Banning Criminals

QUESTION: We are concerned about criminals living in our association and serving on our board. Is there anything we can do about it?

ANSWER: You raise a good topic. Several years ago, I drafted language for an association in Beverly Hills to ban felons from residing in their community. The membership passed it with lightning speed because convicted felon and accused murder Robert Durst had moved into their development.

Last year, HBO aired a documentary about him called “The Jinx, the Life and Deaths of Robert Durst.” During the filming, Durst took a break to use the bathroom where he muttered to himself (unaware his lapel mic was still live), “What the hell did I do? Killed them all, of course.”

Durst is believed to have murdered his wife Kathie, his neighbor Morris Black, and his friend Susan Berman. He is currently in jail in New Orleans on a weapons charge awaiting extradition to California for the murder of Susan Berman.

Robert Durst’s existing felony conviction is for evidence tampering, i.e., dismembering the body of Morris Black and throwing the parts into Galveston Bay. When limbs and torso washed ashore, the trail of blood led to Durst. At his trial, Durst described how he used a paring knife, two saws, and an axe to dismember his neighbor.

The Beverly Hills HOA was understandably alarmed and wanted Durst out of their association. In addition to being terrified, would they have to disclose to potential buyers that he lived in the development? If so, property values and sales could plummet.

I used the newly adopted CC&R amendment to force Robert Durst out of the community, so your question about prohibiting criminals is relevant.

Board of Directors. Barring felons from serving on boards is not uncommon (see Felons on Boards). However, a ban on “criminals” living in an association is a different matter. I will start with arrest records and move up from there.

Arrest History. Amending your CC&Rs to ban residents on the basis of their arrest history is too broad. Getting arrested does not make one a criminal. I have no doubt a court would strike down such a restriction as overbroad and unreasonable.

Criminal History. Also too broad is a prohibition of residents with a criminal conviction. It’s a bit unsettling but nearly one-third of the population in the United States has a criminal record of one kind or another. Most of them are misdemeanors. Someone who smoked pot or shoplifted 30 years ago as a teenager should not be barred from buying into an association–he/she does not represent a danger to their neighbors. HUD guidelines specifically address this issue.

HUD Guidelines. In April 2016, the U.S. Department of Housing and Urban Development (HUD) issued a guide on how to apply Fair Housing Act standards to the use of criminal histories by housing providers. (HUD – Criminal History.) Although an association is not a housing provider, it is often viewed as such by HUD and the courts. HUD deems denial of housing based on a generic criminal history as a violation of the Fair Housing Act. According to HUD’s Office of General Counsel:

[a] housing provider that imposes a blanket prohibition on any person with any conviction record–no matter when the conviction occurred, what the underlying conduct entailed, or what the convicted person has done since then–will be unable to meet this burden [that the restriction is legitimate and nondiscriminatory].

Felony Conviction. However, a restriction on felons is enforceable if done properly. HUD guidelines provide that:

A housing provider with a more tailored policy or practice that excludes individuals with only certain types of convictions must still prove that its policy is necessary to serve a “substantial, legitimate, nondiscriminatory interest.” To do this, a housing provider must show that its policy accurately distinguishes between criminal conduct that indicates a demonstrable risk to resident safety and/or property and criminal conduct that does not.

That means white collar felons and perjurers present a low risk to resident safety whereas a recently released violent criminal, arsonist, registered sex offender, or drug dealer could be deemed a threat.

Drug Dealers. Section 807(b)(4) of the Fair Housing Act specifically allows for denial of housing to someone convicted of the illegal manufacture or distribution of a controlled substance. The exception requires a conviction, not merely an arrest, and does not apply to other drug-related convictions, such as possession.

RECOMMENDATION. Associations can amend their governing documents to restrict certain types of criminals. If an association wants to amend their documents, boards should work with legal counsel to draft a provision that is narrowly tailored to prohibit those who represent a risk to the safety of residents or the safety of the association’s property.

Thank you to attorney Wayne Louvier in our Orange County office for researching this topic.

ANNUAL EDUCATION
CONFERENCE & MINI-EXPO


I will be a speaker at the Bay Area’s Annual Educational Conference and Mini-Expo put on by the Community Associations Institute. The conference is for board members, managers and homeowners alike.

Speakers. We have a great line-up of speakers, including attorneys Amy Tinetti, Alex Noland, Emily Clark, Andrea O’Toole, Edith Murphy; insurance specialists Don Davis and Terri Guest; management leaders Adrianne Breta, Leanne Anderson-DeMattei and Tom Murphy; reserve specialist Robert Browning; industry leader Robert Riddick; and others. (See Conference Schedule.)

Keynote Speaker. The keynote speaker will be the humorous Beth Ziesenis, a technology expert who speaks around the country about the best free and bargain apps and online resources to release your inner Nerd to become more organized, efficient and awesome at work and home. The conference always has a large turn-out so reserve your spot now. Click Here to Register!

WHEN 
Friday, September 16,2016
WHERE
  San Ramon Marriott
2600 Bishop Drive
San Ramon, CA 94583
FOOD
  Breakfast and lunch are provided!
FEEDBACK


FHA Loans
. Lend is the verb, loan is the noun. -Judge Stirling

RESPONSE: There are two theories to arguing with a judge. I’ve learned that neither works. I had to reread last week’s article to find the error, “banks refuse to loan to…” That must be why banks are called lenders instead of loaners.

*****

Nextdoor #1. Adrian, I am glad you mentioned Nextdoor.com in your newsletter. Some of our members use this site to rant endlessly about the board, the manager, and everything else in our association. They have bullied other members and polarized our community. The site has turned into a toxic dump. -Anonymous

RESPONSE: Last month National Public Radio disabled the “comment” portion of their website. They discovered that “public” input turned out to be only .06% of their listeners. They also discovered that the majority of that tiny fraction consisted mostly of disaffected ranters who were abusive and posted endlessly. In other words, the crazies took over. Whoever runs your Nextdoor site should block the nut jobs that seek to tear apart your community.

Nextdoor #2. In your comments about disciplinary actions in executive session, does that member not have the right to have it held in open session? -Stanley F.

RESPONSE: No, he doesn’t. Members subject to a disciplinary hearing have the right to request executive session, not open. (Civ. Code §5855(b).) Disciplinary hearings in open session are a bad idea.

Nextdoor #3. I read with a grimace your suggestion to amend the bylaws/CC&Rs. You know what a painful, time-consuming and costly process that can be. In the particular case of the disciplinary hearing, I suspect that the alleged violation had to do with the rules & regulations, which are rather easy to amend since the board can do that with proper notice to members. I find that members, not familiar with the governing document hierarchy, usually group them all in one and call them “the CC&Rs,” but would suggest that you, as a professional insider, clearly separate them so as to not confuse the already confused! -Ed V.

RESPONSE: I agree it is difficult to restate documents. Despite its difficulty, most associations are successful. We restate 40 to 50 sets a year. Of those 10 to 12 require judicial approval because the membership cannot reach a supermajority approval requirement. As you mentioned, the restriction discussed last week may have been a rule. Even so, many of those are based on CC&R restrictions. Eliminating a rule is easy but it doesn’t do any good if it reflects a CC&R restriction. If so, the CC&Rs must be amended.

*****

Going Green #1. Your nifty incentive of having members serve on the board if they don’t comply with electronic delivery of documents shows how undesirable serving on a board is…hell’s fire! -Priscilla K.

Going Green #2. As you know, I always enjoy your newsletter. One thing you didn’t mention is the propensity of some managers to practice law without a license. You could also have pointed out that the manager had no business issuing legal opinions about anything and should stick to the business of managing lest he/she be sanctioned for practicing law without a license. Just sayin’. -Susan K.

RESPONSE: I covered this issue a couple of years ago and one reader almost had a stroke when I pointed out that managers are not licensed to practice law and should not be offering legal opinions. The offended manager thought it was self-serving for me to say that only lawyers could practice law. Here is a link to Managers Practicing Law.

Going Green #3. You often raise issues and ideas that make my service to associations much less traumatic. I appreciated the idea of the $10 credit for members to enroll in electronic delivery of documents. This idea of a credit for behavior benefiting the association might help with elections, too. How about enacting a small credit for members who vote? Three cheers. -Henry C.

RESPONSE: Yes, it can be done. See Incentives to Vote.

Going Green #4. Regarding the response about sending required documents electronically, does this mean an HOA is not required to send required documents via regular mail (budget, reserves report, etc.)? Are there any limitations on what cannot be sent electronically? -Wendy C.

RESPONSE: If owners don’t authorize electronic delivery, associations are required to deliver reports and disclosures by cutting down trees. That is precisely the problem boards are trying to avoid. Also, there is no limitation on what can be sent electronically once authorized by an owner.

Going Green #5. Switching to electronic delivery is really not for everyone because there are still people who do not own a computer. You will probably find this mostly with the class of people whom have matured in age. There are still some out there and I can only speak from my experience of having parents whom do not own a computer. The term “old school” might be a better term. -Sharon G.

RESPONSE: Don’t sell old folks short (old folks are anyone older than me). You would be surprised at how many use computers and smart phones. According to a 2015 survey by the Pew Research Centers, 84% of American adults use the internet. Although older adults lag behind, 58% now use the internet. Following is a chart showing that old folks are closing the gap:

To see the full report, go to Americans’ Internet Access: 2000-2015.

Adrian J. Adams, Esq.

Adrian J. Adams, Esq.
ADAMS | STIRLING
A Professional Law Corporation

We’re friendly lawyers–boards and managers can reach us at (800) 464-2817 or info@AdamsStirling.com.

Executive Session Without the Manager

QUESTION: Can our board meet independently, without the manager present, and without advertising the meetings to discuss, interview, and hire a new management company?

ANSWER: It’s the board’s meeting not the manager’s. So, yes, directors can meet without the manager. However, the board still needs to give notice of the meeting. It may be a little awkward since the manager may suspect or know the purpose of the meeting. Even so, the Davis-Stirling Act does not provide an exemption for awkwardness–only for emergencies.

Interviews. In most instances, the board can simply tell the management company they are unhappy with their performance and plan to interview other companies. If the board is paranoid their manager will sabotage things, it can appoint less than a quorum of directors to interview other companies. The committee can then meet without notice and make a recommendation to the full board for action once it finds the right company.

RECOMMENDATION: Before interviewing other companies, the board should first have legal counsel review the management contract and advise on how best to proceed. Otherwise, the association may find itself in breach of contract and liable for damages.

EMAIL
NOTICE REQUEST


QUESTION: If an owner requests notice of board meetings by email, is the association obligated to provide it?

ANSWER: Per statute, members can request individual delivery of notice of meetings and the association must provide it. However, the Davis-Stirling Act allows the association to choose the method of delivery. Delivery can include first-class mail, registered or certified mail, express mail, or overnight delivery by an express service carrier, and email, facsimile, or other electronic means (if the recipient has consented in writing to that method of delivery). (Civ. Code §4040(a).)

SEATING
ARRANGEMENT


QUESTION
: Is there a seating protocol for board members on the dais? Is it appropriate for the manager and attorney to be seated on the dais? What is common practice?

ANSWER: There is no seating protocol that I’m aware of. I checked Robert’s Rules of Order and found nothing on the subject.

Seating Arrangements. I’ve been in meetings where the board, manager and attorney were (i) on an elevated dais with everyone facing the audience, (ii) seated at tables in a “u” shape (common with larger boards), (iii) seated at a round table with the backs of some directors to the audience, (iv)  seated randomly in comfy chairs in someone’s living room, and (v) seated in folding chairs on one side of a pool and the audience on the other side (a quasi separation of church and state–if you could walk on water, you could join the board). My favorite is where the board met in the alley next to a dumpster and everyone stood (it made for very short meetings).

On A Dais. When the board meets on a dais facing the audience, the most common position for the manager and attorney is at the end of the table. The second most common is for the attorney to be seated next to the president so he/she can consult with the attorney as-needed during the course of the meeting.

RECOMMENDATION: Generally, the larger the association, the more formal the seating arrangements. Boards should pick one that is comfortable for them.

FEEDBACK

Unsigned Bylaws #1. Regarding signing bylaws because lending institutions demand it, would writing “without prejudice” above board signatures preserve the board’s rights? It might make them less reluctant to sign. -LL

RESPONSE: Adding that language may make the board happy and the lenders unhappy. Bureaucrats are a sensitive lot and easily miffed. They may take their loan and go home. A simple affirmation of the bylaws makes them happy and does not put the board at risk. I recommend signing a certification prepared by the association’s attorney.

Unsigned Bylaws #2. I just love your comment on the bylaws and nearsighted clerks in cubicles. Finally somebody says what he really thinks. The funny thing is, most people don’t really know the difference between CC&Rs and bylaws. The CC&Rs should be the important documents to be signed. Why would voting, membership and directors’ responsibilities matter to mortgage lenders? Thank you for making me chuckle. -Marlis V.

RESPONSE: You’re right, CC&Rs have a higher ranking in the food chain than bylaws. (Civ. Code §4205) They are recorded while bylaws are not. When I take on representation of an association, I require a recorded copy of the CC&Rs. If they don’t have a set, I run title and get one. Why do lenders want bylaws to be signed? Because someone in Washington DC told them so. As I noted last week, they never read them–they really don’t care what’s in them. They just want someone to affirm they are legit so they can check off a box on their list.

Contravention & Subjugation. Can an association enact and enforce rules that contravene state, county or city laws? Does the fact that our HOA is built entirely on private property (not public land) give the association the right to subjugate public law? -Bill H.

RESPONSE: In my experience, the law rarely agrees to subjugation. I’ve dealt with public entities and they can get heavy-handed when persons or entities cross them. Also, an illegal act is still illegal whether on private land or public land. If you are concerned, you should have your rules reviewed by legal counsel.

*****


Troublesome Owner.
Thank you for your newsletter, it provides great content and good humor. In last week’s feedback you stated that, “Insurance carriers can drop risky associations at a moment’s notice…” In California, insurers are required to provide a 60-day notice if they will be non-renewing a policyholder’s coverage or will be substantially modifying the terms and conditions of the policy (premium increase over 25%, changes to the deductible structure, etc.). Also, any carrier will open a claim on the association’s policies if an owner calls in but the HOA does have the right to withdraw first party property claims. -Brian Kalmenson, Michael Abdou Insurance Agency

Executive Session. Our members’ listserv provides informal discussion such as “Does anyone have a bike I can borrow?,” announcements, and a place to complain about the board, manager, and vendors. The landscaper is one of the listserv’s favorite subjects. Our board will be evaluating their performance at an upcoming meeting. I wonder about comments made during our meetings’ open forum and on the listserv. Should I worry they could lead to litigation by the vendor? -Patty M.

RESPONSE: If individual owners saying something defamatory, they could be at risk of being sued. As a board, it’s the association’s deep pockets you should worry about. That’s why you want to hold your discussion in executive session. As for the listserv, board members should not participate in any discussions related to the association. If they want to borrow a bicycle or list their car for sale, that’s fine. It’s all the other stuff that can get them in trouble.

*****

Life of Crime #1. “Playing pool, however, could lead to a life of crime.” Very good! Adrian, you’re just about the only attorney I think I like. -Lee M.

Life of Crime #2. Thank you Adrian for your closing statement re pool & crime–point well taken and a Sunday morning out-loud laugh! -Kathryn C.

Adrian J. Adams, Esq.

Adrian J. Adams, Esq.
ADAMS | STIRLING
A Professional Law Corporation

We’re friendly lawyers–boards and managers can reach us at (800) 464-2817 or info@AdamsStirling.com.

Unsigned Bylaws

QUESTION: The Veteran’s Administration, HUD, Fannie Mae, and Freddie Mac are now requiring that boards sign their bylaws or sign a certificate stating that the bylaws are the operable bylaws. Some boards are refusing to sign them. They say they have always used the bylaws, therefore they are legal. What does the law say regarding this?

ANSWER: The boards are correct. Unsigned bylaws are legal and associations function perfectly fine with them.

Lenders. Unfortunately, some nearsighted clerk in a little cubicle in Washington DC thinks lending institutions will suffer if an association’s bylaws aren’t signed. Hence the requirement. Even though lenders never read the bylaws, they are now demanding evidence that they are “official.” If boards don’t cooperate, lenders will withdraw loan commitments and escrows will fall through. This creates significant potential liability for boards of directors.

Certification. Boards are reluctant to sign their bylaws because they feel like they are doing something improper by putting their names on a document they didn’t create. They should not be concerned. There is nothing wrong with signing a one-paragraph certification affirming that the bylaws used by the association are the bylaws used by the association.

RECOMMENDATION: Boards should look at the last page of their bylaws and see if they are signed. If not, call your legal counsel and ask him/her to prepare a certification. Then, adopt a resolution authorizing the president and secretary to sign the certification. Staple that certification to your bylaws. You don’t need to record your bylaws nor do you need to redistribute them to everyone in the association. The newly certified set is what gets submitted to all future escrows. Doing so makes you heroes–you just saved the nation’s banking system from collapse.

EXECUTIVE SESSION
RE VENDOR PERFORMANCE


QUESTION
: When discussing performance issues involving a vendor, should this be done in an open board meeting or in executive session?

ANSWER: It should be done in executive session. If done in open session, negative comments about the vendor could spread through the association and get back to the person. Even worse, it could travel outside the community to others. What follows next is a threat of litigation by the vendor alleging trade libel/slander.

RECOMMENDATION: When dealing with legal issues involving a vendor’s performance and contractual obligations, executive session meetings allow free and open discussion without fear of triggering a lawsuit.

WE ARE HIRING FOR
OUR LOS ANGELES OFFICE


Our firm continues to grow and we are looking for a full-time attorney to join our litigation team in our West Los Angeles office.

We seek an attorney with 5-10 years litigation experience with strong writing, negotiation, and trial preparation skills.

Community association experience is a plus but not required. Please send an email to Managing Partner Adrian Adams.

FEEDBACK


There is continuing feedback about the troublesome owner who created problems with his association’s D&O insurance.

Troublesome Owner #1. How about designating the troublesome owner a vexatious litigant? -J.S.

RESPONSE: If the homeowner meets any of the elements found in section 391(b) of the Code of Civil Procedure, he can be designated a vexatious litigant and barred from filing any more lawsuits without first obtaining court permission. A person can be declared a vexatious litigant if:

  • In the immediately preceding seven-year period has commenced, prosecuted, or maintained in propria persona at least five litigations other than in a small claims court that have been (i) finally determined adversely to the person or (ii) unjustifiably permitted to remain pending at least two years without having been brought to trial or hearing.
  • After a litigation has been finally determined against the person, repeatedly relitigates or attempts to relitigate, in propria persona, either (i) the validity of the determination against the same defendant or defendants as to whom the litigation was finally determined or (ii) the cause of action, claim, controversy, or any of the issues of fact or law, determined or concluded by the final determination against the same defendant or defendants as to whom the litigation was finally determined.
  • In any litigation while acting in propria persona, repeatedly files unmeritorious motions, pleadings, or other papers, conducts unnecessary discovery, or engages in other tactics that are frivolous or solely intended to cause unnecessary delay.
  • Has previously been declared to be a vexatious litigant by any state or federal court of record in any action or proceeding based upon the same or substantially similar facts, transaction, or occurrence.

Troublesome Owner #2. Regarding the troublesome owner, what provision of the insurance contract allows them to subsequently pick and choose which risks they will shed? -L.S.

RESPONSE: Insurance carriers can drop risky associations at a moment’s notice or renew with higher premiums and extra restrictions. What the reader described about an owner harassing the association’s insurance carrier and constantly suing or threatening to sue the board, I’ve seen with other associations. Boards have trouble getting and keeping insurance because of it. The only insurance they could get precluded any actions filed by the problem owner. 

Troublesome Owner #3. Can the board not advise their insurance carrier that all member inquires regarding the association’s policies must first be routed through the board for initial review? -Frank D.

RESPONSE: They could, but it won’t do any good. It has been my experience that no matter what you tell the carrier, they will take the call and open a claim. Also, if boards get in the middle and stop a claim from being filed, they may find themselves on the receiving end of a lawsuit. It’s an impossible situation. Everyone complains about bad boards but one bad homeowner can create more grief than a dozen bad boards. Members can remove bad boards but they can’t remove a bad owner. Everyone suffers until the person either moves or dies.

Troublesome Owner #4. We have our own troublesome owner. Some of the male members of our board play pool on Wednesday nights in the clubhouse and the women members play cards in the recreation room. Even though they never discuss board business, one homeowner insists that three or more board members gathered in the common areas, even around our outdoor pool, is considered a board meeting. Is that true? -A.O.

RESPONSE: No, it’s not true. The common areas have nothing to do with it. The law is quite clear that a board meeting occurs when a majority of directors “hear, discuss, or deliberate upon any item of business that is within the authority of the board.” (Civ. Code §4090.) There is nothing wrong with a majority of directors getting together to swim, eat pizza, or attend a birthday party. Playing pool, however, could lead to a life of crime.

Adrian J. Adams, Esq.

Adrian J. Adams, Esq.
ADAMS | STIRLING
A Professional Law Corporation

We’re friendly lawyers–boards and managers can reach us at (800) 464-2817 or info@AdamsStirling.com.

Illegal & Unethical

QUESTION: Our association recently recovered funds from a lawsuit which the homeowners were charged a special assessment. The board opted to place the funds in the reserve account rather than reimburse the homeowners for their payments. Is this ethical or legal?

ANSWER: Unless the board promised to reimburse owners or somehow made it a condition of the special assessment, it is neither illegal nor unethical to put the money in the reserve account.

Reserve Funding. In fact, not doing so may be imprudent if your reserves are badly underfunded. Failing to fund the reserve account now could result in special assessments later when large repairs are needed and reserves are insufficient. Then everyone would rail against the board for not funding the reserves.

Who Gets the Money? Also, for those units sold after the special assessment but before the recovery, who gets the money? Does it go to the ones who paid it but no longer have a legal interest in the association or the ones who bought units and lay claim to the reimbursement? That could get messy.

RECOMMENDATION: Prudent fiscal management is one of the duties of the board. If you disagree with how they are handling the association’s money, you should consider running for the board.

NO
OFFICERS


QUESTION
: Is there any circumstance where an HOA could not have officers? We manage an 8-unit association where owners are unable to agree on officers (or anything else).

ANSWER: If the association is incorporated, the Corporations Code requires a President, Secretary and Treasurer. (Corp. Code §7213(a).) If it is unincorporated, the governing documents undoubtedly require the same officers.

RECOMMENDATION: If the HOA is dysfunctional, you should put them on notice that you are withdrawing from management until such time as they appoint officers. The small management fee you receive is not worth the aggravation and potential liability.

FEEDBACK


Two Signatures #1
. I’ve long been concerned that our association does not have a written agreement with our bookkeeping firm. Is the association protected from possible loss or other concerns by our standard D&O policy? -Bond S.

RESPONSE: It is not illegal to have a business relationship with a vendor under an oral contract. However, the better business practice is to have written agreements with all vendors. When agreements are in writing, homeowners and board members alike can know the vendor’s duties, the cost of those services, indemnity understandings, and termination provisions. In addition to a contract, your association should have a fidelity bond (crime insurance) in the event funds are embezzled, together with a D&O policy.

Two Signatures #2. Two-signature requirements protect both directors and members. When members vote to carry over surplus operating funds forward into the new year, do directors have authority to transfer the surplus fund to reserves and commingle the operating funds with the reserves? Does this violate their fiduciary duties? -Neil A.

RESPONSE: Boards have authority to transfer excess funds into reserves. This does not constitute a commingling of funds. Monies from operations become reserve funds as soon as they are deposited into the reserve account. Thereafter, any monies withdrawn to pay for operations are deemed borrowings and must be repaid to reserves.

*****


Election Apathy #1. More condos are being built but fewer people are willing or knowledgeable enough to serve on boards. Homeowners are apathetic, there is a lack of qualified management companies, too many laws and judges protect the individual homeowners at the expense of the rest of the homeowners, and some of the mandates in the Davis-Stirling Act lack clarity. Aren’t we heading in the direction of disaster? -Paul C.

RESPONSE: I don’t share your cheery outlook on things. Although apathy is the norm, it often occurs because owners believe the association is moving in the right direction. When the association goes off the rails,   apathy evaporates and members jump in to put things back on track.

Education. Most directors and owners are not as knowledgeable as they should be. Fortunately, CAI, CACM, ECHO and various law firms, including ours and the Epsten Grinnell firm, put on numerous educational seminars each year to help correct that problem.

Legislation. I agree that associations are over-regulated and the legislature seems to delight in increasing the burden each year. Thankfully, CAI’s California Legislative Action Committee (CLAC) monitors the annual flow of bills and works to defeat bad bills and promote good ones. It would be wise for associations to adopt a resolution supporting CLAC in their annual budgets.

Disaster. I don’t foresee an industry-wide disaster. Individual associations may collapse while others run smoothly. It’s the bell curve in action. If I ever see approaching doom and gloom for everyone, I will sound alarm bells and then head for the hills. -Adrian

Election Apathy #2. Our association had the same problem of meeting a quorum for membership meetings. We fixed that problem by creating a list each year of who voted. We then go to all members who have not submitted ballots. We take extra ballots and envelopes. As a result, we get 75% participation. With our small association of 53, this works well. -Raymond M.

RESPONSE: Your solution makes sense. What you propose helps achieve quorum does without violating election privacy.

*****

D&O Insurance #1. We have a small community of 16, do we need to carry D&O insurance? -Beverly P.

RESPONSE: There is no exception for small associations. Going without insurance means you’re swimming in that Disney World pond. Everything looks calm and peaceful until an alligator appears out of nowhere and has you in its jaws. One lawsuit while you are uninsured will cause havoc. The large special assessments needed to defend yourselves could be debilitating. That means every member of the association is at risk, not just board members. If you wait until you are sued to buy insurance, it’s too late. Carriers preclude threatened and existing litigation.

D&O Insurance #2. One of our members has so harassed our insurance carrier and threatened lawsuits against the association that our premiums doubled and the carrier excluded any actions by that member. At the present time we are uninsured regarding this individual. Now he is suing us. We have been required to hire separate counsel since the association’s attorney is one of defendants in the suit. What can we do? -Ted L.

RESPONSE: I went back to insurance specialist Tim Cline for a response:

Troublesome Owner. That’s a tough one. It’s virtually impossible for the board to be a “gate keeper” and insulate the D&O and General Liability insurance carriers. There are many ways an owner can be so annoying as to nearly destroy an association–this troublesome owner chooses to litigate.

Access to Carrier. Owners can easily obtain the association’s insurance information, either through the annual disclosure statement or simply reviewing the certificate of insurance prepared for the owner’s lender. Once they have the carrier’s name and policy number (and obtained the mailing address using a simple Google search) the owner can barrage the insurance carrier with all kinds of goof-ball accusations and complaints.

Possible Solution. The only resolution of a situation like this is for the association to offer (through mediation) to buy the troublesome owner’s unit (or home). To motivate the owner you probably have to make an offer above market price. If you’re successful, he becomes someone else’s problem. –Tim Cline, CIRMS, President & CEO of the Timothy Cline Insurance Agency, Inc..

Adrian J. Adams, Esq.

Adrian J. Adams, Esq.
ADAMS | STIRLING
A Professional Law Corporation

We’re friendly lawyers–boards and managers can reach us at (800) 464-2817 or info@AdamsStirling.com.

Two Signature Reserves

QUESTION: With all the changes in banking, are we still required to have two directors sign all checks? Our management company makes an electronic transfer from our reserve account into a bill paying account once bills are approved by the board. Is that legal?

ANSWER: There has never been a requirement that all checks be signed by two directors. It has, however, been the practice that all reserve transfers be done by checks signed by two directors. That standard is steadily changing with the advent of electronic banking. Banks no longer offer two-signature accounts nor do they monitor signatures–something I addressed in a newsletter two years ago.

Reserve Transfers. Whether by design or not, the Davis-Stirling Act does not require signatures on a check. Rather, the Act requires a more nebulous requirement of two signatures to withdraw funds without specifying where or how the signatures are employed:

The signatures of at least two persons, who shall be members of the association’s board of directors, or one officer who is not a member of the board of directors and a member of the board of directors, shall be required for the withdrawal of moneys from the association’s reserve accounts. (Civ. Code §5510(a).)

The intent of the statute is to make sure two directors or a director and an officer know about and authorize the withdrawal of reserve funds. If two directors issue written instructions to the association’s management company to make a transfer, it appears the statutory requirement is satisfied.

Email Approval. Since electronic signatures are now recognized to be the same as signatures on a piece of paper, they can be used to authorize the transfer of reserve funds. Accordingly, email authorizations from two directors to the management company also satisfy the requirement. Management companies should be careful to preserve those instructions so they have a paper trail showing each transfer was authorized. Otherwise, the management company could find itself in hot water if the transfers were ever challenged.

Governing Documents. Despite the above analysis, associations should first review their governing documents before changing how they handle reserve transfers. Their CC&Rs or bylaws may contain more stringent requirements for handling reserve funds. If so, those procedures must be followed.

RECOMMENDATION. To protect reserve funds, boards cannot rely on banks to monitor transfers. Instead, boards must adopt internal controls and carefully monitor their reserve accounts for any unusual activity. Boards still have the option of requiring all transfers be done by checks signed by two directors. Boards should consult legal counsel, their CPA, and their management company before adopting a particular policy.

ELECTION APATHY
& QUORUM REQUIREMENTS


QUESTION
:
We have spent a countless amount of money in the election process trying to meet quorum. How many attempts does the HOA need to make before the current board just continues/rolls over as the board?

ANSWER: There is no required number of attempts to meet quorum. If it is clear the membership is not interested in participating, the board can stop. For example, if you have 100 units and only 9 send in their ballots, it’s pretty clear no one is interested, which means reaching a 50% or even 30% quorum may not be achievable.

I had a large association with a 15% quorum requirement that could not get more that 12% participation no matter how hard they tried. We sought and received court approval of the 12% so they could open and count ballots.

If quorum is within striking distance, directors should put in the effort to round up more votes. If not, the board does not need to waste time, money, and energy trying to get members to participate. The existing board can continue in office and appoint replacements if they are anxious to step down.

RECOMMENDATION: Associations should amend their bylaws to eliminate cumulative voting and quorum requirements for the election of directors. Apathy will make it difficult to get the amendment passed but it’s worth the effort.

FEEDBACK


D&O Insurance
.
Regarding the article about a board dropping its D&O insurance, some liked my Disney alligator analogy but some sent “OMG I can’t believe you used an alligator” emails. I hung my head in shame (but smiled when no one was looking). One reader asked the following:

QUESTION. Regarding the most recent newsletter, can you tell me the difference between D&O insurance and E&O insurance for board members? Our HOA has the latter. Is one better than the other? Or are these terms interchangeable? -Judy O.

RESPONSE: I talked to insurance specialist Tim Cline to find out the difference.

Similar but Different. Both Directors and Officers (D&O) and Errors and Omissions (E&O) coverage fall under the definition of professional liability coverage. And both respond to alleged wrongful acts, errors or omissions and provide for the payment of attorney fees and other defense costs necessary to protect an individual or entity. But there are significant differences between the two and they should not be used interchangeably as they perform distinctly different functions.

E&O Coverage. Errors and omissions coverage is designed to protect professionals who render expert advice, offer consulting services, conduct reviews or audits or renders opinions–all in exchange for a fee. For common interest developments, associations should expect their attorney, CPA, reserve analyst, insurance broker and management company to maintain their own E&O coverage.

D&O Coverage. Directors and officers coverage for a nonprofit common interest development is designed for volunteer boards who oversee the association’s business activities but do so as volunteers. While an E&O policy will cover a professional individual or entity, a well-crafted D&O policy will have a much broader definition of “insured.” When written correctly, the D&O policy will extend to past, present, and future directors and officers, committee members, volunteers, and the community manager, as well as the association itself. In the past decade, the better D&O policies have also provided a modest employment practices liability (EPLI) endorsement which is designed to protect the board and the association against certain employment-related discrimination claims.

RECOMMENDATION: Associations with E&O insurance should immediately contact an insurance agent familiar with community associations and switch to D&O coverage.

Many thanks to Tim Cline, CIRMS, President & CEO of the Timothy Cline Insurance Agency.

*****

Deck Waterproofing. I saw Mike H’s reply and my response remains the same. My concern is that they be treated as roofs that one can walk on that must be maintained in a watertight condition and should be maintained by the association. Owners won’t maintain their decks on schedule like the association will. Also, it is less expensive to repair and reseal decks every three years if done in bulk. Doing so lowers costs and extends the deck’s useful life. If balconies don’t receive regular maintenance, UV damage to the coating can cause a deck’s useful life of 25-30 years to drop to 12-15 years. -Bill L.
Adrian J. Adams, Esq.

Adrian J. Adams, Esq.
ADAMS | STIRLING
A Professional Law Corporation
We’re friendly lawyers–boards and managers can reach us at (800) 464-2817 or info@AdamsStirling.com.

No Directors & Officers Insurance

QUESTION: I used to be on the board and insisted that we get D&O insurance. This year I am not on the board anymore and they dropped the insurance. What is the downside of not having it? Can they be forced to get the insurance? Can I withhold dues until they get it?

ANSWER: Dropping D&O Insurance is like standing next to a pond at Disney World. You could get eaten. It gives me the willies just thinking about being uninsured (getting eaten runs a close second).

Exposure. Not carrying insurance is almost certainly a breach of your governing documents. It may also qualify as a breach of fiduciary duties and a breach of the business judgment rule. It exposes your association to large special assessments and exposes directors to liability in the event of litigation. To avoid personal liability, the Davis-Stirling Act requires at least minimum levels of D&O coverage. Not having insurance is known as running naked” because your directors are completely exposed.

Recourse. Can the board be forced to get insurance? Yes. You can go into court for an order that the board comply with your governing documents to purchase insurance. Can you withhold dues until they get it? No. You have a duty to pay regardless of the board’s bad decisions.

RENTAL INCOME
VERSUS BALCONY SAFETY

QUESTION: Our association needs to make major repairs to the structure of an exclusive use deck and is ready to go. The unit is used as a vacation rental and the owner wants the association to wait a year because the unit is fully booked. Can the association proceed with repairs regardless of the owner’s refusal since the deck is unsafe?

ANSWER: Can you imagine the lawsuit if a renter or his/her children are injured or killed by a deck the association knows to be unsafe? Your misguided homeowner’s rental income does not trump safety. The association should proceed with repairs.

Court Order. If the owner refuses access, your lawyer should send a letter demanding access. If he continues to block access, serve him with a lawsuit. When it comes to safety issues, I have successfully sought court orders forcing recalcitrant owners to step aside and allow the association to make repairs.

Construction Defect. If you discover the problem is a construction defect, you may need to inspect all your balconies. If you are within the 10-year statute of repose, you should contact a law firm that specializes in recovering developer funds to make necessary repairs. Check the sidebar of this newsletter for two such law firms.

FEEDBACK

Beyond #1. Regarding the lady in the fountain. Could she be protected by freedom of religion? It sounds like she was a MOON GODDESS. -Darcie G.

Beyond #2. As for the snake photography, did this violate the hours of activity in the common area? Were the women members of the HOA? As a woman photographer and president of our HOA, I’m not sure what was wrong, except shining a bright light into someone’s unit. If there is no rule they specifically violated, what’s the harm? (Except the light, of course.) Of course we only have 10 units and while our “incidents” would make for great movie scripts, we’ve never had a violation hearing in 36 years. -Esme G.

RESPONSE: It’s unlikely they have a rule against standing semi-naked in the fountain with a snake draped over your shoulders after hours. But you’re right, the bright light could be a nuisance violation.

Beyond #3. Depending on CC&Rs and rules, the board could have a hearing/impose fines because of: nuisance (light shining in units at night); might also be a noise issue (if there are quiet hours); violation of pet restrictions; and improper use of common property. -Gail B.

RESPONSE: I suspect they were not making much noise. It was the light that gave them away. If the photogenic snake resides in the association, the board can require its removal. Improper use of the fountain and using the common areas for commercial photography could be violations.

RECOMMENDATION: The board should hold a hearing to warn the owner not to repeat his actions. Or simply send a warning letter. I suspect either one would be sufficient to deter any further unwanted activity.

*****

Election Confidential. It seems that legal counsel jumped the gun by accusing the director of harassment. By definition, harassment is usually a course of conduct repeated at least once. Being a jerk once doesn’t constitute harassment. Now, if this is what the director does on a regular basis and the conduct is unwanted and unwelcome, then it is harassment. In any case, where has this guy been living? He should know better. -Jim S.

RESPONSE: You may be right about his prank not constituting harassment. I believe a former US President established the rule that everyone gets one free grope before harassment laws kick in.

*****


Maintenance #1
. In response to the viewpoint shared last week by Bill L, I wonder if his view would be different if only 10 units out of 100 had balconies? It seems disproportionately unfair that HOA reserves should be used to maintain, repair, and replace a unique, exclusive use feature to which 90% of the membership have no access, and therefore derive no benefit or enjoyment. -Mike H.

Maintenance #2. I always find it fascinating that people think you can just “slap on a coat” of paint to make everything better. Regular preventative maintenance needs to be specified by the association and its experts to ensure work is properly performed so as to not void warranties or create new problems. In my experience, I’ve seen lifetime deck coating warranties voided because a homeowner slapped on products they picked up at the local hardware store. Not to mention the problem that underlying dry rot is hidden and made worse by a few coats of paint slapped on by well-meaning unit owners. -Allison C.

Adrian J. Adams, Esq.
 
Adrian J. Adams, Esq.
ADAMS | STIRLING
A Professional Law Corporation

We’re friendly lawyers–boards and managers can reach us at (800) 464-2817 or info@AdamsStirling.com.

Election Confidential

QUESTION: For Christmas, I gave out gag gifts to my fellow board members–a condom for the men and an early pregnancy test kit for the ladies. The recipients are all over 65; most are in their 70s. A week later I received a letter from our HOA attorney accusing me of sexual harassment. At a meet the candidates forum, a shareholder asked a question that referenced the content of the letter. Do I have any protection from this confidential letter being shared?

ANSWER: If there is one thing I’ve learned, it’s that people like to talk–especially when directors behave badly. Your options are quite limited. No court is going to order people to stop talking about you. Can you sue for defamation? If members truthfully describe what you did, you would spend a lot of money and lose. Moreover, your litigation would alienate everyone and they would talk about you, your prank, and your lawsuit endlessly.

RECOMMENDATION: If you want to run for the board and win, you should own-up to your gag and apologize for it. If members believe your apology is sincere, you have a better chance of winning their votes.

NON-DISCLOSURE
OF SECOND HOA


QUESTION: I just purchased a condo in a senior community. The seller failed to disclose that there is a second HOA that requires dues from homeowners. The second HOA has contacted me for payment of dues. Is it common for there to be two HOAs for the same property?

ANSWER: It’s not uncommon to have a master association and multiple sub-associations, especially in large retirement communities. As for the non-disclosure by the seller, that is something you may want to explore with your attorney.

HARASSMENT, INTIMIDATION
AND BOARD ELECTIONS


QUESTION: If a board member harassed and intimidated vendors and entered into a contract without board approval, is he eligible to run for the board again?

ANSWER: As long as he meets your bylaw qualifications, he can be in a jail cell and be elected. An incarcerated board member may have trouble attending meetings but could get around that obstacle by phoning in (assuming the jail accommodates his meeting schedule).

RECOMMENDATION. If a director misbehaves while on the board, homeowners (including current board members using their own money) can campaign against him. They can use his record to defeat him at the ballot box. Afterwards, you should consider amending your bylaws to add director qualifications.

SHORT-TERM
RENTALS


A new appellate decision further supports an association’s ability to enforce restrictions on short-term rentals.

Vacation Rentals. The Carsons leased their property for short-term vacation rentals even though the CC&Rs prohibited owners from using their lots for transient hotel purposes and prohibited rentals for less than 30 days. In addition, the Carsons disputed rules imposed by the association related to parking regulations, trash storage, use of common areas, and decals for boats.

Trial Court. The association fined the Carsons and eventually sued them. The Carsons cross-complained disputing the association’s authority to enforce rules and alleging intentional interference with prospective economic advantage. The court ruled for the association deciding it could enforce its rules but awarded significantly reduced fines in the amount of $6,620 (~10% of the amount imposed by the association). In addition, the court awarded attorneys fees against the Carsons in the amount of $101,803.15.

Appellate Court. The Carsons appealed. The appellate court agreed with the trial court that the association was the prevailing party, even though 90% of its fines had been disallowed. The court concluded that the key issue was not the amount of fines but rather the association’s right to enforce rules and impose fines, thereby making it the prevailing party. For more detail, read Almanor Lakeside Villas v. Carson.

TALES
FROM BEYOND


Everyone knows our business gets a little quirky. Board members, managers and attorneys deal with lot of odd situations. Maybe it’s time to start a little feature dedicated to that element of our business. From time to time, I will include one of our more interesting tales.

A director shared that a few nights ago, around 11 p.m., he noticed a bright light shining into his unit. He looked out the window and saw a young topless woman (20s to 30s) dancing around in the association’s fountain with a snake around her. Another woman was taking photographs in the illumination. The director contacted other directors each of whom, in turn, viewed the scene. One, an octogenarian, started tapping her keys on the railing. The owner, his girlfriend (with snake in tow), and the photographer scurried off.

QUESTION: Does the board set a violation hearing with the owner? If so, for what?

MAINTENANCE
FEEDBACK


Maintenance #1
: Our condo balconies have stucco walls and ceilings. Shouldn’t owners paint them? Do they need licenses and specialized tools to slap on a coat? -Carol R.

RESPONSE: Right now there is disagreement on the meaning of maintenance. As a result, each association needs to clearly define owner obligations when it comes to exclusive use common areas. Otherwise, whenever there is a claim for damage, everyone will disagree over who is responsible for the loss. The best way to avoid costly litigation is to work with your HOA’s legal counsel to create a maintenance chart. If necessary, associations may need to amend their CC&Rs.

Maintenance #2. Who is responsible for repairing balconies if they are damaged as a result of the association’s failure to install or maintain rain gutters, downspouts, and roof drains? I believe those components are common area, not exclusive use common area (they are not a unit’s air space) and, therefore, the association is responsible to repair (because the owner cannot touch common areas). -Stephany Y.

RESPONSE: The negligent party will be responsible for the cost of repairs. A unit’s air space is not the problem–it’s the assignment of maintenance duties that matters. That varies from association to association depending on their governing documents.

Maintenance #3. As a 34-year community manager I have long insisted that my boards have a “maintenance matrix” prepared for their association by an attorney to determine exactly what the association is responsible for maintaining. This eliminates any questions or conflicts as to who is financially and personally responsible. Thanks for this info which backs up my long-time requirements. -Pat G.

Maintenance #4. I don’t believe balconies should be maintained by individual owners. Along with resealing is the need to inspect the balcony for subtle signs of decay. An owner may not believe a small crack or a bit of rust is a problem, but to an expert, it is a sign of the end times of the deck. The biggest problem is cost, to have a contractor clean and repaint one deck will cost far more for that one deck as opposed to purchasing in bulk for 100 balconies. With the HOA maintaining the decks, they can ensure that cleaning, repairing and repainting is done. Decks, like roofs, should only be maintained, inspected, repaired and replaced by the HOA. -Bill L.

Adrian J. Adams, Esq.
 
Adrian J. Adams, Esq.
ADAMS | STIRLING
A Professional Law Corporation

We’re friendly lawyers–boards and managers can reach us at (800) 464-2817 or info@AdamsStirling.com.

Maintenance Defined


WHAT DOES EXCLUSIVE USE MAINTENANCE MEAN?


Association documents routinely assign maintenance duties between owners and the association. Unfortunately, exclusive use common areas are often left out or muddled.

For example, in condominium developments, older CC&Rs are vague or silent when it comes to balcony and plumbing maintenance. In planned developments, fence maintenance can be an issue.

Old Default Provision. To resolve the problem, the Davis-Stirling Act created a default provision that assigned exclusive use maintenance to owners. The Act did not define maintenance but everyone understood it to include repairs since most dictionaries define it as such.

New Default Provision. Starting January 1, 2017 a new default provision goes into effect. Unless your CC&Rs state otherwise, owners continue to be responsible for maintaining their exclusive use areas but the association will be responsible for repairing and replacing them. (Civ. Code §4775(a)(3).) By separating repairs from maintenance, the legislature created a problem. When asked about it in a recent interview, presidential candidate Bernie Sanders said, “It was huge, huge!”

Confusion Reigns. Since maintenance and repairs were once synonymous, many CC&R provisions in the 50,000 associations in California will be upended. Governing documents throughout the state were routinely drafted making owners responsible for “maintenance” without addressing repairs and replacement since they were understood.

Who Pays? What does “maintenance” mean once repairs and replacement have been stripped away? The answer is important because if owners fail to maintain something, the association must repair it. When that happens, the owner pays since he negligently failed to maintain it. Unfortunately, no one can agree what maintenance means, which means legal disputes will follow.

Maintenance Redefined. Generically, we can say that maintaining something is to preserve it in its original condition so as to prolong its life. One reserve specialist offered the following practical definition:

Maintenance means those things that can be done by unskilled individuals with household tools. Examples include sweeping a balcony and keeping the balcony drain clean. 

Repairs are typically accomplished by licensed individuals requiring specific tools, materials, or training. Examples include sealing a balcony surface to extend the useful life of that surface until it must be removed and resurfaced.

Still Unclear. Under this definition, balcony maintenance is mostly limited to keeping it clean. When I polled others in the industry, some argued that maintenance is more than sweeping a deck–it means applying or paying someone to apply a seal coat since that extends the life of the deck. The same problem relates to fences–do owners merely keep them clean or must they paint them?

RECOMMENDATION: To avoid legal wrangles, associations need to clearly define an owner’s maintenance duties for balconies, decks, patios, fences, roofs, plumbing, and other exclusive use common area items. Each association will need to decide for itself whether it wants to maintain deck coatings or assign that task to owners–and if so, what does that mean? Associations should create maintenance charts with clearly defined duties. Those with existing charts will need to update them to include more detail. Some associations will need to amend their CC&Rs.

Thank you to Robert Nordlund, CEO of Association Reserves, Inc. for raising the issue and providing maintenance definitions. Additional thanks to attorney Jay Hansen of Epsten Grinnell & Howell, attorney Wayne Louvier of ADAMS | STIRLING PLC, and Robert Browning of the Browning Reserve Group for their input on this issue.

AB 1799
NOW IN THE SENATE

Inexplicably, some organizations are trying to keep elections expensive.

Wasted Resources. They want to force associations to waste money printing and mailing ballots when an election is uncontested. Resources that could be used elsewhere, they want diverted into printing, postage, and inspectors of election–even if there are no candidates on the ballot.

Senate Hearing. Your emails were decisive in getting the Assembly to vote FOR Assembly Bill 1799. Opponents are now trying to defeat your bill in a Senate hearing on June 7. Time is short so please send an email to the Senate today.

Send An Email. Click here to send a message supporting AB 1799. Scroll to the bottom of CAI’s web page and enter your email address and zip code and hit enter. It takes all of ten seconds. (Okay, maybe 30 seconds.)  

VIEW PROTECTION CASE

Another case affirmed that property owners do not have a right to light, air and view unless granted by easement, CC&Rs, or governmental authority.

In Boxer v. City of Beverly Hills (April 26, 2016), property owners filed a claim against the City of Beverly Hills because it planted redwood trees that blocked their views of the Hollywood sign, downtown Los Angeles and Griffith Park.

In its ruling against the owners, the court cited three cases [Posey v. Leavitt (1991) 229 Cal.App.3d 1236, Pacifica Homeowners’ Assn. v. Wesley Palms Retirement Community (1986) 178 Cal.App.3d 1147, and Katcher v. Home Savings and Loan Ass’n (1966) 245 Cal.App.2d 425]
.

Adrian J. Adams, Esq.
 
Adrian J. Adams, Esq.
ADAMS | STIRLING
A Professional Law Corporation

We’re friendly lawyers–boards and managers can reach us at (800) 464-2817 or info@AdamsStirling.com.

Unrevoked Consent


QUESTION
: Can a member send an email request authorizing their HOA to send them all mailings via email without having to fill out a separate special form giving the HOA this permission?

ANSWER: The permission you describe is called “unrevoked consent” and is required by the Davis-Stirling Act. Unrevoked consent sometimes becomes an issue between dating college students–this is different. The Davis-Stirling Act allows owner to receive notices and documents by email “if the recipient has consented, in writing, to that method of delivery.” (Civ. Code §4040(a)(2).)

Electronic Transactions
. The Act does not mandate a particular form. An email from an owner giving permission qualifies as written consent. (Civ. Code 1633.7.) The email can be printed by the association and stored in a file or it can be stored electronically.

Approval Forms. Even so, associations are allowed to create their own consent forms. Lawyers like to include disclosure language about how the consent remains effective until such time as it is revoked in writing.

RECOMMENDATION: If the association uses a form, don’t argue with them; simply fill it out. It only takes a minute and everyone can go away happy.

FOUNDATION FOR COMMUNITY
ASSOCIATION RESEARCH


I recently became a founding member of the “Critical Issues Think Tank” of the Foundation for Community Association Research.

As such, I am part of a team of industry leaders from around the country who serve as the Foundation’s steering committee.

We establish criteria and goals for the Foundation’s research. To learn more about what we do, watch a short video.

FEEDBACK

Executive Session #1. Really enjoy your responses to questions. Keep up the good work. -Harold R.

Executive Session #2. I really enjoy your newsletter and always learn something new! I have concerns about our minutes, especially since some of them are so vague as to what was discussed, what was decided, that I can’t remember even two months later! Is there a better format that would outline what should and shouldn’t be documented so we have a better history of board activity? Thanks so much! -Judy O.

RESPONSE: Minutes should contain sufficient detail so that someone who did not attend the meeting can understand what happened. As an expert in cases where associations are sued, I sometimes find it difficult to determine when and where a meeting occurred, which board members attended (and their positions as officers), and why particular motions were approved or denied. Associations are all over the map when it comes to minutes–they either suffer from TMI (too much information) or they’re too cryptic. Sample minutes are posted on my website.

Executive Session #3. I am not sure how I started receiving your newsletters but I am so pleased to have them. I am a board member and part of the first transition board. It has been an eye-opener. Your Newsletter with Q&A is wonderful! Keep them coming! -Jean K.

Executive Session #4. Our BOD previously displayed the minutes on a bulletin board in our lobby. Now they are saying we are no longer allowed to have a copy of the minutes. Is that right? Thank you so very much for your newsletters; keep it up. -Ida Z.

RESPONSE: Boards are not required to post minutes, but they should. I recommend posting them on a password protected portion of the association’s website so all members can read them at their leisure. Despite anything your board might believe, they are required to provide members with both draft and finalized open meeting minutes upon request. (Civ. Code §4950.)

Executive Session #5. I know that at some point and for certain reasons the state can take over the administration of an association. The one I live in currently has one vacant seat and last I heard the president resigned. I’ve also been told that there are three (maybe four) of the seven seats vacating in September. Getting people to serve on the board is very difficult. What happens if vacant seats aren’t filled by our annual meeting? Is there a percentage of seats that must be filled to stay legal? -Carole W.

RESPONSE: California has no interest in taking over your association. Nor do you want them to. If they stay true to form, your dues would triple and your services drop.

If four or more seats remain empty at the conclusion of the annual meeting, the remaining directors can appoint owners to fill them. If no one is willing to serve, you should amend your bylaws reducing the board to five or three directors instead of seven. If you can’t even recruit three directors, the remaining directors can go to court to have one or more provisional directors appointed or, worst case, a receiver or custodian. Once a special assessment has been levied and dues raised to pay for the court-appointed directors, volunteers will line up to serve on the board.

*****

Assembly Bill 1799 allows associations to forego expensive balloting when elections are uncontested.


AB 1799 #1
. What if an HOA accepts write-in candidates on its election ballots? AB 1799 would eliminate the write-in capability. That doesn’t seem right. -Jim O.

RESPONSE: The bill addresses this issue. If your governing documents provide for write-ins, the board must vote in open session to declare the election is uncontested. It must then allow 15 days for a write-in candidate to submit his or her name to the inspector of elections. If one or more names are submitted, an election is held. If no names are submitted, the association can forgo the cost of mailing ballots.

AB 1799 #2. I started to fill out the letter to my Assembly person re: AB 1799. When I read the content of this letter I got confused. It says that it allows for write-in candidates (which our HOA does NOT currently allow). If there is NO ballot due to uncontested seats, how can one “write-in” a candidate? -Carol B.

RESPONSE: If your governing documents do not provide for write-in candidates, the association must provide at least 15 days’ general notice of a self-nomination process and vote in open session to declare the election is uncontested (and allow members to make objections to the board making the declaration). Once that is done, the candidates can be declared elected without expensive balloting.

AB 1799 #3. Assuming we are dealing with associations where quorum is difficult to obtain, how is forgoing elections really helpful, considering we still need a vote for the IRS Rollover Resolution each year? Last week you stated AB 1799 would mean we can still hold the annual meeting without quorum, but we still need quorum to pass the IRS Rollover Resolution. Which means we might as well still send ballots, because not enough members are going to show up in person. Am I missing something here? -Kevin K.

RESPONSE: Don Haney, CPA, MBA, MS(Tax) sent a response on the IRS Resolution issue:

“Someday I hope clarity prevails on this 70-604 issue:

1. If the HOA files form 1120H, then 70-604 does not apply and not needed.

2. If the HOA files form 1120, then 70-604 may be invoked. But, it is not the best option and could cause more issues than it cures.

In almost 40 years of filing routine to complex HOA tax returns, we have never invoked 70-604.”

*****


Doggy Poo. What about disabled owners with service animals? Do they have to clean up after their dogs?

RESPONSE: Yes, they must clean-up after their animals. Dog feces in common area hallways or lawns present a health hazard. No one wants to step in it and track it into their cars or units.

Blind Clean-Up. Guide dogs for the blind can be taught to go on command. That way, the owner can clear the common areas before issuing the command. In the alternative, the owner can pick it up with a waste bag. The blind are amazingly capable at doing things, including cleaning up after their dogs. They know when their dog is doing its business and have a good idea of where it will land.

Statutes. Under the California Disabled Persons Act, an owner of a housing accommodation can establish terms in a lease or rental agreement that reasonably regulate the presence of guide dogs, signal dogs, or service dogs on the premises of a housing accommodation. (Civ. Code, §54.1(b)(6)(B).) It also states that a tenant is responsible for damage caused by their animal. California’s Fair Employment and Housing Act incorporates Civil Code §54.1 into the Act. (Gov. Code, §12948.) This can be applied to associations.

Case Law. In Prindable v. Association of Apartment Owners (2003) 304 F.Supp.2d 1245, a homeowners association had a “no pet” policy. An owner submitted a request for accommodation to have an emotional support dog named Einstein. The association granted temporary approval while it made a determination, provided that Prindable agreed:

(1) to take full responsibility for Einstein; (2) not to permit Einstein to defecate or urinate at the complex; (3) not to permit Einstein to disrupt the quiet enjoyment of other tenants; (4) not to wash Einstein in the shower provided for residents; (5) not to permit Einstein to go into the laundry room or to stand on the common area furniture; (6) to keep Einstein within unit 102 or within the limited common yard area of the unit at all times; (7) to use the shortest possible route when taking Einstein to and from the unit, that is, through the pedestrian entrance and exit of the garage; and (8) not to walk Einstein on the project grounds or common areas, except when taking him to and from the unit.

Prindable filed a housing discrimination complaint against the association alleging it had failed to make a reasonable accommodation. The court noted that nothing in the FHA precludes the imposition of appropriate rules and regulations designed to lessen the impact of housing a pet in a no pet building. The court ruled for the association.

RECOMMENDATION: Legal counsel should review an association’s rules to make sure they are reasonable. If a disabled or emotionally challenged person claims they can’t clean up after their animal and want reasonable accommodation, legal counsel should be contacted.

Many thanks to attorney Jane Blasingham for researching this issue.

*****

NO NEWSLETTER. Sorry, no newsletter for the next couple of weeks. I’m gearing up for trial and will not have an opportunity to write them.

On the bright side, it will give you more time to watch the presidential election primaries.

Adrian J. Adams, Esq.
 
Adrian J. Adams, Esq.
ADAMS | STIRLING
A Professional Law Corporation

We’re friendly lawyers–boards and managers can reach us at (800) 464-2817 or info@AdamsStirling.com.

EXECUTIVE SESSION MINUTES


QUESTION
: Our manager made an announcement that minutes of our executive sessions should not be approved so that no legal entity can request them because they are simply drafts. Is that correct? Also, are executive session minutes allowed to be disclosed to new board members who weren’t present at the meetings?

ANSWER: Good questions. The first one is problematic.

Practicing Law. First, your manager is practicing law without a license–something that could get your board and management company in trouble. Second, and more importantly, the advice is incorrect. Keeping executive session minutes in draft form does not shield them from discovery. If the association is sued and the plaintiff subpoenas all documents related to your executive sessions, You must produce them. Some information can be redacted from minutes but you must produce them, whether in draft or final form, signed or unsigned.

New Directors. With some exceptions, new directors joining the board have a right to review the association’s records, including minutes of prior executive session meetings. If the director has a conflict of interest, prior executive minutes involving the conflict may be off limits. Your legal counsel can help you decide what to release.

RECOMMENDATION: Always draft your minutes with an eye to how they would sound to a jury if read aloud in open court.

THE
VOLUNTEER

 
QUESTION: Ours is a 60-unit HOA. One resident has served many years as a board member, president, and rule-enforcer. She helped newcomers and everyone with all manner of issues and problems. While president she oversaw the expenditure of hundreds of thousands of dollars to restore the property after years of neglect.

A succession of community managers and vendors came to rely on her to be available, 24/7, for assistance and action. Even though she is no longer on the board, she is our institutional historian. Many consider her the go-to person.

So, what’s the problem? She interferes with operations by telling vendors what to do or not do, delivering rules to residents who violate them, refusing to turn over keys to display cases, etc. What can be done to keep the good and stop the bad?

RECOMMENDATION: Someone who has worked that hard for the community has a sense of pride and ownership in the development. When that happens, it is sometimes hard for them to let go of direct involvement. A couple of board members should take her to lunch for a gentle conversation. Her years of service have earned her deference and praise. Let her know that her actions, while well-intentioned, create potential liability. Tell her you want to protect her from harm she may unintentionally cause herself and the association. Hopefully, that will eliminate the unwanted behavior and preserve the good.

FEEDBACK

AB 1720 #1. Thanks for your efforts to stop this ridiculous attorney bill. It proves that something can be done if we work hard enough. -Bill B.

AB 1720 #2. Many thanks on providing information on these bills that have huge impacts on associations. Government needs to watched & held accountable. -Louise W.

AB 1720 #3. The recent votes regarding AB 1720 and AB 1799 resulted from the collaborative efforts of CACM, CAI-CLAC and numerous calls to action from law firms such as yours and others in the state. When we all work together for the common good of common interest developments, good things happen. -Phyllis H.

AB 1720 #4. I would like to thank you folks for this (my first) newsletter. I am currently a board member and was turned on to your website several months ago and have found it to be a veritable gold mine. I often research questions on your website and am able to bring up my findings at our board meetings. I subscribed to your newsletter after hearing you speak. Your presentation was excellent, informative and I came away with several things our HOA should address. I look forward to future newsletters. Thanks for everything. -George L.

RESPONSE: You are smart and perceptive. You will make an excellent board member.

ASSEMBLY BILL 1799

Assembly Bill 1799 allows associations to forego expensive balloting when elections are uncontested. It passed through the Housing Committee last week.

AB 1799 #1. I have a serious problem with AB 1799. Owners in HOAs need their voice protected. If a board is allowed to cancel an election, how does each owner have a say in the management of the HOA? I serve on our board and I feel that elections are important and ensure democracy. I believe this bill is unconstitutional–ending the voting rights of owners in HOAs. -Diane W.

RESPONSE: I checked the U.S. Constitution and California’s Constitution but couldn’t find anything about association voting rights. Such rights are covered by your governing documents and the Davis-Stirling Act. On a practical level if only two persons are running for two open seats on your board, the outcome is already determined. Allowing an association to declare the two candidates elected will not end democracy in America. It simply saves money.

AB 1799 #2. I assume associations will remember they still need to address any surplus funds remaining in the association’s budget at the end of the fiscal year. Such funds need to be applied to the following year’s budget as provided for in IRS Revenue Ruling 70-604. -Bill D.

AB 1799 #3. So does that mean if we know the election will be uncontested, we can bypass achieving quorum before we can convene an annual meeting? -Jean K.

RESPONSE: You still hold the meeting but quorum is no longer an issue. The board can talk about its accomplishments, publicly thank committee members, and discuss future projects.

AB 1799 #4. We currently have an election scheduled for later this month. There are two candidates for two seats and we do not allow write-in candidates. Given the passage of AB 1799, can we cancel the election and appoint these two candidates? -Rob S.

RESPONSE: The bill passed through the Housing Committee but still must pass through the Legislature and be signed by the Governor. Once that is done, you can forego the cost of uncontested elections. See below.

AB 1799
NEEDS YOUR HELP

Opponents are gearing up to fight AB 1799 on the Assembly floor where the bill will be voted on by 80 Assembly Members this Thursday, May 12.

Your help is needed to pass the bill by communicating right away to the Assembly. Click here to send a letter to your Assembly Member.

OTHER FEEDBACK

Doggy Poo #1. OMG. At our present board member pay scale I am in no way going to be the poop scooper. And then place poop in my pristine car to take to the DNA location and endure the odor on the way. Can you imagine all of the dogs lining up for their DNA test? And who pays? -G. Finley

RESPONSE: The scofflaw dog-owner pays for the DNA testing. If we double the board’s pay, it could be worth your while to scoop poop.

Doggy Poo #2. Civilization as we know it is in trouble! DNA for identifying dog poop? What is this world coming to? -Patricia G.

RESPONSE: The world is going to the dogs. If there was any doubt, just watch the nightly news.


 
Adrian Adams, Esq.
ADAMS | STIRLING
A Professional Law Corporation

We’re friendly lawyers–boards and managers can reach us at (800) 464-2817 or info@AdamsStirling.com.