the same requirement?

ANSWER: As you noted, residential sellers are required to produce governing documents, financial statements, a schedule of assessments, a list of defects, and make other disclosures as provided for in Civil Code §1368. Commercial and industrial condos, however, are exempt from these Davis-Stirling requirements. Civil Code §1373. The legislature decided that buyers of industrial and commercial condos do not need the same level of protection as homebuyers. -Matthew Gardner, Esq.

BUDGET DEADLINE

QUESTION: Our bylaws contain a 45-day requirement for distributing the budget but the Code allows 30 days. Which controls?

ANSWER: The statute controls: Notwithstanding a contrary provision in the governing documents, a copy of the operating budget shall be annually distributed not less than 30 days nor more than 90 days prior to the beginning of the association’s fiscal year. Civil Code §1365(a)4.

NOMINATION FORMS

QUESTION: What is the notification requirement for informing owners of the right to self-nominate? Is the board obligated to mail self-nomination forms to the members?

ANSWER: The association is required to notify members when and how to nominate themselves. However, forms are not required unless called for in your Election Rules.

QUESTION: My mother is well into her eighties and has significant hearing issues. When she was recently pointed out at a board meeting “put her up front, she can’t hear.” she became very embarrassed and refuses to attend any more board meetings. Can she appoint me, her daughter, as a proxy to attend all meetings?

ANSWER: Yes, you can attend on her behalf. However, a proxy is not the correct form of authorization. Proxies apply only to membership meetings, not board meetings. A power of attorney is the proper document to give you the legal authority you need to attend meetings. Having said that, the board should not make you jump through legal hoops to attend the meeting–a simple written authorization from your mother should suffice. As your mother’s agent, you would also have the right to speak on her behalf at the open forum.

DELINQUENT OWNER AS PROXY

QUESTION: A member made a delinquent owner their proxy for the annual meeting. Can a delinquent owner cast a proxy vote?

ANSWER: Yes. The Davis-Stirling Act does not require that owners be in good standing to be proxies, only that they be owners. Civil Code §1363.03(d)(1)(A).

DIRECTORS NOT IN
GOOD STANDING

QUESTION: Is there anything in the Davis-Stirling Act that requires a director to be a member in good standing, that is, not owing any monies to the association?

ANSWER: There is nothing in the Act requiring directors to be in good standing. However, associations can add that as a qualification by amending their bylaws.

CANDIDATE WITH
UNRECORDED DEED

QUESTION: Our CC&Rs require that board members be owners. The son of a member wants to run for the board. He has an unrecorded Quit Claim deed (he claims it’s unrecorded for tax reasons). Does this qualify him to run for the board?

ANSWER: No, an unrecorded deed does not qualify him to serve on the board. People who walk around with “pocket deeds” (unrecorded deeds they carry in their pocket) usually do so for reasons other than taxes. If your non-member wants to run for the board, he needs to record the deed and become a member of the association.

ANNUAL MEETING
QUORUM

QUESTION: Do ballots establish quorum for all actions at an annual meeting or only for the election part of the meeting?

ANSWER: Ballots establish quorum for the meeting as a whole. However, new matters cannot be raised and voted on from the floor at the annual meeting. Only incidental matters may be voted on by the membership, such as approving the minutes, closing balloting, adjourning the meeting, etc. Any significant business requires notice to the membership, secret balloting, and a 30-day voting period.

RECALL REDUCED QUORUM

QUESTION: Regarding quorum for a recall election, if a quorum is not established on the first try, is the recall void? Would we set another date to establish a smaller quorum, as in a regular election handled at an annual meeting?

ANSWER: If your bylaws do not provide for a reduced quorum, the recall fails and everyone goes home. If your bylaws provide for a reduced quorum, you set another date as provided for in your bylaws. If you meet quorum at the rescheduled meeting, you must also factor in the size of your association. If your association has fewer than 50 members, the removal of directors must be approved by the affirmative vote of a majority of all members entitled to vote, regardless of the reduced quorum. Corp. Code §7222(a). If you have 50 or more members, the recall is approved by the affirmative vote of a majority of the votes represented and voting, with the affirmative votes also constituting a majority of the required quorum. Cumulative voting may also be a factor in the recall effort.

QUESTION: My mother owns a condominium. As her son, I was given durable power of attorney and conservatorship and would like to run for the board. The HOA says I am not eligible since I am not an owner. My power of attorney allows me to represent my mother’s interest in all matters. The condominium is her largest financial asset. Our Trust/Probate attorney believes the HOA is obstructing my lawful authority under provisions of the power of attorney.

ANSWER: Your power of attorney allows you to conduct your mother’s business but it does not allow you to run for the board. If ownership is a requirement for serving on the board, you’re either on title or you’re not. By analogy, running for President of the United States requires that you be a natural born citizen and at least 35 years of age. If you are a 20-year old Canadian holding a power of attorney for a 40-year American citizen, you are not qualified to run for President. Sorry.

ELECTION QUORUM

QUESTION: Our HOA management company says that a quorum of the board is not necessary for the annual meeting. This seems to be contrary to California law.

ANSWER: Your management company is correct. A board quorum is not necessary because an annual meeting is not a board meeting–it’s a membership meeting. You need a quorum of members for membership meetings and a quorum of directors for board meetings.

LIGHTING FOR
70-YEAR-OLD RESIDENT

QUESTION: My mother is 70 years old and has repeatedly asked her HOA to have a brighter light installed outside her door for safety reasons. The current light (a recessed one) is dim and she fears she will either trip or something will happen due to the substandard lighting. She can barely find the keyhole in her door because of the poor lighting. They told her they can’t alter the aesthetics of her unit and she should have bought a house if she wanted brighter lighting.

ANSWER: Your board is willing to risk injury to a 70-year-old resident because a brighter light is not as attractive? Hmmm, aesthetics versus safety–which would a jury consider more important? First, your board does have the power alter the aesthetics of your mother’s unit. Second, your directors need to read the California Supreme Court case Frances T. v. Village Green Owners Ass’n where plaintiff installed extra lighting to protect herself and the board ordered it removed. She was subsequently raped and robbed. The court concluded that the resident could bring suit against association and its directors for failing to take action to avoid harm and contributing to the risk of injury to residents. The court noted that associations function as landlords in maintaining the common areas and boards have a duty to exercise due care for their residents’ safety in those areas under the association’s control. Your board needs to re-think its position.

FEES AND PENALTIES
DUE TO MISMANAGEMENT

QUESTION: My company just recently acquired a new association. In going over the files it has come to our attention that taxes were paid late and many bills were paid late which resulted in penalties, late fees and reinstatement fees. Can the association invoice the previous management company for reimbursement of these fees?

ANSWER: The association can go after the management company IF it has a valid basis for doing so. However, the previous company may have a good explanation for the late payments (no money in the account, directors failed to sign checks, etc.). If the board was somehow complicit in the mismanagement, the management company will have defenses. The current board needs to thoroughly investigate the matter before committing itself to a particular course of action. In addition, it needs to weigh the costs of litigation versus potential recovery. Litigation is expensive and unpredictable.

ASSOCIATION VENDORS

QUESTION: Our board is forcing all homeowners to use their selected vendors for owner improvements and alterations to our individual units. The vendors selected by homeowners are all licensed, bonded and insured in accordance with state requirements. Does the board have the right to demand we use their preferred vendors?

ANSWER: When it comes to condominiums, homeowners own air space (and improvement such as carpets, cabinets, and plumbing fixtures). That means any time you alter a common area wall, ceiling or floor, or electrical and plumbing lines in the walls, you need the association’s permission. As a result, it is not unreasonable for boards to require you to use their designated vendors any time you touch the common areas. If your unit improvements do not involve the common areas, such as replacing cabinets and counters, the association should not prescribe your vendors.

HOA NEWSLETTER
ADVERTISING

QUESTION: Can our HOA sell advertising in its newsletter? Can the ad money be used for HOA operating expenses?

ANSWER: Yes and yes.

QUESTION: We have authorization from all homeowners to send all correspondence, billing, etc. by email. Can we also send election ballots by email? It is expected to be an uncontested meeting.

ANSWER: Email ballots would be convenient and a less expensive than paper ballots. Unfortunately, they would not be secret as required by the Davis-Stirling Act if they are returned by email. The statute requires ballots be returned in a double envelope system. Depending on your governing documents you may be able to dispense with balloting altogether in uncontested elections.

INELIGIBLE DIRECTOR

QUESTION: While updating a list of owner addresses I discovered that a board member was not an owner, which is required by our bylaws. When challenged, the director was added to his wife’s deed as an owner. Does after-the-fact ownership qualify an individual to remain on the board?

ANSWER: The ineligible director’s seat should have been vacated at the point the board discovered he was not qualified to be on the board. However, once he subsequently became qualified to be a director, the board could appoint him to the seat he vacated.

ARE RECALLED BOARD
CONTRACTS BINDING?

QUESTION: Our HOA is in the process of a board recall. Once a new board is seated, are they bound by contracts previously signed by the recalled board?

ANSWER: If the contracts were valid when signed by the prior board, they are binding. New boards should be cautious about voiding contracts for emotional reasons, i.e., because they do not like or trust the prior board. New boards need sound legal reasons for voiding contracts and should seek legal counsel before doing so.

CONDEMNED PROPERTIES

QUESTION: I’m a board member in a PUD of single-family homes with a high number of condemned, foreclosed and otherwise empty homes. Does the association have any recourse to encourage owners of condemned properties to return the property to a non-condemned condition?

ANSWER: Owners in foreclosure usually have no money, which means they will not keep up the property and will not respond to fines or threats of legal action. Once the lender forecloses, you can go after the new owner, i.e., the lender.

GARDENING NEWSLETTER

QUESTION: Can an association publish a newsletter strictly as a tool for information, reminders, and gardening hints?

ANSWER: If the board believes a gardening newsletter would be beneficial to the community, and has money to pay for printing and mailing it, yes.

CC&R ASSESSMENT LIMITATIONS

QUESTION: Our 1969 vintage CC&Rs have never been updated. They state that annual assessment increases shall not be less than $5 nor more than $50 per lot. Is the board bound by this restriction? If so, should the board levy special assessments as needed?

ANSWER: The assessment restriction in your CC&Rs is no longer valid. By statute, the board has the power to raise regular assessments by up to 20% of the association’s preceding fiscal year without membership approval. Civil Code §1366(b).

DAVIS-STIRLING ACT
ONLY A GUIDELINE?

QUESTION: We’ve functioned as a HOA for years without knowing about the Davis-Stirling Act and got along just fine. We understand the Act to be guidelines than enforceable law. What is the risk of ignoring the Act? Some of the provisions seem onerous and unnecessary for a small HOA.

ANSWER: The law is only a guideline? Who in the world told you that? Associations can incur penalties, legal fees and court costs if they fail to follow the Davis-Stirling Act. I agree it can be onerous on small associations. Unfortunately, the legislature did not take that into consideration.

RECALL QUORUM

QUESTION: Many of our lots are undeveloped or, if developed, used as vacation or week-end homes. Because of the large number of absentee owners, we have not been able to establish a quorum at a membership meeting. Owners who are recalling the board are concerned about establishing quorum at the special membership meeting in order to recall the board. I am under the impression that it makes no difference whether there is a quorum or not because the recall will be accomplished by the secret ballot process.

ANSWER: You need a quorum to recall the board. However, you don’t need people to physically show up at the meeting since ballots count toward quorum. Civil Code §1363.03(b). As long as enough ballots are mailed in, the recall may proceed.