Mar 27

QUESTION: A fellow came into our office demanding that he be allowed to post religious materials. A board member told him we don’t permit religious or political materials on our bulletin boards. He stated the law covered his materials because we had made our bulletin board public by allowing the posting of business cards. Is he correct?

ANSWER: Your fellow is mistaken. The bulletin board is the association’s private property. The board has the right to regulate the materials posted on the association’s bulletin boards. Allowing business cards as a service to members does not make bulletin boards “public.”

Related Case. The only case law that might be related addresses door-to-door solicitation. The Golden Gateway court held that associations can prohibit door-to-door solicitors and the distribution of flyers, provided the development restricts public access. If a development is freely and openly accessible to the public, the association cannot prohibit solicitors. Even if your development is open to the public, you could still control your bulletin boards by purchasing glass-covered locking boards.

RECOMMENDATION: The board should adopt written rules regarding what, when and how materials may be posted on bulletin boards. Also, by adopting written rules, the association can impose penalties on those who violate them.


Karen Nagad, Esq.

FHA GUIDELINES

FHA and Fannie Mae continue to be out of sync with each other and unrealistic in their handling of condominiums. In a somewhat positive move, the FHA is loosening its guidelines on rental restrictions. (See text of e-mail from CAI National.) This may be the first sign of intelligent life in the agency. One can only hope. -Adrian Adams

MULTIPLE
INSURANCE POLICIES


QUESTION: I own one of 40 units in a condo association. The units are attached four or five in a group, called “pods.” Our board voted to set up insurance with different companies for each pod. They did this with no notice. I don’t understand the reasoning behind this action.

ANSWER: Red flags went up as I read your question. Unless your governing documents support individual policies on each pod, your association may be at risk. Moreover, your HOA may be at risk even if your governing documents allow for this unusual practice.

Incomplete Coverage
. Different policies with different carriers increases the administrative burden for the HOA and the risk of gaps in coverage. What about D&O, Crime and Workers’ Compensation coverage? Is each pod maintaining each of these important auxiliary coverages? If there is a catastrophic fire in a neighboring pod and someone failed to maintain proper coverage, all 40 owners would still have an obligation to repair the damage. That means large special assessments for everyone.

Lawsuits.
Who is the “insured?” Who receives the claim payments? The pod owners? The board? If someone is injured or suffers property damage in one of the pods, the plaintiff will not sue just the pod where the loss occurred; the association as a whole will be sued (that’s how the system works). Since there is no master policy, who defends the association? Will each pod’s insurance respond? I expect they will–with a firm denial of coverage. Moreover, to protect owners from individually being named in the lawsuit, does each pod carry the $2 million minimum limit required by Civil Code §1365.9?

Lost Economies of Scale. Your association will likely lose economies of scale by insuring buildings separately. With a master policy on all 40 units, the premium would be less on a per unit basis. Most carriers apply a “multiple unit discount” which would be lost using the pod scheme.

Additionally, you lose the benefit of having building coverage written on a “blanket” basis, i.e., the ability to apply the aggregated building limits to any covered loss, as opposed to the much smaller limit maintained on each building or structure. That means greater exposure for all members.

Ultra Vires Act? If your documents don’t allow for individual policies on each pod, the board may have exceeded its authority and acted contrary to the CC&Rs. In a worst case scenario, your directors could be personally at risk if there is a catastrophic loss which is denied because of the unorthodox pod insurance arrangement.

RECOMMENDATION: Your board should contact an insurance agent who specializes in homeowner associations and get a second opinion about how best to insure your development. Make sure the agent reads the insurance provisions in your CC&Rs.

Thank you to Tim Cline of the Timothy Cline Insurance Agency for his assistance with this unusual question.

FEEDBACK

Rent Restriction. Our HOA enacted rental restrictions in 2004 because of investment buyers. It requires new owners to reside in the unit 2 years before renting. The insurance carriers & lenders suggested this to keep a low cap on rentals for coverage and financing reasons. -Joseph L.

Speed Bump Gasses. Greenhouse gases are increased simply by the re-acceleration of a vehicle once it passes the speed bump. The gasses pass into the atmosphere after the fumes drift through your open window should you live near the speed bump. -David A.

Summarizing Comments. I was putting a one sentence summary in the minutes of member comments during board meetings. Out of 88 units we have about half a dozen owners who constantly spew negativity and use any opportunity to disrupt board meetings. In this case they disrupted the meetings with unjustified complaints they were misquoted. So now we won’t put any member comments in the minutes. -Daniel L.

RESPONSE: Trying to summarize Open Forum comments might seem like a good idea but it inevitably ends with upset owners who claim they were misquoted or taken out of context.

-Adrian J. Adams, Esq.

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Mar 20

QUESTION: Is it legal for an HOA to keep track of whether a homeowner voted in the election of board members?

ANSWER: The Davis-Stirling Act prohibits knowing how members voted but nothing forbids tracking whether they voted. Whenever I find an election issue that is unclear, I look to see what California does.

California Voters. When it comes to elections, the State discloses the voting history of registered voters. Candidate Meg Whitman’s voting record became an issue in the 2010 governor’s race after public records showed that she had not voted in a number of years. If California makes voting records public then it is reasonable that HOAs could do the same. The voting list could be made available during the election at the Inspector’s option or posted after the election by the association.

RECOMMENDATION: Associations should consider posting voting histories on their websites in a password protected portion of the website accessible only by owners. Who knows, doing so could prod owners into participating in HOA elections.

RENT RESTRICTIONS

QUESTION: We are a 200-unit condo association with a 10% rental cap in our CC&Rs. An investor-owner just purchased a unit and is walking the property with a petition to change our rental cap to 25%. We have a very nice HOA of mostly all homeowners; can this investor force a change in the rental restriction?

ANSWER: Your investor-owner can force the issue onto a ballot (assuming he can get enough people to sign the petition) but only the membership can approve the change.

Petition. Anyone can circulate a petition for any lawful matter–requesting a meeting for the purpose of amending the CC&Rs is lawful. Unfortunately, it takes only 5% of the membership to set into motion the expense of a special meeting, which includes the hiring of an Inspector of Elections and the mailing of ballots. I think 5% (just ten members in your 200-unit association) is far too few to force a meeting but the percentage is set by statute. Corp. Code §7510(e).

The purpose of the meeting must be set forth in the petition so members know what they are signing. The board is allowed to verify signatures before setting a meeting date and giving notice. The board is also allowed to publish who signed the petition.

Giving Notice. The board must give notice of the meeting within 20 days from receipt of the petition; otherwise, the persons calling the meeting may set the date and give notice. Corp. Code §7511(c). As noted in last week’s newsletter, the board can tell the membership that it is opposed to the amendment. In addition, board members (and other owners) at their own expense may campaign for or against the proposed amendment.

Rental Restrictions. Somebody should let the membership know that loosening rental restrictions is probably a bad idea. It is widely recognized by lenders, insurance carriers, real estate professionals and the courts that too many renters in a development drives down property values.


Azy Saghian, Esq.

FEEDBACK

Speed Bumps. In our county (Orange), the approval authority for speed bump installation on any street, city/county owned or private is the Fire Authority because of response time considerations. -Frank B.

Greenhouse Gases. We installed speed bumps many years ago. When you clock vehicles going 50+ mph on a radar gun in a residential zone, the board knows they must take action. We could have bankrupted our HOA by having 24/7 enforcement but decided speed bumps were far more economical and effective. As far as speed bumps increasing greenhouse gasses, prove it, pal. -Bill C.

Posting Letters. In our association here in Utah, we’ve been adding all board correspondence to our minutes when they are posted on our website. All names and other identifying information are redacted. The result seems to be added awareness of the challenges faced by board members. Judging from comments by owners, they are impressed not only by our openness but also see the shenanigans of others. I think this practice will result in some very positive support for future board actions and decisions. -L. Dalton

RESPONSE: Good idea. Maybe HOAs in California are doing the same and can report their experience with it. -Adrian

Filing 1099s. As to the reporting of the $600.00 on 1099, I was under the impression that this requirement will be null and void next year. I heard that the legislature rescinded this requirement. Is this correct?

RESPONSE: The Health Care Act extended the 1099 reporting requirement to include all vendor types (individuals, corporations, partnerships, etc.). All that is being considered right now is to roll it back to the current requirements. Because this issue is a moving target, you should keep good records and consult a qualified tax professional. -Donald W. Haney, CPA, MBA, MS(Tax)

Adrian J. Adams, Esq

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Mar 13

QUESTION: Is the board allowed to include their opinion about a CC&R amendment when they send out the ballot?

ANSWER: According to a new case, they can if it’s limited.

General Prohibition. The Davis-Stirling Act has a general prohibition against using association funds for “campaign purposes” for association elections. That would include membership votes on special assessments, CC&R amendments and the like. Civil Code §1363.04(a).

Ambiguity. What does “campaign purposes” mean? The statute defines it to mean “expressly” advocating the election or defeat of candidates (and presumably ballot measures). Civil Code §1363.04(b). What does “expressly advocate” mean? Does that mean an opinion is allowed or prohibited? Unfortunately, there is no case interpreting this particular statute. However, a recent case involving a county election sheds light on the issue because it addresses a similar governmental restriction.

Expressing an Opinion. In a dispute between a labor union and Santa Clara County, the court ruled in favor of the County when a Supervisor used his staff to distribute informational material and his opinion about a ballot measure. The court explained:

. . . there is a critical distinction between expenditures by a governmental body for informational activities, which generally are permissible, and expenditures for campaign activities, which generally are not. . . .

[The law] does not preclude a governmental entity from publicly expressing an opinion with regard to the merits of a proposed ballot measure, so long as it does not expend public funds to mount a campaign on the measure. . . .

. . . in many circumstances a public entity inevitably will “take sides” on a ballot measure and not be “neutral” with respect to its adoption. If every citizen were to have a right to insist that no one paid by public funds express a view with which he disagreed, debate over issues of great concern to the public would be limited to those in the private sector, and the process of government as we know it radically transformed. Thus, the mere circumstance that a public entity may be understood to have an opinion or position regarding the merits of a ballot measure is not improper. . . . (internal cites deleted) DiQuisto v. County of Santa Clara.

Two things can be gleaned from the case: (1) informational material with a ballot is allowed and (2) boards can express opinions about ballot measures. The one thing they cannot do is use association funds to mount a campaign for or against ballot issues and candidates.

RECOMMENDATION: If a board expresses an opinion, it should be limited to something similar to the following: “The Board unanimously supports the proposed Restated CC&Rs and asks that you read the enclosed material and reach your own conclusion before casting your vote. Once you decide how to vote, please mark the enclosed ballot and return it to . . .” In addition, if directors actively participate in an election by sending out mailers and distributing fliers, They should put a disclaimer in their materials stating that no association funds were used in the preparation or printing of the materials.

REPORTING $600

QUESTION: One of our owners was told the Small Business Jobs Act of 2010 requires that she report all individuals or businesses that provide services to the association worth over $600. Have you heard of such a thing? If each member of the association reports such information to the IRS, then is the vendor going to be taxed on the amount multiplied by the number of owners??

ANSWER: Under the current rules the association, not individual owners, files a 1099 if the vendor is a non-corporate entity. The new health care law in its current configuration would require the association to file 1099s for all types of entities.

The Small Business Jobs Act of 2010 is over 100 pages, quite complex and difficult to unravel. Moreover, the Act is presently undergoing change by Congress. Currently, associations must use IRS Form 1099 to report services rendered by non-corporate service providers to the Association if the annual service dollars exceed $600 per vendor.

In general, with certain domestic help exceptions, association members are not required to send 1099 information on service vendors they hire for owner-occupied units. Rental units have different rules.

RECOMMENDATION: Owners and boards should not try to meet these compliance requirements on their own. The penalties for errors can be severe. A qualified tax professional to guide you through your tax obligations is worth the cost.

Many thanks to Donald W. Haney, CPA, MBA, MS (Tax) of Haney Accountants, Inc. for his assistance with this question.

FEEDBACK

Global Warming. Boards should carefully consider two issues before installing speed bumps. I wish I had heard this advice before asking that they be installed on my street. First, they slow down emergency response vehicles. Second they increase greenhouse gases for the planet. -David A.

RESPONSE: Destruction of the planet from speed bumps? Yikes!

Board Questions. I believe the reason that it is difficult to get members to vote is that they are too disconnected from the association. Most people are unaware of all the things a board must handle. This is partially because many actions of the board are hidden from members in closed meetings. Therefore, boards should disclose these efforts without disclosing confidential information. For example, when someone is fined for non-payment would not a monthly summary of these actions be OK if names were not disclosed? I believe this could show that the board is working in their interest. -Robert K.

RESPONSE: Yes, they can makes disclosures as you describe. Boards could eliminate many problems by keeping members fully informed about the association’s business.

Adrian J. Adams, Esq.

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Mar 06

QUESTION: We have a sub-association and master association, each with their own CC&Rs. Many similar rules are in both sets of CC&Rs such as the banning of work-trailers in a driveway. If I break the rules and park a trailer in my driveway, can both associations fine me? Is this not double prosecution for the same offense?

ANSWER: Yes, both associations can fine you because they have overlapping jurisdictions. It’s a lot like state and federal governments. Your master association is analogous to the federal government and your sub-association is a state. As with governments, each association has authority to adopt and enforce its own rules in those areas for which they have jurisdiction.

Double Prosecution. For example, when Jared Loughner critically wounded Rep. Gabrielle Giffords during his rampage in Tucson, Arizona, he simultaneously violated state and federal laws with one attack. As a result, Loughner faces double prosecution for that single event. Arizona will prosecute him for attempted murder, while federal prosecutors will prosecute him for attempted assassination of a member of Congress.

RECOMMENDATION: Don’t park your trailer in the driveway.

TRANSFER TO RESERVES

QUESTION: Are there legal requirements that the board get approval from members to move excess operating funds to the reserve account?

ANSWER: The board can transfer excess funds into reserves on its own authority but there is potential for adverse tax consequences depending on the association’s tax filing.

CERTIFIED MAIL

QUESTION: Our property manager sent a delinquent owner a notice of foreclosure via certified mail. However, the owner never signed for it. Can he use that as an excuse to derail the foreclosure?

ANSWER: Probably not. Although Civil Code §2924b(b) requires that notices be sent by registered or certified mail, it does not require a signed receipt before an association moves to the next step in the foreclosure process.

Willful Failure to Sign. To require a signed receipt means a person could stop a foreclosure in its tracks by refusing to sign for letters. Because owners often refuse to sign for certified mail, Civil Code §2924b(e) also requires that notice be given concurrently by first-class mail. The court in Bear Creek Master Assn. v. Edwards addressed the issue of unsigned receipts and determined that notice cannot be defeated by a person’s willful failure to accept certified mail. The Bear Creek court commented that,

. . . while a signed return receipt may create a rebuttable presumption that the notice was received, the absence of such a signed return receipt does not negate any other presumptions concerning mailed items. Under Evidence Code section 641, “[a] letter correctly addressed and properly mailed is presumed to have been received in the ordinary course of mail.”

Notice Requirements. Your question was not clear about ‘”notice of foreclosure.” As addressed in our February 13 newsletter, a foreclosure starts with a Notice of Default (NOD). After three months a Notice of Sale can be prepared. For the NOD, there is an additional requirement of personal or substituted service for assessment lien foreclosures as set forth in Civil Code §1367.1(j). Service of the NOD can be a problem when the owner cannot be located or is deceased. As for a Notice of Sale, it must be recorded, published, mailed and posted but not personally served.

RECOMMENDATION: Because taking away someone’s home through foreclosure is quite serious, associations must carefully follow all steps required by law for giving proper notice to a delinquent owner. To that end, boards should use experienced collection companies that specialize in homeowner associations.

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

FEEDBACK

Speed Bumps. A series of strategically placed speed bumps could be a great deterrent and the best “passive” means of reinforcement [for unsafe streets]. -Allison C.

New Signage. Alternate sign suggestion: “Steep grade area. Vehicles of any sort not equipped with DOT approved braking systems are strongly encouraged to avoid this area.” Bikes might be fine on the steep grade, whereas skate-boards might not be. -Fin B.

RESPONSE: With the current state of California’s educational system, I suspect most children and some parents would have no idea what your sign meant. “No skateboarding” is easier to understand.

Open Forum Questions.
Regarding the Open Meeting Act and the limitation put on boards, what is the best way for homeowners to have their questions answered? -Pat C.

RESPONSE: With the demise of waterboarding, there is no effective way of forcing directors to answer questions if they don’t want to. The only real solution is to elect new directors.

Adrian J. Adams, Esq

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