Jan 29

QUESTION: I sent a letter to a board member questioning a major expense the association is undertaking. When the director tried to include this letter in the minutes, the board refused. Is this proper? I always thought a director could have letters from residents added to the minutes so they’re part of the permanent record of the association.

ANSWER: The board’s refusal was proper. Neither members nor directors have a right to include their letters in the minutes. The purpose of minutes is to record the official business of the board, not act as an outlet for grievances. If letters were included in the minutes, I can only imagine the flood of correspondence from owners with axes to grind and personal agendas. Those potentially inflammatory, inaccurate and defamatory letters would then be published to the membership and included in escrow demands for buyers to read. I shudder at the thought.

ARCHITECTURAL REVIEW
OF SOLAR PANELS

A new case from the Court of Appeals provides some guidance on architectural review of solar energy systems.

Facts. A homeowner in the Tesoro del Valle Master Homeowners Association installed solar panels on a slope adjacent to his property without HOA approval. For aesthetic reasons and because of slope structure restrictions, the HOA wanted the panels on the owner’s roof. The owner refused and the association sued.

Aesthetic Considerations. The homeowner argued that “aesthetic considerations” were an improper part of the review process and violated Civil Code §714. The court disagreed. It ruled that “an evaluation of a proposed solar energy system–just as any other proposed improvement–would involve consideration of aesthetics.”

Cost Considerations. Expert testimony by the association showed that the cost of installing the solar panels on the owner’s roof was actually cheaper than installing them on the slope. Based on the testimony, the court ruled that the HOA’s guidelines were not unduly burdensome and, therefore, reasonable.

Duty to Redesign. The owner then argued that once the architectural committee disapproved his original application, it had a duty to redesign his solar energy system to meet their guidelines. Again the court disagreed. The court found that the law imposed no such burden on associations. Per statute, the only obligation by the committee was to inform the owner of the basis for its denial of his application. The court ruled that “the burden is on the homeowner to submit an application that is complete and sufficient to generate [architectural committee] approval.” (Tesoro del Valle v. Griffen).

RECOMMENDATION: The court’s ruling does not give associations license to deny any and all applications for solar energy systems. It does, however, demonstrate that if an association’s architectural guidelines are reasonable, they are enforceable. If boards are unsure about their guidelines, they should have an architect and legal counsel review them. For more information, see Solar Panels.

EMAIL APPROVAL
OF MINUTES

QUESTION: Our board sometimes approves meeting minutes by email (ex: annual meeting minutes for prompt notification of election results; monthly meeting minutes where there will be no meeting the following month). Does the amended Open Meeting Act allow such approval, since minutes are only reports of actions and don’t constitute actions in themselves?

ANSWER: Good question. I like your practical approach to the issue but I suspect a court would be less practical in its ruling. Judges have an odd predisposition toward following the law. Even though minutes are only reports, approval of minutes (motion, second, all in favor) is itself a board action. For more information see board decisions by email.

COMMITTEE CHAIR
ON BOARD

QUESTION: I have been the chair of a committee for four years. I am considering running for the board. Does my chairmanship of the committee create a conflict if I am elected to the board?

ANSWER: There is no conflict of interest. In fact, chairing a committee is good experience for serving on the board. Unless your bylaws provide otherwise, boards may appoint anyone they believe would be helpful (whether owner, renter or otherwise) on the committee. Moreover, the board president often serves as an ex officio member of all committees of the board. If so, the president has the right but not the obligation to participate in the committees. (Robert’s Rules, 11th ed., p. 456, 497.)

CORPORATE RECORDS
AND FIDUCIARY DUTIES


QUESTION: We are a small HOA and self-managed. Directors kept most HOA records on their personal computers. No longer on the board, the former directors now refuse to make information including prior minutes available to the current board. What are the rules about passing records from one board to the next?

ANSWER: Most of the documents in question are probably corporate records and belong to the association, not the former directors. Minutes are clearly corporate records. Your former directors had a fiduciary duty preserve corporate records on behalf of the association and then pass them to the incoming board. It sounds like your ex-directors are in breach of their fiduciary duties. If they are worried about the records being altered or destroyed by the incoming board, they can make copies (at their own expense) and then turn over the originals to the new board.

IRS NOW CHASING
HOMEOWNER ASSOCIATIONS

The IRS has taken an unhealthy interest in the reserve accounts of homeowner associations. Boards should read the attached article about the Sun City Summerlin Association and then talk to their association’s tax preparer.

FEEDBACK

Assessment Refund. Did someone send you a trick question, asking about raising assessments? Dues were increased by $11 but 20% and 5% of the current $36 would be $9. An $11 increase would violate the Davis-Stirling Act. -Jean M.

RESPONSE: A number of you picked up on this and sent me emails. I’m impressed with the sharpness of my readers. The person who sent the original question included details that the increase had occurred over several years and, therefore, did not violate Davis-Stirling limitations. Kudos to everyone who spotted this issue.

-Adrian J. Adams, Esq

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Jan 16

QUESTION: Our CC&Rs say the board can raise our yearly dues. However, our rules were changed to state that our dues cannot be raised above our current $36. The board raised our dues in violation of the rules. Does the board have to reimburse homeowners for the increased money ($11), as what they did was illegal?

ANSWER: The board did not do anything illegal nor does it need to refund the assessment. The restriction in your rules is void for two reasons: (i) rules must be consistent with the CC&Rs (Civ. Code §1357.110) and (ii) the Davis-Stirling Act gives boards the power to raise annual assessments by 20% and impose special assessments up to 5% despite anything to the contrary in your rules (Civ. Code §1366(b)).

SUSPEND MEETING
ATTENDANCE

QUESTION: If a member is delinquent, can we suspend their right to attend board meetings?

ANSWER: Not really. Boards can suspend “privileges” such as use of the recreational facilities, but the right to attend meetings is not the same as using the swimming pool. Meeting attendance is a right conferred by the Davis-Stirling Act: “Any member of the association may attend meetings of the board…, except when the board adjourns to, or meets solely in, executive session…” Civ. Code §1363.05(b). The statute makes an exception for executive sessions but not for delinquent owners.

On December 28, 2011, the Federal National Mortgage Association (Fannie Mae) announced new condominium insurance requirements. The changes are effective for mortgage loans with application dates on or after January 1, 2012.

Fannie Mae is the nation’s largest player in the secondary mortgage market. It is related to but operates differently than the FHA. Instead of insuring loans, it buys FHA insured loans from lenders. Accordingly, any change in Fannie Mae policies can significantly impact the housing market in California.

Walls-In Coverage. Fannie Mae is eliminating “walls-in” insurance coverage terminology. In addition, it is changing HO-6 coverage from no less than 20% of the unit’s appraised value to an amount sufficient to repair the condominium to its condition prior to a loss whether the claim is paid by the association’s property insurance, by the homeowners HO-6 policy or some combination of both. Does this mean HOAs need to insure the improvements in a unit? That is unclear. What about owner upgrades (hardwood floors, granite counter-tops, walnut cabinets, etc.)? It seems unlikely that HOA property insurers will want to be responsible for any and all improvements & betterments in a member’s unit. These problems need to be resolved before the market can fully recover.

Selling Guide. In addition, Fannie Mae is updating its Selling Guide to permit master or blanket insurance policies that combine insurance coverage for multiple condominiums or other residential or substantially residential projects that are unaffiliated as long as the coverage meets certain specific criteria. See Fannie Mae Servicing Guide Announcement SVC-2011-23.

RECOMMENDATION: If associations want to maximize the marketability of units in their developments, boards should talk to their insurance brokers about Fannie Mae’s requirements and determine whether any changes need to be made to their current insurance coverage. Because Fannie Mae’s requirements may conflict with CC&R provisions, boards should include legal counsel in their evaluation.

Thank you to Clifford Treese of Association Information Services, Inc. for his assistance with this update.

CONFERENCE CALL
BOARD MEETING

QUESTION: Under the new law regarding conference calls, our president believes we cannot have meetings with call-in by the board members without allowing members to speak during the meeting. Is this true?

ANSWER: The new law does not change how meetings are conducted. The revised Open Meeting Act allows directors to call into the meeting via teleconference if at least one member of the board is at a physical location where homeowners can attend. Civ. Code §1363.05(k)(2)(B). Your president may think that new rights are being conferred because of language that is a little misleading: “Participation…constitutes presence at that meeting as long as all board members…are able to hear one another and members of the association speaking on matters before the board.” Civ. Code §1363.05(k)(2)(B). The italicized language is not giving members the right to speak on matters as they are raised during the course of the meeting, it is referring to the Open Forum. Board members attending via conference phone must be able to hear homeowners who are addressing the board during the Open Forum portion of the meeting (and owners must be able to hear the board as it conducts the meeting).

DOG LEASH

QUESTION: Can the board issue fines for not having dogs on a leash?

ANSWER: Yes, provided (i) the violation and fines are in the governing documents and (ii) due process is given.
-Adrian J. Adams, Esq

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