Feb 27

QUESTION: We have a problem with children riding bikes, skateboards, scooters, etc. down a steep hill to a blind intersection. The streets are owned and maintained by the association and the board would like to restrict the street to automobiles only. How can they do this and how would they enforce it?

ANSWER: Unless your governing documents state otherwise, your board has the authority to restrict your street to vehicles only. Doing so benefits the association by reducing or eliminating potential injuries and litigation. If the board were to do nothing and someone is seriously injured, the likelihood is high that the association would be sued. At a minimum, plaintiffs would argue that the directors were negligent and in breach of their fiduciary duties because they knew of the dangerous condition and did nothing to correct it. It may be possible to defeat such claims (depending on the circumstances) but everyone would have to suffer through expensive and emotional litigation before that occurred. They could also lose.

Enforcement. Once the restrictions were adopted, enforcement would be through hearings, fines and suspension of privileges. The board does not need to hire someone to stand on the corner and write tickets but it could do so if circumstances justify it. Typically, rules enforcement for most associations relies on information from residents and periodic inspections. In your case, when someone reports a violation, the board would notify the parents of the young scofflaws, hold hearings and, if appropriate, impose penalties.

RECOMMENDATION: Your board should work with legal counsel to adopt and publish rules regarding the unsafe street–ones that do not discriminate against children. In addition, the board should talk to counsel about posting signs on the street.

COMMERCIAL
AND INDUSTRIAL
CIDs

The California Law Revision Commission released its recommendations regarding revision of laws affecting commercial and industrial common interest developments. The Commission is soliciting public comments which will be considered by the Commission and become part of the public record. Anyone involved with commercial CIDs should review the attached report and submit their comments no later than April 28, 2011 to California Law Revision Commission, 4000 Middlefield Road, Room D-2, Palo Alto, CA 94303.

ANSWERING
MEMBERS’ QUESTIONS


QUESTION: Our board frequently refuses to answer questions at open meetings. What can we do?

ANSWER: One of the curious aspects of the Open Meeting Act is its limitation on the board’s ability to answer questions. As provided for in Civil Code §1363.05(i)(2), the board (or its managing agent or other agent of the board or a member of the staff) may not discuss any item not on the meeting agenda except to:

  • briefly respond to statements made or questions; and to
  • ask a question for clarification, make a brief announcement, or make a brief report on his or her own activities, whether in response to questions posed by a member of the association or based upon his or her own initiative.

Answering Questions. Unless questions from the audience are harassing in nature or involve confidential information, boards should provide brief informational responses during Open Forum. For example, Q: “When are the trees scheduled to be trimmed?” A: “Crews are scheduled to start work next Tuesday at 9:00 a.m.” After Open Forum has closed, members have the right to observe the board’s conduct of the association’s business but they do not have a right to interrupt with questions or comments.

PLEDGE OF ALLEGIANCE

QUESTION: During executive session I was bullied and verbally attacked because I do not say the Pledge of Allegiance before each HOA open meeting. Since it was done during executive session does this exchange have to stay behind closed doors?

ANSWER: It is common for many organizations (including HOAs) to recite the Pledge of Allegiance at the start of their meetings. It’s fairly routine and noncontroversial:

I pledge allegiance to the flag of the United States of America, and to the republic for which it stands, one nation under God, indivisible, with liberty and justice for all.

Right to Protest. Directors and owners alike have the right to make political statements against the United States or against the words “under God” (or whatever it is they want to protest) by refusing to recite the pledge. By the same token, your fellow directors have the right to express their displeasure with your political protest. I was not there to see their actions so I can’t comment on whether they bullied you or you overreacted to their free speech right to criticize you. In any event, both sides have an obligation to be civil.

No Confidentiality. The incident you describe is not one of the five categories protected by executive session confidentiality. Accordingly, if you decide to escalate the dispute by taking it to the membership, you have that right. Keep in mind that your fellow directors have the same right to counter with their own comments about your behavior. I don’t see how that benefits either side. You will never be happy reciting the Pledge of Allegiance and they will never be happy with your refusal. The association would be better served if both sides agreed to disagree and everyone focused on the business of the association.

UNSAFE STREET

QUESTION:

We have a problem with children riding bikes, skateboards, scooters, etc. down a steep hill to a blind intersection. The streets are owned and maintained by the association and the board would like to restrict the street to automobiles only. How can they do this and how would they enforce it?

ANSWER: Unless your governing documents state otherwise, your board has the authority to restrict your street to vehicles only. Doing so benefits the association by reducing or eliminating potential injuries and litigation. If the board were to do nothing and someone is seriously injured, the likelihood is high that the association would be sued. At a minimum, plaintiffs would argue that the directors were negligent and in breach of their fiduciary duties because they knew of the dangerous condition and did nothing to correct it. It may be possible to defeat such claims (depending on the circumstances) but everyone would have to suffer through expensive and emotional litigation before that occurred. They could also lose.

Enforcement. Once the restrictions were adopted, enforcement would be through hearings, fines and suspension of privileges. The board does not need to hire someone to stand on the corner and write tickets but it could do so if circumstances justify it. Typically, rules enforcement for most associations relies on information from residents and periodic inspections. In your case, when someone reports a violation, the board would notify the parents of the young scofflaws, hold hearings and, if appropriate, impose penalties.

RECOMMENDATION: Your board should work with legal counsel to adopt and publish rules regarding the unsafe street–ones that do not discriminate against children. In addition, the board should talk to counsel about posting signs on the street.

COMMERCIAL
AND INDUSTRIAL
CIDs


The California Law Revision Commission released its recommendations regarding revision of laws affecting commercial and industrial common interest developments. The Commission is soliciting public comments which will be considered by the Commission and become part of the public record. Anyone involved with commercial CIDs should review the attached report and submit their comments no later than April 28, 2011 to California Law Revision Commission, 4000 Middlefield Road, Room D-2, Palo Alto, CA 94303.

ANSWERING
MEMBERS’ QUESTIONS


QUESTION: Our board frequently refuses to answer questions at open meetings. What can we do?

ANSWER: One of the curious aspects of the Open Meeting Act is its limitation on the board’s ability to answer questions. As provided for in Civil Code §1363.05(i)(2), the board (or its managing agent or other agent of the board or a member of the staff) may not discuss any item not on the meeting agenda except to:

  • briefly respond to statements made or questions; and to
  • ask a question for clarification, make a brief announcement, or make a brief report on his or her own activities, whether in response to questions posed by a member of the association or based upon his or her own initiative.

Answering Questions. Unless questions from the audience are harassing in nature or involve confidential information, boards should provide brief informational responses during Open Forum. For example, Q: “When are the trees scheduled to be trimmed?” A: “Crews are scheduled to start work next Tuesday at 9:00 a.m.” After Open Forum has closed, members have the right to observe the board’s conduct of the association’s business but they do not have a right to interrupt with questions or comments.

PLEDGE OF ALLEGIANCE

QUESTION: During executive session I was bullied and verbally attacked because I do not say the Pledge of Allegiance before each HOA open meeting. Since it was done during executive session does this exchange have to stay behind closed doors?

ANSWER: It is common for many organizations (including HOAs) to recite the Pledge of Allegiance at the start of their meetings. It’s fairly routine and noncontroversial:

I pledge allegiance to the flag of the United States of America, and to the republic for which it stands, one nation under God, indivisible, with liberty and justice for all.

Right to Protest. Directors and owners alike have the right to make political statements against the United States or against the words “under God” (or whatever it is they want to protest) by refusing to recite the pledge. By the same token, your fellow directors have the right to express their displeasure with your political protest. I was not there to see their actions so I can’t comment on whether they bullied you or you overreacted to their free speech right to criticize you. In any event, both sides have an obligation to be civil.

No Confidentiality. The incident you describe is not one of the five categories protected by executive session confidentiality. Accordingly, if you decide to escalate the dispute by taking it to the membership, you have that right. Keep in mind that your fellow directors have the same right to counter with their own comments about your behavior. I don’t see how that benefits either side. You will never be happy reciting the Pledge of Allegiance and they will never be happy with your refusal. The association would be better served if both sides agreed to disagree and everyone focused on the business of the association.


Adrian J. Adams, Esq.
Adams Kessler PLC

Newsletters are for advertising & general information by
Adams Kessler PLC. Readers should not act on issues raised in our newsletters or website without consulting legal counsel.
Bookmark and Share
Feb 21

QUESTION: Our HOA does not have a collection policy as required by Civil Code §1365(e). They levied a special assessment. If I pay this late, or maybe not at all, would I have to later pay any late fees and collection costs?

A statement describing the association’s policies and practices in enforcing lien rights or other legal remedies for default in payment of its assessments against its members shall be annually delivered to the members not less than 30 days nor more than 90 days immediately preceding the beginning of the association’s fiscal year. (Civil Code §1365(e))

ANSWER: Before I address your question, you should be aware that by statute and case law, members have a duty to pay their HOA assessments. Even if you believe you have grounds for challenging the special assessment, you do not have a legal basis for withholding payment. Now let’s address the issue of late fees and collection costs.

Collection Policy Required. The Davis-Stirling Act requires that associations annually distribute their collection policies:

If associations must distribute a collection policy, that means they must first adopt one with certain required elements.

Failure to Adopt Policy. Although the statute requires a collection policy, it does not provide a penalty for failing to do so. However, if an association without a collection policy tried to collect late fees against delinquent members and foreclose on their units, it would likely lose a legal challenge.

Court Decision. In an unpublished decision involving the collection of delinquent assessments, the Court of Appeals noted that before an association can record a lien on a property to collect delinquent assessments it must, among other things, notify the owner in writing of the association’s collection practices. In the Gurich case, the delinquent owner testified that she had not received the association’s collection policy. The court found that the board could not provide sufficient evidence that it had sent her the policy. Accordingly, the lower court’s award to the association of $41,818.29 plus fees and costs of $15,451.25 was reversed. In addition, the association had to pay the delinquent owner’s costs on appeal. See T.D. Service Co. v. Gurich.

RECOMMENDATION. If any association does not already have a written collection policy, the board should immediately work with legal counsel to adopt a policy that satisfies their governing documents and applicable laws.

Tina Chu, Esq.

HOMEBUYER’S SOLAR OPTION

A new statute took effect January 1, 2011 that requires builders of certain homes to give home buyers the option of having a solar energy system installed in their new home or participate in an offset program. Builders only have to offer solar energy systems; buyers decide whether they want them or not. The builders of new common interest developments and boards of new associations need to take certain steps to successfully implement the program. -Helene Fransz, Esq.

FEEDBACK ON NOD

When to Lien? You gave some good information on NOD, but what we would like to know is, “What is the amount in delinquency when you can put the lien on the property? -Jay S.

RESPONSE: There is no minimum amount required before an association can record a lien to secure the debt. The limitation is on the foreclosure, i.e., $1,800 or 12 months. Although boards could follow a more aggressive lien policy, the typical timeline is 46 days from the original due date of the delinquent assessment for sending a pre-lien letter and 76 days for recording the lien.  -Tina Chu, Esq.

Small Claims. With respect to the issue of dues in the arrears, my association adopted a policy of prosecuting arrears, two payments late, in small claims court. Most of the time, the owner pays immediately because he or she does not want a judgment against them personally. The Association still has the option of recording the judgment against the property, if the owner does not pay, thereby securing the loan against said property. -Ilbert P

FEEDBACK ON
RULES ENFORCEMENT


No “Touchy Feely.” I’m presently our board president. The old saying; “Good fences make for good neighbors” or words to that effect certainly applies here. Let there be no doubt of the board member’s transgression. Maybe the board president or other member can talk to him as you say, but if he tries to lie his way out of it or take no responsibility, having evidence to the contrary will certainly save everybody a lot of time. Board members need to set the example so the rules should be held the same for them as anybody else. Board members change more than once a year and nobody can afford the “touchy feely” approach to some obstinate individual, board member or not. -Sam M.

Cost-Benefit Analysis. In our own HOA, we set the goal, “to seek compliance to the will of the majority not punishment for infractions.” I believe your response to the “Dog off the leash” issue is consistent with that approach and I applaud it. However, I also might add that infractions that cause NO DAMAGE are sometimes better overlooked; i.e. the poor cost-benefit of trying to enforce a no leash infraction on a dog out in the front yard with his master, etc, etc. -Tom M.

Frivolous Complaints. Our HOA began to require photos of violations for things like parking and dogs off leash because two vindictive owners would report “violations” that did not exist. Also, violators would deny wrongdoing, and there would be no proof. I agree it is not an ideal situation, but it has cut down on unsubstantiated and frivolous complaints. -M.B.

Don’t Take Kindly. Regarding rules enforcement, I have yet to find anyone who graciously accepts being told what the rules are. Offenders who already know they are breaking the rules do not take kindly to being approached by someone, no matter how polite that person is. And people who unknowingly break the rules often respond negatively simply out of embarrassment. -Pat C.

-Adrian J. Adams, Esq.

Bookmark and Share
Feb 13

QUESTION: Our board tells everyone that we are a self-policing community. I was told that if i had a complaint about a dog off its leash I should take a photo so there would be no denial from the dog owner. I did take a photo and was screamed/cursed at and flipped off by the dog owner. The problem is the dog owner is a board member. What is my recourse?

ANSWER: The director’s behavior was clearly inappropriate. Since board members are tasked with enforcing the association’s rules, they need to set a good example by carefully following those rules. If they don’t like a particular rule, they have the power to change it. Until that happens, they should follow the rules.

Rules Enforcement. When it comes to enforcing rules, I’m not a fan of owners running around taking pictures of each other. It creates too much animosity. The better approach is to privately and politely talk to the person who is violating the rules to persuade him to follow them. If that fails, two or three should quietly meet with the director. If he still refuses to listen, you should file a formal complaint with the board at which point the board can hold a hearing and levy fines. The board does not need a picture of the violation before taking disciplinary action, it can make a decision based on the testimony of witnesses.

NOTICE OF DEFAULT


QUESTION: If a delinquency is less than $1,800 and less than 12 months, can an HOA record a NOD? A board member stated we can record a notice of default 30 days after recording a lien. Isn’t a notice of default the start of foreclosure?

ANSWER: Good question. There appears to be some disagreement in the industry as to when a foreclosure starts. A few argue that a “Notice of Default” (NOD) is only a preliminary notice and the foreclosure process does not begin until a “Notice of Sale” is sent. Most take a more conservative approach that the NOD actually starts the foreclosure process. They argue that the Davis-Stirling Act makes it clear that anything following the recording of a delinquent assessment lien initiates the foreclosure process. As provided for in Civil Code §1367.4(b)(2), associations may collect debt:

By recording a lien on the owner’s separate interest upon which the association may not foreclose until the amount of the delinquent assessments secured by the lien, exclusive of any accelerated assessments, late charges, fees and costs of collection, attorney’s fees, or interest, equals or exceeds one thousand eight hundred dollars ($1,800) or the assessments secured by the lien are more than 12 months delinquent.

Since a Notice of Default follows the lien, it starts the foreclosure process. NODs are mailed to delinquent owners by certified mail and recorded to let them (and the rest of the world) know that the owner is in default and the association has decided to sell the property.

RECOMMENDATION: Until the legislature or the courts sort out the issue, the safer approach is to wait until the $1,800/12 month threshold has been met before recording a Notice of Default. Boards should review the matter with their legal counsel and trustee service before making any changes to their existing collection policy.

Thank you to attorney Richard Witkin of the collection service Witkin & Neal, Inc. for his assistance with this question.

FEEDBACK


Dissolving an HOA. What I found very interesting about the County Letter was the Supervisor’s lament about who would pay for the upkeep of the association’s roads should the County take over the assets of the association. One might assume that property taxes would do this. Governmental entities have become so used to off-loading their duties onto associations while still collecting taxes that should (or might) be paying for these things that they can be aghast at having to pay for them. -Clifford Treese

RESPONSE: You hit the nail on the head–their property taxes should already be paying for road maintenance. But that’s not the way local agencies see it. Municipalities love to collect taxes while shifting all their duties onto HOAs.

Bank of America. This is interesting as BofA denied our HOA eligibility for the same reasons Wells Fargo just did. They want our association to waive its rental restriction (which reduces speculative buying). They also take the opposite position that if too many units are rented, they will not refinance or lend, and the insurance premiums often rise. The second issue was that our reserves are only 40% funded (as a result of our spending $4 million on major projects over 4 years). I’m with you, I think Carolina hasn’t informed California. -J. Leake

RESPONSE: BofA’s right hand does not know what its left hand is doing. I think that may be true for most banks. It’s a wonder they stay in business.

BofA Underwriter. I suspect the BofA underwriter was reviewing the project under DELRAP (Direct Endorsement Lender Review and Approval Process). Under DELRAP, it is the lender who reviews the project for approval (or rejection), and a lender’s underwriting criteria may be more stringent, or misinformed. -Scott Iden, US Approvals

Contract Terms. Our CC&Rs have multi-year allowances on specific types of contracts. -J.L.

RESPONSE: Once a developer turns over control of the association to the membership, the HOA is no longer under the jurisdiction of the Dept. of Real Estate. At that point, the membership can amend the CC&Rs to allow for contract terms longer than one year.

Evergreen Clauses. Since there is usually no maximum time to notify vendors that you don’t want an automatic renewal of a contract, I send a letter as soon as the contract is executed that I don’t want the contract to renew without renegotiation and a new signature. I attach a copy of the letter to the contract. That provides me an out if I don’t want to renew the contract and puts the onus on the vendor to contact me if they want to continue the agreement. -Al P.

Tickler File. In the binder and tickler file for contracts there should also be attention to insurance coverage, indemnity and dates when that may expire. That to me is as important in protecting the HOA & property owners. -Rose C.

Adrian J. Adams, Esq.

Bookmark and Share
Feb 06

QUESTION: Our HOA has a landscaping contract that has been “auto renewed” for the past 10 years. Can they do that?

ANSWER: It is common for service contracts to contain “evergreen clauses.” The provision causes a contract to automatically renew for a specified period of time unless the board gives written notice to the vendor that the association will not renew the agreement.

DRE Limitation. Generally, all original sets of CC&Rs have a one-year limitation on contracts. This limitation is required by the Department of Real Estate (Cal. Admin. Code, Title. 10, §2792.21) to prevent the developer from obligating associations to long-term contracts that may benefit the developer but harm the association. If the landscape contract you referred to was for a one-year period that automatically renewed each year for one-year periods, it meets industry standards.

Long-Term Contracts. If the term of the landscape contract was for a period of ten years, it undoubtedly violates your CC&Rs. That does not make the contract illegal nor does it make it voidable. It means the board that signed the agreement intentionally or unintentionally violated the association’s governing documents. Ending the agreement before the ten-year period has expired will be problematic.

Notice of Non-Renewal. Evergreen clauses usually include a notice period of 45, 60 or 90 days before the renewal date of the agreement. Following is an example:

The term of this Agreement will extend automatically for successive 12 month terms unless the Association gives ABC Landscaping written notice it does not want it renewed. Notice must be given at least 45 days before the Renewal Date of any term . . .

I’ve seen evergreen clauses that require 120 or 180 days notice before the renewal date. The danger with long notice periods is that they usually expire before the board starts to focus on the issue. By then it is too late and the contract has already renewed. An easy way to avoid such problems is to eliminate evergreen clauses from all contracts so they become month-to-month after their initial term.

RECOMMENDATION: Board’s should put together a binder of all existing contracts and set up a calendar with reminder dates at least 60 days in advance of the renewal notice cut-off for each contract. This will give the board time to review the vendor’s performance and decide whether to give notice of non-renewal. In addition, boards should always have a contract checklist that includes legal review before any agreements are signed.

PET VIOLATION


QUESTION: I am being accused of having unauthorized pets. I only have a foster dog (temporary). Does the board have a right to enter my home to check to see if I have these non-existent unauthorized pets?

ANSWER: The right to inspect for violations (with proper notice) is not unusual. Check your governing documents. If your association’s rules limit the number of pets an owner may keep in their unit, it sounds like you are in violation.

HOA DISSOLUTION
FEEDBACK


As noted in the article by Helene Fransz in last week’s newsletter, an association cannot disband if no entity is willing to take over their maintenance duties. One of our readers wrote that their HOA wanted to dissolve and asked the County to take over the common areas. The County’s letter in response is instructive. Also of interest is the paragraph on taxes. If owners think they can escape maintenance costs by transferring their obligations to a governmental entity, they are in for a surprise.  -Adrian Adams

RESERVE FUNDING
FEEDBACK


BofA Lawyers. A member of our HOA talked today with the number two lawyer in BofA’s corporate General Counsel’s office in North Carolina. He was told that BofA’s only restriction is to not make loans to buyers in HOAs if 50% or more of the members are delinquent. -Dick B

RESPONSE: Let’s hope the BofA lawyer in North Carolina tells the BofA branch managers in California.

Funny Accounting
. Interesting article on reserve funding. Our HOA recently lowered dues but accompanied in the annual budget was a half page disclaimer from the company that we have used for many years. What can homeowners do about a board that seems to use funny accounting tricks to make things appear great but long term not so great? -Bill C.

RESPONSE: Get involved, talk to your neighbors, run for the board.

Manipulating Reserves. One would have to wonder of the accuracy of those communities reporting 100% funding. I have taken over accounts reporting 70-80% funding, only to find rigged numbers and missing components. While many appear to understand the concept of reserves, most do not understand the global aspect and ease of which numbers can be, and often are, manipulated. -Vicki M.

RESPONSE: In a perfect world, that would not happen. New boards should always start their terms with a bit of skepticism and review all contracts, bank reconciliations, and reserve studies with a critical eye.

Adrian J. Adams, Esq.

Bookmark and Share