Pet Weight Restrictions


QUESTION
: Our CC&Rs state that each homeowner may have two pets up to 25 pounds each. A prior board adopted a rule relaxing the restriction to 40 pounds. Is the rule valid? Also, can guests bring pets that go over the weight limit?

ANSWER: Unfortunately, your rule is invalid.

Statute. As provided for in the Davis-Stirling Act, “To the extent of any conflict between the operating rules and the…declaration [CC&Rs], the… declaration shall prevail.” (Civ. Code §4205(d).) If the CC&Rs set the maximum at 25 pounds, then the maximum is 25 not 40. Case law also gives priority to recorded restrictions.

Case Law. In Ekstrom v. Marquesa, the CC&Rs had a provision that protected views by requiring all trees be trimmed so they not exceed the height of the house. The board exempted palm trees because trimming them would kill them. An owner sued and the court found that the CC&Rs were clear and unambiguous and the board’s actions were inconsistent with the restriction. The trees had to be trimmed.

Amend CC&Rs. That means the rule adopted by the board is invalid. To increase weight limits from 25 to 40 pounds, the association must amend its CC&Rs.

Guests. Weight restrictions apply equally to tenants and guests. Some associations prohibit guest pets altogether. I see this primarily in condominiums, particularly highrises. When it comes to guest pet restrictions, they can be adopted by the board as a rule change.

RECOMMENDATION: Your 40-pound rule should be rescinded. That, of course, will create problems with those who already have over-weight pets and others who want them. The only way to avoid legal problems is to immediately put a CC&R amendment before the membership increasing  weight limits from 25 to 40 pounds.

INSURANCE
FOR BAD JUDGMENT

QUESTION: When a majority of board members make a decision which is counter to the Business Judgement Rule, will the minority opposing board members be covered by D&O insurance if the board is sued for unsound decisions?

ANSWER: Yes, that is what D&O Insurance is for–defending directors for errors in judgment. That applies both to directors who voted for a motion and those who voted against it.

Minority Position. For those directors who are outvoted and may be concerned about being sued, they should make sure their opposition is recorded in the minutes. That way, they should avoid being named if the majority directors make a bad decision that results in a lawsuit. Recording their opposition may be especially important if the majority did not satisfy the Business Judgment Rule which requires directors to make decisions (i) in good faith, (ii) in the best interests of the association, (iii) and with the care a reasonably prudent person would exercise in similar circumstances.

RECOMMENDATION: Boards should check with their insurance agent to make sure their insurance has appropriate limits and a minimum of exclusions.

Thank you to Demetrious Xanthos of Sax Insurance for his input on this question.

ARCHITECTURAL
CONTROL

QUESTION: Could you address the issue of exterior architectural control differences with a PUD and a condominium? For example: can a PUD (townhouse style) specify the windows, garage doors and front doors used in an upgrade?

ANSWER: The architectural issues between condos and PUDs are significantly different.

Condominiums. Condos care about alterations inside your unit because everything surrounding your cube of air is owned in common. That means you cannot change the structure without first getting the association’s permission. Alterations to plumbing and electrical lines are also restricted because they can dramatically affect neighboring units. Thus, it requires approval by the association.

Planned Developments. Planned developments generally don’t care what you do inside your house. Instead, they care a great deal about exterior appearances. As a result, they regulate the color of paint you use, your fences, doors, windows, garage doors, landscaping, tree houses, and anything else that can be seen from the street or by your neighbors.

Hybrids. Townhouse developments can be a bit confusing. A townhouse is a form of construction not a form of ownership. Townhomes can be legally structured as condominiums or as planned developments. If structured as condominiums, homeowners might own air space or the entire structure depending on how it is defined. Similarly, maintenance might be defined  narrowly or expansively. It is not uncommon for a homeowner to own the structure but the association to be in charge of painting and roof repairs.

Whether a townhouse is defined as a condominium or single family home, the exterior of the structure is controlled by the association. In all cases, the association can specify the type, color and quality of windows, garage doors and front doors used by homeowners when they upgrade.

RECOMMENDATION: If your association has not already done so, it should develop a maintenance chart in addition to clearly defined architectural standards so there is no confusion over what owners are responsible for and what they can and cannot do regarding improvements.  


FEEDBACK

Representation. Can an attorney redoing our CC&Rs represent an owner suing the association for violating the Davis-Stirling Act? -H.R.

RESPONSE: Attorneys representing a client are not supposed to represent someone else against their client. I suspect the State Bar would deem it a violation of Rule 3-310 of the Rules of Professional Conduct.

Board Qualifications. I am appreciative of your firm’s newsletter. I find each one informative on multiple levels. My husband serves on our board of directors and is the treasurer. Can I, as his wife and 50% owner of our unit, run for the board while he is a board member? Our governing documents are silent on this issue. -Sigrid W.

RESPONSE: If your bylaws do not restrict it, co-owners can serve on the same board at the same time. For tiny associations, that is often a necessity. Large associations, however, frequently amend their bylaws to prevent co-owners from serving at the same time.

Absentee Owner. We have a board member who owns four units and does not live on site. Can we change our bylaws so people who do not live in the development cannot be on the board? – Patricia H.

RESPONSE: Yes, you can amend your bylaws to make residency a requirement for serving on the board.

New Roofs. Some of our neighbors have not yet replaced their original roofs; the houses are 25 years old. The board advises we cannot enforce architectural requirements to notify the homeowners their roof must be repaired/replaced. Their position is the high cost of replacement cannot be forced. We live in a fire prone area and have complied with the fire authorities to create defensible zones. Are there Davis Stirling rules that can be applied? -S.C.

RESPONSE: As provided in Civil Code §4720, associations cannot put aesthetics over safety when it comes to roofs. Associations are prohibited from requiring owners to install or repair their roofs in a manner that violates Health & Safety Code §13132.7.

Developments in high fire severity zones must allow for at least one type of fire retardant roofing material that meets the requirements of the Health and Safety Code. When boards emphasize cost over safety, it rarely leads to good results. If a fire were to leap from roof to roof burning down multiple homes and the board is sued as a result, they may have trouble explaining their decision to forego safety.

Hindenburg. Adrian, if you don’t read the association column in the Sunday LA Times, you don’t know that the Times today urged condo owners to book seats on the Hindenburg. -Ilse N.

RESPONSE: Sadly, the LA Times is often hostile to community associations. They frequently present an unbalanced view of the difficulties faced by volunteer boards and committees. Their standard solution is to sue boards. So I’m not surprised they favor disrupting association operations by injecting lawyers into board meetings.


 
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.

Interrupting Other Directors


QUESTION
: Can a board member be censured for continually interrupting other board members at meetings? She has been warned over and over on this issue. What exactly does censuring mean, what does it accomplish?

ANSWER: Yes, boards can censure fellow directors for disrupting meetings.

Orderly Meetings. Board meetings are supposed to be run in an orderly fashion so as to accomplish the business of the association. Rules of parliamentary procedure were created for that purpose. If one director is constantly disrupting meetings, business is delayed and directors become frustrated and either cease voicing their opinions or, worse, resign from the board.

Censure Defined. A censure is an expression of disapproval. Its purpose is two-fold. A censure is intended to discourage further bad behavior by an errant director. And, it distances the board from potential liability. If a director behaves badly (verbally abusing homeowners, signing contracts without authority, etc.), silence by the board can be interpreted as approval. Then, when a lawsuit is filed, the plaintiff names the entire board because it “endorsed” the bad behavior. A censure serves as evidence the board was not complicit in the behavior.

Procedure. A censure can be imposed at the meeting where the behavior occurred or the board can schedule a noticed hearing. In the case where a director is disrupting the meeting by interrupting other directors, the censure can be imposed immediately. Under Robert’s Rules of Order,

in any case of an offense against the assembly occurring in a meeting, there is no need for a formal trial provided that any penalty is imposed promptly after the breach, since the witnesses are all present and make up the body that is to determine the penalty. (Robert’s Rules, 11th ed., p. 646.)

Minutes. If done in an open meeting, the censure is recorded in the minutes of the meeting and becomes a public record for the membership’s review. If it occurs in executive session, the minutes are not open for review but the action can be reported in the executive session summary recorded in the next open meeting minutes. (Civ. Code §4935(e).)

Other Actions. In addition to expressing disapproval of a director’s behavior, the board can remove the director from office (president, secretary, treasurer) and from any committees the director may be on. If the director is particularly abusive, the board can seek to recall him/her from the board.

RECOMMENDATION: Try to resolve the matter with a verbal warning to the director that the board may have no choice but to censure her if she continues to disrupt meetings. If the warning does not work, the board must be prepared to impose a censure.

ABSENTEE HALF-OWNER
ON THE BOARD


QUESTION: Does a member have to hold 100% title in the unit to be eligible for the board of directors? If the candidate shares 50% title with another and does not reside in the unit but leases it, is the member eligible to run for board?

ANSWER: Unless your governing documents state otherwise, directors do not need to be members. That means someone not on title can serve on the board.

Ownership Interest. If your governing documents require directors to be members but don’t set an percentage ownership interest, someone with a 1% interest can serve on the board. When I restate documents for associations, I set a minimum ownership interest of 10%. That way, directors have more of a stake in keeping the development in good shape.

Residency Requirement. If your governing documents are silent, then residency is not a requirement for someone to serve on the board. I include this as an option when restating bylaws. Some associations want it. For others, it may be an impossible requirement if the development is a resort with few if any permanent residents.

RECOMMENDATION: Most associations lack sufficient director qualifications and need to update their bylaws to meet current Davis-Stirling election requirements. Contact me if you need assistance.

 

BUDGET
ADJUSTMENT


QUESTION:
I know the association is required to provide members with an annual budget report. During the year when there is no change in assessments, can the board adjust the budget by increasing one line item and decreasing another by the same amount effecting no overall increase in the budget amount and not recirculate the budget to the members?

ANSWER: Yes, the budget can be adjusted to reflect truer numbers so long as it does not affect anyone’s assessment. The budget serves as a spending guideline. It’s what the board projects for the year.

Line Item Adjustment. If, midyear, you learn that your insurance premiums dropped by half but your utility rates increased, you have two choices. You can continue with the same budget line items or adjust them to reflect the new reality. The change should be noted in the minutes of the meeting where the board approved the adjustment.

Note. Most associations leave the budget as-is and make appropriate adjustments in the next year’s budget.

FEEDBACK

Mental Illness #1. Genius and hilarious…thank you for your fantastic newsletter! -Maureen B.

Mental Illness #2. Adrian’s last entry is hilarious! Thanks for improving my rainy Sunday! -Jean S.

Mental Illness #3. In my position as a Circuit Rider for not-for-profit associations, I often address boards of mutual water companies and guide them through the sometimes difficult understanding of their roles and responsibilities as board members. While some of the laws for MWC’s are different, your weekly newsletters have helped me to not only gain some insights and points to ponder but your sense of humor has made me laugh out loud more often than not. Thank you! I find that humor will get you further down the road of life than any other attitude and I especially enjoy reading yours. Keep up the good work and please keep these newsletters coming. -Angela W.

RESPONSE: Without humor in our line of work, we would all end up in a psych ward.


 
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.

Annual Audits

QUESTION: We have a property management group that does our bank deposits, collects monthly dues, writes the checks for all payouts, does our taxes and makes out monthly statements on deposits, bills paid and deposits. We hand these out to all separate interests…do we still need an annual audit?

ANSWER: If your governing documents require an audit, then yes you need one. If your documents are silent and your association’s annual gross income exceeds $75,000, the Davis-Stirling Act requires, at a minimum, a review of your finances by a Certified Public Accountant for distribution to your membership within 120 days after the close of your fiscal year. (Civ. Code §5305.)

Internal Controls. As a matter of prudence, if you have one person or entity handling all of your money and generating all of your financial statements, you need an independent third party looking over your books. While audits and reviews don’t always catch embezzlement, they sometimes do. In addition to performing a review, your CPA can suggest internal controls to reduce your risk of loss.

MISCELLANEOUS
EXPENSES


QUESTION
: We are a very small association with five board members. Two board members are questioning the board’s authority to spend for miscellaneous expenses without membership approval. Another board member believes the board has authority under the powers and duties of the board to manage the association. The amounts in question are small (a few hundred dollars maximum) and are not for capital improvements.

ANSWER: Boards do not need owner approval for every dollar they spend. Directors are elected to handle spending decisions because they are closest to the action and have a better idea of what needs to be done. They also have a fiduciary duty to act in the best interests of the association, whereas individual members do not. Directors must use their business judgment on all spending matters and provide an accounting to the membership for all monies received and spent. Unless your governing documents state otherwise, the board sets the budget and spends the money.

ASSEMBLY BILL
1720


QUESTION
: AB 1720 was amended on April 4th as follows:

“The board shall permit an attorney who a person who represents a member to attend any board meeting that the member is permitted to attend, regardless of whether the member attends. Where possible, the The member shall give the board at least 48 hours advance written notice that his or her attorney a person representing the member will attend the board meeting.”

Since some attorneys are also persons, I assume your position on this legislation has not changed? Thanks, in advance. I enjoy your newsletter. -Steven A.

RESPONSE: Although there is disagreement that some attorneys are also persons, you are correct–I remain opposed to the bill. The changes by Assemblyman Wagner make the bill worse. Not only does it preserve the expense and disruption of attorneys attending board meetings, it now opens the door to outsiders attending the association’s meetings.

Arguments in Favor. Supporters of the misguided bill make two arguments: (i) boards are bullies who need lawyers to bring them into line, and (ii) the “frail and disabled” have no voice. Neither argument has any merit.

1. Bullies. The bully argument is largely untrue–98% of the boards function just fine. When bullies rear their ugly heads, they are small in number and occur on both sides of the aisle. Plenty of boards suffer through the bullying of individual homeowners. Owners with bullies on their boards have recourse–they can elect a new board. Instead of sending lawyers to meetings, a lawyer’s demand letter to the board is just as effective without raising everyone’s dues and discouraging volunteerism.

2. Frail & Disabled. The “frail and disabled” argument has no merit whatsoever. Members who are unable or unwilling to attend meetings have multiple remedies. They can:

• Write a letter to the board;
• Attend by phone;
• Send a member on their behalf;
• Request IDR (with or without a lawyer);
• Request ADR (with or without a lawyer);
• Have their lawyer write a letter.
• File an action in small claims court.

To the seven remedies listed above, Wagner wants to add one more–inject lawyers directly into meetings, something the courts have already determined as inappropriate in SB Liberty v. Isla Verde.

CONCLUSION: Mr. Wagner’s bill will produce high costs with little or no corresponding benefits. Moreover, the resort to deceptive wording so as to sneak lawyers into meetings is disappointing. We need to keep writing letters and emails opposing the bill and sending them to OpposeAB1720@caiclac.com.

FEEDBACK ON
MENTAL ILLNESS


Mentally Ill #1
. Thank you for this. I have long wanted to see the issue addressed from a legal standpoint. We have had similar problems – one or two as dramatic as the situation described in the newsletter. The key is to focus on behavior, not the illness. Don’t make the illness part of the conversation. It’s not really the point and it can get an association into hot water quickly. -S.D.

RESPONSE: Well said.

Mentally Ill #2. Am wondering if you need to mention the Federal Fair Housing Act that prohibits discrimination against persons with a perceived or real disability (physical or mental) in the context of what steps are required and advised for the HOA and what is required of the owner when certain information is requested by the HOA…and what are the consequences to the HOA if they don’t follow those steps and what are the consequences to the owner if they don’t respond to related HOA requests? -Peggy S.

RESPONSE: Associations cannot discriminate against owners with a disability nor can someone with a mental illness cannot disrupt, threaten, and destroy the quite enjoyment of others. Failure to address the problem will result in reduced property values for units surrounding the mentally ill resident. It could also result in a lawsuit against the association for failure to stop the nuisance. There must be a balanced approach. The steps I described last week provide that.

Mentally Ill #3.
One should be aware of the protections of the ADA and California’s fair housing laws including the reasonable accommodation process. Once this process is requested, it is another dimension that confounds an already unfortunate situation for all involved. This certainly could be the intervention that provides relief for his suffering. The last thing this person needs is to be homeless and mentally ill. A good neighbor would do something for a sick neighbor, do you agree? More than a mutual benefit corporation, are we not also a community? – Stephen F.

RESPONSE: Neighbors and HOA boards are rarely equipped to handle these kinds of problems. If members cannot sleep at night because the person is yelling at the top of his lungs, the board cannot look the other way and pretend nothing is happening. Mental illness does not give people a free pass to do whatever they want. As for making someone homeless, there are plenty of safeguards in the system to prevent that from happening. There must be compassion–compassion for the mentally ill and compassion for neighbors who are enduring disruption and potential harm to themselves and their children.

Mentally Ill #4. Some well-meaning parents are against the mental health profession so they try to deal with the problem the best way they can. This isn’t the normal situation where violation letters should be sent to the parents before calling them to a hearing. Other residents have the expectation of quiet enjoyment their home and it is up to the HOA to diligent and work towards that goal. -John A

RESPONSE: Even though violation letters will likely have no affect, the board won’t know until it tries. That’s why the paper trail I described is so important. If the matter ends up in court, the association can show that it made every effort to resolve the matter internally. These kinds of issues take time, money, and lots of evidence.

Mentally Ill #5. I’ve been on the board for over 20 years, almost always with very congenial fellow members, but I do wish someone capable would run. A few years ago I didn’t run which was all some really horrible owners needed to get a foot in the door. They (both husband and wife) plus an elderly man who had the onset of dementia managed to run up huge expenses and deferred maintenance on our homes to the point where it’s costing considerably more now to fix. All I hear is, “You do such a wonderful job!” meaning – short of a major stroke or death – I’m stuck on the board. I realize I’ve been venting. Sorry about that but it felt sooo good! – Nancy H.

RESPONSE: Subjecting yourself to the punishment of serving on a board is a good kind of mental illness. We need more of that.

Mentally Ill #6.
Isn’t this the same issue for owners that develop dementia or Alzheimer’s? These individuals can cause harm to themselves and others. For example, they can turn on the stove or smoke and cause a fire that could impact other people and homes. They could have a car and license but could no longer be able to drive. It seems important for HOAs to maintain records, especially emergency contacts, for all owners and tenants. And your recommendation for HOAs to maintain a paper trail and re-examine governing documents to address these issues are on point. -Diane W.

Mentally Ill #7. We have a building with a woman who has mental health issues. Her family has been working for several years to gain control to help her, but they have hit wall after wall with those who are supposed to help. The most recent experience was a broken toilet tank in the unit. The unit has been flooded for God knows how long, the sinks and tub are stopped up, crap all over the floor throughout the unit and the person from Adult Protective Services says the unit is habitable and would not remove her from the unit! The family has been begging for help for more than 4 years and the agencies haven’t done a damn thing to help the person or her family. The whole unit will have to be renovated. The person stands outside and yells but has never hurt anyone. I fear for her safety and only want what is best for her. It is unfortunate that the courts won’t take the family seriously and help out. As a manager it can be difficult to separate the personal from the professional, especially when you know the lengths a family has gone through to try and correct the problem. -Dee Dee R.

RESPONSE: It is sad when the system doesn’t work. Everyone suffers.

Mentally Ill #8. About seven years ago in Washington, DC I had an owner who was screaming through the walls to the next door neighbor that she was going to kill them, cut them up and eat them. Various screaming rants at all hours of the night, over and over and over. We sent letters to no avail. We called Adult Protective Services and they kept her for the involuntary 72-hour evaluation time two or three times in a six-month period, to no avail. Then one day a resident was eating lunch at a nearby restaurant and overheard her make a threatening remark about Obama. The Secret Service was called and within 24 hours she was residing at St. Elizabeth’s Mental Ward, I guess permanently, because she didn’t come back. -Ed S.

RESPONSE: The Secret Service? I hadn’t thought of that angle. Thank you for the tip. Please excuse me while I make some phone calls.


 
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.

Mentally Ill Resident

QUESTION: We have a mentally ill homeowner who does not take his medication. His screaming and rants are scaring other owners. Two owners have lost tenants as a result. Young women in the complex are scared. Police and security have been called countless times and say they can’t do anything because he has not threatened anyone. He stays up all night yelling, screaming and using foul language. He is an owner and his family makes sure his dues are current. Is there anything we can do??

ANSWER: My partner Jasmine Hale spoke on this issue at a recent law conference in New Orleans. From what you described, it is clear the parents are warehousing their son in your association. You’re a substitute for a more costly mental institution.

Paper Trail. To properly address the issue, you need to create a paper trail. Residents and management should keep logs of their interaction with the problem owner and submit them to the board so there is a record of the frequency and seriousness of the problem. This can then be used for everything that follows.

Health Services. There are various social service agencies you can call that are sometimes helpful. Counties generally have programs such as adult mental health services and adult protective services. They can assist those with physical, mental or developmental disabilities. Unfortunately, they generally require the cooperation of the person with the problem, which is not always forthcoming. Still, it’s worth a try.

Family. You might contact his family but even that has problems. Because of medical privacy laws, you could find yourself in hot water if you disclose private aspects of his medical condition to others. Even so, on occasion I have sent carefully worded letters to parents that prompted action. One resulted in removal of the problem child and sale of the unit. Another prompted a gift from the parents. They sent me a bird.

Hearing. If the polite avenues fail, the board can initiate disciplinary action. The following steps should be followed: (i) send a cease and desist letter, (ii) hold a hearing and levy fines, (iii) offer ADR, and finally, (iv) file a lawsuit. Depending on the level of mental illness, steps one two and three may have no effect on the person. Even so, they are important for showing the court that the association exhausted all other avenues before taking legal action.

Protective Order. If you are forced to file a lawsuit, the complaint will be for breach of the nuisance provision of your CC&Rs and possibly harassment (depending on the circumstances).
If the person poses a threat of harm to others, the association can seek a temporary restraining order without notice to the opposing party. (Code Civ. Proc. 527(c).)

Injunctive Relief. With the facts you described, you will be seeking a preliminary and permanent injunction. The injunction would likely include a stay away order, an order to cease creating a nuisance, and a communication protocol. Even then, depending on his mental illness, he may not understand the order or, if understood, unable to comply. That means you’re back in court again.

Amend CC&Rs. You should also consider amending your CC&Rs to give the association the right to evict tenants who violate the CC&Rs. This is helpful when the problem person is a tenant.

RECOMMENDATION: You should work with legal counsel to address this difficult problem. Unfortunately it will be slow and costly but you must follow the steps I described if you hope to be successful.

MORE ON
ASSEMBLY BILL 1720


As with last week’s responses, there were too many to print. Feedback is running about 20 to 1 (twenty against Wagner’s bill for each one in favor).

The handful of readers in favor of lawyers attending board meetings have a consistent theme–they claim their board is a bully. One took a different approach which I cover in Hindenburg #2.

When someone claims their board is a bully, there are two possibilities. The first is that the board is simply carrying out its duty to enforce the governing documents and the person feeling pressured is the one breaking the rules. The scofflaw is the problem not the board.

The second possibility is that the board IS a bully. The solution to that is fairly straightforward–elect a new board. Sending lawyers to board meetings is nothing more than a costly side show.

If you have not yet written an email opposing AB 1720, please do so and send it to OpposeAB1720@caiclac.com.

FEEDBACK


Hindenburg #1. I was a little Jewish girl on my way home from school for lunch in Paterson, N.J. when a shadow was cast over the sun. I looked up and saw the Nazi Swastika on the Hindenburg as it glided low for a landing. In a burst of emotion, I cursed the airship and wished that it would crash. Imagine my horror when, on my arrival home, I turned on the radio and heard of its crash. For many weeks I walked around in an agony of guilt, feeling that my wish had caused the death of so many people. From that I learned to respect my awesome power and never to wish for total destruction again! -Gloria D.

RESPONSE: If you could channel your awesome power into persuading Mr. Wagner to withdraw his bill, we would all be grateful. Once that’s done, I have some other projects for you.

Hindenburg #2. What about frail seniors and the disabled who are unable to get to board meetings because they don’t have the stamina to get to the meeting or because they are bedridden? Who should speak for these homeowners at board meetings? -C.H.

RESPONSE: Frail and disabled seniors don’t need to spend their limited resources sending a lawyer to a board meeting. They have seven other options. (i) They can speak for themselves by sending a letter to the board. (ii) They can call into the meeting and address the board by phone. (iii) A neighbor can attend the meeting and speak for them. (iv) They can request IDR and a board member can go to their unit to hear their request. (v) They can request IDR and have a lawyer attend the session. (vi) They can have a lawyer write a letter to the board. (vii) They can file an action in small claims court. All of these can be done without disrupting association operations and raising dues.

Thrown Under the Bus. In 30 years of working with associations I have never had one refuse to accommodate an owner who was too sick, frail or disabled to attend a meeting. Wagner’s bill is an expensive fix in search of a non-existent problem. Supporters of the bill are throwing under the bus those who can least afford increased dues, the elderly and disabled.

Hindenburg #3. Your balanced inclusion of feedback comments/questions in favor of passage of Mr. Wagner’s bill was especially helpful, as original coverage didn’t detail possible advantages of such legislation. I’m now convinced that associations should not only campaign against this legislation but prepare for the worst if it passes. -April M.

RESPONSE: You should notify all members of your association of this problem bill and ask them to send a “Vote No” email to Chairman David Chiu. Otherwise, an increase in their dues will likely follow passage of this bill. Send the following to OpposeAB1720@caiclac.com:

Honorable David Chiu
Chair of Assembly Housing & Community Dev’l
State Capitol
Sacramento, CA 95814

Please vote “NO” on AB 1720 (Wagner).

Hindenberg #4. This bill will have a chilling effect on boards and turn basic governance into an adversarial process. In the words of Rodney King, “can’t we all just get along.” This will financially impact associations that need their counsel at each meeting where a unit owner brings his or her own counsel. This will also create an uneven playing field as those who can afford counsel to go to meetings will have leverage that those who cannot afford counsel won’t. -Joel Meskin, Risk Management Expert, McGowan Program Administrators

RESPONSE: It should be no surprise that a group funded by lawyers supports the legislation. They argue that lawyers attending meetings will not increase HOA dues. That may be true in an alternate universe but not in ours. This group clearly favors lawyers over homeowners.

Hindenburg #5. Most have never heard of Gideon John Tucker (1826–1899). Tucker was an attorney, newspaper editor and politician. In 1847 he was admitted to the bar. Although sometimes attributed to Mark Twain, it was Tucker who wrote the immortal words, “No man’s life, liberty or property are safe while the Legislature is in session.” Members who want legal representation already utilize attorneys without interrupting meetings and violating State Bar rules. I am requesting a “NO” vote on AB 1720. -Richard P.

NOTE: Richard provided an interesting history of Gideon Tucker which, unfortunately, space would not allow.

Hindenburg #6. Those who support the bill and cite out of control and domineering boards and managers have access to your website which gives details on how to recall a board. -Erica T.

RESPONSE: For some reason, advocates think lawyering up will fix all problems. It’s much like the misguided medical practice of bloodletting. In December 1799, retired President George Washington went horseback riding in freezing rain and snow. He fell ill and doctors were summoned. They believed they could cure him by getting rid of his “infected” blood. They proceeded to drain 40% of his blood and were surprised when he died. Wagner’s bill takes a similar approach. His solution bleeds everyone of their money and kills any incentive for volunteers to serve on the board.

Hindenburg #7. Could you continue to notify us of changes made from the original proposal if it goes further in the legislative process? -Terry D.

ANSWER: I’m on it.

Hindenburg #8. I would enjoy sitting in an HOA board meeting full of attorneys and watch board members try to threaten and bully their points, directions, and actions upon a community. -Ted S.

RESPONSE: There is a much less expensive alternative. It’s called an election.

Hindenburg #9. AB 1720 will worsen the already exasperating world of the HOA architectural committee and further discourage anybody from volunteering to be a board or ARC member. Dropping a shark in the volunteer tank would thin the pool even more and make the job even more undesirable. -Mike M.

RESPONSE: I agree. It’s fairly obvious that putting sharks into a tank of swimmers does not cause more people to jump into the tank…it causes everyone to jump out of the tank. If they stay in, they get eaten. Only the sharks benefit. Dropping lawyers into board meetings will have the same effect…volunteers will bail out of the pool.

Hindenburg #10. For those who favor this bill because they have “bad” board members should stop complaining and volunteer to serve on the board. It’s a thankless job and the pay is paltry. Our board can never get enough folks to volunteer to fill the vacant seats. Many of us stay on because of that, not because we want to be King or Queen of the complex. -Suzi N.

Hindenburg #11. If this passes, how would you predict that it will hold up when challenged in court? -Dave K.

ANSWER: There will be a spike in litigation but I doubt any of it will be directed against the statute. Lawsuits and threats of lawsuits will all be directed against associations. That means insurance policies will become more costly and many will be canceled.

Hindenburg #12. Just a suggestion, since Mr. Wagner has blocked all incoming e-mails concerning this bill why don’t you suggest that the emails that were blocked by Mr. Wagner be forwarded to the Chairman also? -Ralph W.

RESPONSE: Readers can forward their blocked emails to OpposeAB1720@caiclac.com.


Hindenburg #13. Thank you for your support of nullifying this stupid Hindenburg bill. You yourself could have been earning a couple hundred dollars travel time each way to and from meetings and then OMG the actual pay for sitting there at a meeting. Actually the view for you could be entertaining as all of our five volunteer board members try to be the first member to hit the exit door. -Gloria F.

RESPONSE: I shouldn’t complain. If Wagner’s “Full Employment for Lawyers” bill passes, I will need to hire more lawyers.


 
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.

Hindenburg Feedback


I received far more feedback than I could print. So much so, this newsletter is devoted entirely to feedback on Don Wagner’s Hindenburg bill (AB 1720).

Blocked Emails. Readers were frustrated because Mr. Wagner blocked their emails. Following is feedback from one of many:

If Wagner is not accepting comments, why he is making laws and regulations affecting all California HOAs? As a board member, I do not agree with his proposal. -Martha M.

RESPONSE: Since Mr. Wagner seems uninterested in our input, we can go to the Chair of the Assembly Committee that will consider his bill. You can write your own email or cut and paste the sample below and send it to OpposeAB1720@caiclac.com. Your emails will then be delivered to the Committee. Make sure to add your name and address to the bottom of your email.

*****

Honorable David Chiu
Chair of Assembly Housing & Community Development
State Capitol
Sacramento, CA 95814

Dear Chairman Chiu,

Please vote “NO” on AB 1720 (Wagner). The bill mandates that owners’ lawyers can attend homeowner association board meetings. Doing so will increase legal expenses and chill open discussion of homeowner business.

This is an unwarranted disruption of operations and will greatly intimidate volunteer board members.

In addition, the bill violates State Bar Rules of Professional Conduct which forbid one party’s attorney from addressing another party without permission from that party’s attorney. (Rule 2-100.)

Members who want legal representation already utilize attorneys without interrupting meetings and violating State Bar rules. AB 1720 is harmful and unnecessary.

Please vote “NO.” Thank you for considering my position.

*****

Following is a sampling of the feedback I received:

Hindenburg #1. Please do NOT leave this bill alone. Keep on it. This bill is one of the single worst ideas I have ever heard. To the extent a legal representative shows up at our meeting, we will not discuss anything that could possibly relate to any reason as to why they are there unless our own legal representative is present. To that end, more work instead of less will be discussed in executive session (obviously there is a potential for pending litigation or else that legal representative would not be present) and transparency would be greatly diminished. -Randy W.

Hindenburg #2. Can’t believe this idiot Orange County Assembly person is proposing something like this! He must have a connection with lawyer lobbyists that are looking for another way to make money on our backs. -Kathleen E.

Hindenburg #3. Your newsletter is brilliant. I read every one and chuckle at your delightfully amusing comments. Thank You! -Liz D.

Hindenburg #4. Should the Wagner bill pass, what proof of legal representation may (or should) the board request to verify the standing of an attorney attending a board or association meeting? -Carol C.

ANSWER: Rather than get into a tussle over credentials, accept him/her at their word and immediately adjourn the meeting and reschedule to another date when the association’s attorney can attend.

Hindenburg #5. As always, I enjoy reading your newsletter. In regards to Assembly Bill 1720: I can see how frustrated homeowners get with property managers or board members controlling others. In this case, AB 1720 will cause these bullying volunteers and property managers to shape up or ship out. I’m for AB 1720. It’s time for ethical non-bullying people to take charge and for the unethical bullying people to be held accountable. -Ted S.

RESPONSE: Using a canon to kill flies also works. AB 1720 is in the same category. If an unhappy owner wants to make a statement, their lawyer can send a letter. It’s a lot less costly and disruptive.

Hindenburg #6. When the government can screw up your life they will make it a top priority. When it comes to actually solving a problem, they might get to it someday. -Finn M.

Hindenburg #7. It is my understanding that the Hindenburg was filled with hydrogen because the U.S. refused to sell non-flammable helium to Germany. Am I wrong? -Jim K.

RESPONSE: You’re right. Helium was hard to obtain, which made it more expensive. So Zepplin decided to use less expensive but highly explosive hydrogen. Cost trumped safety. That’s always a good business model…until it isn’t.

Hindenburg #8. As frightening as it is to contemplate, the Hindenburg was a rigid frame airship which means the passengers, who had individual private suites and access to a variety of public dining and social areas, were actually inside the envelope and not strapped to its underside. That’s why the Hindenburg was so incredibly roomy compared to the frameless blimps we see in the air today. -David K.

Hindenburg #9. I am president of an HOA and an attorney. If AB 1720 passes, I will commence the practice of starting each board meeting by announcing the HOA is represented by legal counsel, giving the name and contact information for that attorney, and instructing any legal counsel present at the meeting to communicate solely through our legal counsel. It will defeat the purpose of AB 1720. Moreover, if an owner’s legal counsel remains at the board meeting at that point and communicates at all with the board during the meeting, they are violating Rule 2-100 of the Rules of Professional Conduct and can be reported to the State Bar. -Neil W.

RESPONSE: That works.

Hindenburg #10. What about small associations like ours? We don’t have legal counsel. We hold our board meetings in an owner’s unit. What are we supposed to do when a lawyer shows up at a meeting? -Roy M.

RESPONSE: Under Wagner’s bill, you must let the lawyer into your unit where he can threaten a lawsuit, scare the daylights out of everyone, and do it all in the comfort of your own home. This is not a good bill and needs to be stopped.

Hindenburg #11. You may be right about the potential problems for associations when owners can bring attorneys; but consider the opposite case where a board is itself the intimidating or manipulative body that takes action to disqualify opposition candidates and then says “lawyer up” to any complaining member? That’s what has happened here on occasion. What recourse is there? -Svein F.

ANSWER: A lawyer letter to the board is quite effective. There is no need to disrupt meetings by sending in lawyers. When that happens, everyone stops attending or brings their own lawyers. An empty meeting or one filled with lawyers–neither is a good outcome.

Hindenburg #12. What is your view when one or more owners are in fact “lawyers”? Especially if said owners are not following rules, policies, or committee recommended practices. When “lawyer owners” speak for or against items in forums are they not intimidating to board or other owners? – Clyde B.

RESPONSE: Homeowners who are lawyers can attend. They are attending meetings as owners. If they are retained by another homeowner and switch hats so that they are now attending as a lawyer, that’s a problem.

Hindenburg #13. I’d be curious (and I’m sure so would your other readers) as to what purpose this law would serve if approved, what problem is it trying to solve? Or is this just a giveaway to the Assemblyman’s attorney donors? -Kevin W.

RESPONSE: It solves no problems–it only creates them. What’s next? The state orders that lawyers attend committee meetings and go on maintenance walks?

Hindenburg #14. I’ve served on business boards which, upon appearance of an attorney, immediately suspended the board meeting. Highly threatening, disruptive and unnecessary. A possible plaintiff can take action in any event. -Larry F.

RESPONSE:
The state ordering attorneys at meetings is highly disruptive and completely unnecessary.

Hindenburg #15. I can’t imagine why anyone would introduce legislation of the nature Paul Wagner did unless it is to drum up business for the legal profession. Mr. Wagner is not doing HOAs any service with his proposed legislation. Many people are intimidated by lawyers which will likely result in fewer people willing to serve on a board. Some lawyers are very bombastic and it will create chaos. Such lawyers will use the Bruce Cutler approach with boards and ‘Brucerize’ them. Some HOAs will want to have the association’s lawyer attend a board meeting where an attorney will be present. This could result in the board finding it necessary to increase the monthly dues to cover legal costs. Everyone loses except the lawyer representing a homeowner. -John A.

RESPONSE: I had to look up Bruce Cutler. I discovered he is the criminal defense lawyer who defended mobster John Gotti and is known for his hyper-aggressive courtroom antics. I don’t think we will get any mob lawyers attending board meetings but I have no doubt we will get aggressive ones. You’re right, only the lawyers win if this passes.

Hindenburg #16. As a homeowner…..I SUPPORT this bill 100%. Board attorneys come to board meetings, so should a private attorney be allowed to attend. Right now HOA boards one sided against homeowners who have no choice in being members, and no representation from the government when boards are abusive and non conforming to the governing documents. I pray this bill is passed. -Rebecca C.

RESPONSE: You’re dead wrong on members not having representation. They already have the right to hire lawyers and, believe me, they do. We deal with threatening letters all the time and advise boards on the proper course of action. That might mean telling a board to shape up or advising them how to deal with a bully homeowner. Creating a lawyer free-for-all at board meetings is not the answer.

Hindenburg #17. Quite honestly, I am in favor of the Wagner bill at this point. I am a retired Los Angeles Police Detective 31 years and wonder why an unqualified person was re-elected and as president told me, expletive, he never heard of the Davis-Stirling Act and would run the association like he wanted to. -Harold R.

RESPONSE: The problem you describe is one created by and perpetuated by the membership. They elected him because no one else is willing to sacrifice their time to serve on the board. Sending lawyers to board meetings will not fix this problem, it will only make it worse.

Hindenburg #18. As the past president of an HOA I know that having an attorney at board meetings would severely limit participation not only in the meeting but on standing committees and the board itself. Thank you for drawing our attention to this important matter. -Joshua R.

Hindenburg #19. Nanny GOVT in our community. Another law mandating how we should live in our neighborhood. Four other dispute remedies already exist. Where’s the big problem? -SD

RESPONSE: Wagner is attempting a costly fix a problem that does not exist.

Hindenburg #20. AB 1720 would violate our bylaws in that only shareholders are allowed to attend board meetings of our coop. I can just see how a shareholder close to being adjudged a vexatious litigant would bring activities to a halt. -Eric D.

RESPONSE: Mr. Wagner’s bill will override all governing documents in the state and invade private meetings. He must think associations have governmental immunities and board members are paid professionals with large staffs. Nothing could be further from the truth. Boards are staffed by volunteers who would just as soon resign than be further abused by an invasion of lawyers. This bill will not benefit anyone except lawyers.

Hindenburg #21. Regarding the latest newsletter (which I find truly worthwhile reading), allowing lawyers into the inner sanctum comes about because of the abuse of both the board of directors and some of the association members who don’t like the rules. Boards use executive sessions to obscure too many important issues. Why can’t we all get along? -Ken W.

RESPONSE: Allowing lawyers to attend board meetings will only drive more issues into executive session. AB 1720 does not solve problems, it only creates more.

Hindenburg #22. Great newsletter! The Hindenburg was a great analogy. -Laura W.

Hindenburg #23. Thank you for your newsletter regarding AB 1720. I agree with all your comments. I receive a lot of praise from homeowners for serving as a board member. I recognize that things don’t always run smoothly in our community of 330 homes and I stay cheerful when problems have to be dealt with. But, as a volunteer, I’d resign the second a homeowner sent their lawyer to a board meeting. Nobody is paying me for that kind of hassle! –Mark H.

RESPONSE: That is exactly my concern. It is already incredibly difficult to find qualified members willing to sacrifice their time to serve on the board. Who would want to do it with lawyers publicly breathing down their necks?

Hindenburg #24. The bill does not state that a member’s attorney can speak at a meeting; neither does it declare said attorney may not speak at a meeting. The specter of bullying and lecturing seems less than factual. –Dan M.

RESPONSE: By the nature of our profession, lawyers are advocates. What is the point of creating legislation allowing attorneys to attend meetings if they can’t speak for their clients? Even if the bill were amended to prohibit lawyers from speaking, their mere presence suppresses free and open discussion.

Hindenburg #25. This bill states “where possible,” the member shall give the board at least 48 hours advance written notice that his or her attorney will attend the board meeting. What does “where possible” mean? That is very confusing to me. –Patsy O.

ANSWER: Exactly! Give people a loophole and they will take it. Nothing good will come from this bill.

Hindenburg #26. Good letter as always. Just a side note, my family possesses a knife and a fork from the Hindenburg. My Great Uncle (grandmom’s brother) was stationed at Lakehurst when she blew up. The following days, all the ship’s belongings were picked up; the liner refused to take them, so those stationed there just hung onto them. Over the years, we’ve added some photos to the collection. You’re correct, this is a bad bill. -Joseph L.

RESPONSE: Having debris from a disaster brings it closer to home. Maybe Mr. Wagner can send us something from his. I urge everyone to oppose Wagner’s bill by sending an email to the Chair of the Housing & Community Development Committee at OpposeAB1720@caiclac.com.

*****


Board Election. Regarding the “Board Election” question in your latest newsletter, why in the world would an HOA go to the trouble and possible expense of having an election that is uncontested? And then to top that off, they don’t even get the intended results–elected board members. If there are only three openings and you have three qualified applicants, they should be elected by acclamation. This is the only process that makes any sense in these types of situations, and eliminates the silliness of someone not being elected because they didn’t vote for themselves. If the HOA’s bylaws require a ballot vote, the first order of business is to change this rule. -Mike S.

RESPONSE: Your common sense approach is now in a bill before the Legislature–AB 1799. It would allow elections by acclamation when the election is uncontested. I will ask everyone to write letters in support when the time is right.

*****
NOW HIRING

I am looking to hire an attorney for our busy Riverside office to help with our growing portfolio of large-scale community associations.

Candidates should have at least 2-5 years transactional legal experience. Litigation is a plus.

If you would like to apply or know a good candidate, please contact me by email.


 
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.

The Hindenburg & Assembly Bill 1720

The Hindenburg was an airship built in 1936 by the Zeppelin Company. Somebody at the company thought it was a good idea to fill it with highly explosive hydrogen and put 97 people in a cabin strapped to its underside.

In the predictable disaster that followed, 36 people died.

Don Wagner. Orange County Assemblyman Donald Wagner introduced something similar for associations. His Assembly Bill 1720 would allow owners to send their attorneys to board meetings. Like hydrogen-filled airships, nothing good will come from it.

Adversarial. In my experience, no one spends money on a lawyer to tell a board how much they appreciate their hard work. It is always adversarial. If the bill passes, an owner’s attorney can attend meetings and, during open forum, question directors, lecture them, bully them, and threaten them. Or, no less intimidating, the attorney could sit quietly the entire meeting and take notes on everything said–for use in a future (or current) lawsuit.

Ethics Issue. Particularly troubling, the bill destroys the safeguards established by Rule 2-100 of the Rules of Professional Conduct which prohibits an attorney from communicating with a party represented by another attorney without the consent of that lawyer. The State Bar created this consumer protection to help level the playing field and Mr. Wagner wants to strip it away.

Ambushed. Wagner’s bill also states, “Where possible, the member shall give the board at least 48 hours advance written notice that his or her attorney will attend the board meeting.” Note that the sentence starts with “Where possible.” If an owner wants to blindside a board, I suspect he/she will not find it possible to give advance notice. That means boards will get ambushed.

Legal Fees. The obvious outcome of this bill will be impaired meetings since boards and homeowners alike will be reluctant to discuss matters in front of an adversarial lawyer for fear of being sued. To counter the threat, boards will want the association’s attorney to attend meetings whenever they think other lawyers might attend. That means higher dues for everyone.

No Volunteers. It is already difficult to get members to volunteer for the board. Homeowners have busy lives working, raising families, and paying bills. Serving on a board is stressful enough because it takes away what little time they may have. Assembly Bill 1720 makes it worse by creating unnecessary fear of litigation. Who would serve under those conditions?

Hindenburg. Like Zepplin engineers, Assemblyman Wagner is injecting an unstable element into association meetings. Impaired operations and higher costs are sure to follow. This is entirely unnecessary. If an owner’s lawyer wants to present a grievance, he/she can pick up the phone and call me. It’s less expensive and gets better results. They don’t need to sit in a board meeting and glare at the board, or worse–threaten directors.

RECOMMENDATION: Please write Assemblyman Wagner and respectfully ask him to withdraw his bill. Amending the bill is not productive; it would be like rearranging deck chairs on the Titanic–another bad idea. The bill should be withdrawn. You can call, fax or write Mr. Wagner at:

Assemblyman Donald P. Wagner
State Capitol, Suite 3098
Sacramento, CA 94249-0068
(916) 319-2068
(916) 319-2168 fax

I’ve already sent him a letter. I urge you to do the same.

FEEDBACK

Board Election. Regarding campaigning against someone running for the board, how do you prevent someone from electing themselves with only their vote when no one else is running? Am I wrong in believing this is standard practice? Can the ballot allow for an “against” option? -Paul C.

RESPONSE: If you have three people running for three seats, each candidates needs only one vote to get elected, their own. Only once in thirty years have I seen a candidate in this scenario not get elected. He didn’t bother to cast a ballot for himself. No one else did either. As a result, only two directors were elected. That left one empty seat, which the board filled through appointment. (The clueless candidate was not appointed.)

As for the “against” option, you can vote against ballot measures such as CC&R amendments and special assessments but not candidates. When it comes to candidates you have three options, (i) vote for the person, (ii) vote for someone else, or (iii) surrender to apathy and not vote.


 
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.

Sex Offender on the Board

QUESTION: Can a person who is a sex offender be on the board? He only got a misdemeanor but is on the registered sex offender site.

ANSWER: Neither the Davis-Stirling Act nor the Corporations Code prohibits registered sex offenders from serving on boards of directors. But, depending on the wording, associations can amend their documents to prohibit serious offenders from serving on the board.

Offender Classification. There are different levels of sex offenders. The classification depends on the crime committed, the age of the parties involved, and the person’s propensity to commit additional offenses. Following is a summary of  California’s classification system:

Tier I Sex Offenses. Public indecency, voyeurism, possession of child pornography, and sexual contact without consent.

Tier II Sex Offenses. Trafficking of minors for the purposes of sexual activity; sexual contact or acts with persons between the ages of 12-15; sexual offenses where the offender has a position of authority over the victim (parent, guardian, babysitter, teacher); and the production or distribution of pornography that includes minors.

Tier III Sex Offenses. Sex acts where force was used; sex acts where the victim is rendered unconscious or impaired through the use of drugs or alcohol; and sexual acts where the victim is under the age of 12.

Discrimination. California prohibits discrimination against registered sex offenders when it comes to health insurance, insurance, loans, credit, employment, education, and housing. (Penal Code §290.46(2).) Since the statute does not include “serving on a board,” associations can amend their bylaws to prohibit sex offenders from serving on the board.

Reasonableness. However, a blanket prohibition might be deemed unreasonable if challenged. Should Tier I misdemeanor offenders be restricted? In California, the maximum punishment for a misdemeanor is a $1,000 fine and up to six months in jail. Examples of misdemeanor violations are petty theft, driving on a suspended license, vandalism, drunk driving, and indecent exposure.

The reasonableness of a restriction is determined by whether it is rationally related to the protection, preservation or proper operation of an association. (Laguna Royale v. Darger.) Would a court agree that barring someone with a misdemeanor from serving on the board is rationally related to the protection, preservation or proper operation of an association? That’s anybody’s guess.

RECOMMENDATION: Many associations use a generic prohibition against felons serving on the board. This prohibition is enforceable since it is already provided for in Corporations Code §7221 and would prevent Tier II and III sex offenders from serving on the board. If a Tier I misdemeanor offender wanted to run for the board and homeowners objected, they could campaign against him/her. If your board needs assistance with this issue, contact me.

Thank you to attorney Wayne Louvier for researching this issue. Wayne is a senior attorney who works out of our Orange County office.

FEEDBACK

I’m surprised at the interest in such an arcane topic as Dodd-Frank. I could not print all the additional responses and some had to be edited.

Dodd-Frank #1. Thanks for an informative newsletter. I particularly like the comment about Bernie Madoff. I echo that, thanks for all you do. -Chris H.

Dodd-Frank #2. Simply disagree with Michael K’s comments. If you read Dodd-Frank, it conflicts directly with what he is saying. And people need to learn more about the FDIC deposit protections, and what the government can really handle, or not, in a true global economic crisis or failure. Not sure that he is just used to touting the company or party line or just wants us all to trust the banks and the FDIC. We came incredibly close to a very big collapse a few years ago, and now our debt, government decisions and economy underpinnings are only getting worse, not better. People like Michael need the general public to think everything is okay, as he wrote so smoothly, but really – the emperor has no clothes on this one. -Gregg L.

Dodd-Frank #3. Thank you for bringing this topic up for discussion. The industry reply’s were exactly as expected. The reality is “trust your gut.” -Jim K.

Dodd-Frank #4. I feel like we’ve been left stranded and unrepresented on this issue, even by Davis-Stirling. Whatever might be said or written, I don’t believe anything is going to protect us against a massive default of trillions of dollars of debt that cannot be serviced, globally (including the U.S.). -Larry H.

RESPONSE: I checked with my office manager and she said we have a few trillion in our bank account but not enough to cover everyone in the event of a global default.

Dodd-Frank #5. Great stuff as usual.Thank you for the response on the repeal of Glass-Steagall; President Clinton signed the repeal of G-S without threat of veto because he and the Republican congress also agreed to the HUD Community Redevelopment Act (government backed loans for people with no money and poor credit) and the Commodity Futures Modernization Act (unregulated investment derivatives). These are the key regulatory issues that led to the housing crisis and recession that followed. The final nail was delivered by the SEC under Bush II when it suspended the new capital requirements. While I believe Clinton and Greenspan may be the biggest culprits, people forget it was Gramm-Leach-Biley, with the help Gingrich and Lott, that started the whole thing down the slippery slope of deregulation. -Scott C.

*****

FDIC #1. All of our reserve funds (the majority of our money) is in individual CDs and therefore we are not at risk since the money is spread around. Right? -Bill B.

FDIC #2. What’s your take on using a brokerage house (only for CDs) so associations don’t need to use several banks/credit unions. -Lin S.

FDIC #3. Regarding FDIC insurance, is the association only covered for $250,000 per bank no matter how large they are, or does the  $250,000 apply to each homeowner as it would in a trust account? -Paul C.

FDIC #4. What about the FDIC limit of $250K per bank per customer account? How do we protect HOA reserves that exceed the FDIC limit? How is that done? -Larry H.

RESPONSE: The Federal Deposit Insurance Corporation (FDIC) insures the safety of checking and savings deposits in member banks up to $250,000 per depositor per financial institution. That means an association can have a dozen $250,000 CDs from twelve different banks and thereby have $3 million covered by FDIC insurance. Because of the need to spread money between banks, using a brokerage firm can have several advantages:

1. Some brokerage firms have a large inventory of CDs from banks across the country. This saves boards from going from bank to bank, shopping rates and filling out bank signature cards. The brokerage firm acts as a custodian of the funds so associations can hold several million dollars’ worth of CDs in a single account while keeping everything within the $250,000 FDIC limit.

2. They provide more competitive yields than would be available through local banks.

3. Brokerage firm financial advisers with experience with community associations provide investment continuity from board to board.

Thank you to David Lynn, Senior Vice President of Morgan Stanley Wealth Management, for providing information on FDIC insurance and brokerage firms.

*****

Executive Session. Good newsletter. What topics are included in executive sessions? I understood that anything of a personal financial nature with one of the HOA owners falls into that category. What about discussing and awarding contracts for things such as general painting and street repair? -Mary B.

RESPONSE: The formation of contracts falls into executive session. For a full list of topics, see Executive Session.


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

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

Executive Session Agendas

QUESTION: Does Civil Code §4930 also apply to executive session meeting agendas? Can boards add things to the agenda without going through the procedures described?

ANSWER: Civil Code §4930(a) restricts boards from discussing or taking action on any item at a nonemergency meeting unless the item was placed on the agenda included in the notice given to the membership.

Agenda Exception. The statute provides an exception for emergencies. If an item came to the attention of the board after the agenda was distributed, and if a majority of the board present at the meeting determines that an emergency situation exists, it can be added to the agenda at the meeting.

Emergency Defined. An emergency is defined as “circumstances that could not have been reasonably foreseen by the board, that require immediate attention” and making it impracticable to provide notice. (Civ. Code §4930(d)(1).)

Executive Session Agendas. The statute does not make an exception for executive session meetings. Even so, an argument can be made that executive sessions were not contemplated since the statute requires the board to “openly identify the item to the members in attendance at the meeting” before discussing the item. Members cannot attend executive session meetings so it would seem to apply only to open meetings.

Reported in Minutes. In any event, if an item of business is acted on by the board in executive session, it must be reported to the membership via open meeting minutes. Any matter discussed in executive session shall be generally noted in the minutes of the immediately following meeting that is open to the entire membership. (Civ. Code §4935(e).)

RECOMMENDATION: Talk to your association’s legal counsel and follow their direction on this issue. 

ABA
PRACTICE GUIDE


I am pleased to announce that my partner Jasmine Hale has been selected by the American Bar Association as one of five attorneys across the United States to co-author an ABA practice guide on representing common interest developments. This will be a significant contribution to the growing body of literature on common interest developments.

DODD-FRANK
FEEDBACK

I received feedback from several industry leaders who dispute the impact of the Dodd-Frank “bail-in” provision. Because of space limitations, I’ve edited down some of the responses.

The first is from Michael Krimminger who spent 21 years working at the Federal Deposit Insurance Corporation (FDIC) including service as Deputy to the Chairman for Policy and General Counsel during the financial crisis. He is now in private practice in Washington, D.C. He wrote that insured deposits are fully insured and protected. Depositors, whether homeowners’ associations, individuals, other associations, or companies, are protected by the Federal Deposit Insurance Corporation’s guarantee of $250,000 per account holder in each bank.

While the Dodd-Frank Act is a massive piece of legislation, it has no effect on the protection of depositors by the FDIC in any bank, large or small. Distressed banks cannot rely on depositors’ funds for a bail-out or a bail-in. Nothing in the Dodd-Frank Act has any effect on depositor protection, and no law, including Dodd-Frank, allows banks to seize customers’ deposits and bail themselves out or force a customer to accept stock in the bank.

The Dodd-Frank Act does not contain any provision changing the protection of insured depositors or putting insured deposits at risk in any FDIC-insured bank. Depositors, whether homeowners’ associations, individuals, other associations, or companies, continue to be protected by the FDIC’s guarantee of $250,000 per account holder in each bank, and in some cases they may be insured for substantially more based on the insurable category. In the more than 80 years that the FDIC has been in operation, no depositor has ever lost a penny of an insured deposit. Even when a bank fails, as we saw during the financial crisis, insured depositors get access to their money virtually immediately and can usually continue to use ATMs outside their original bank.

The FDIC’s Deposit Insurance Fund never ran out of liquidity to pay deposit insurance at any time during the financial crisis. Deposits are fully insured by the FDIC, which is backed by the Deposit Insurance Fund and the full faith and credit of the U.S. government. There is no reason to move money from a large bank to a smaller bank, or vice versa.

David Lynn, a Senior Vice President with Morgan Stanley Wealth Management, argued that no bank can legally take depositors’ money to offset losses. Instead, they use holdco debt (TLAC, or Total Loss Absorbing Capacity debt) to do so in order to keep the bank a going concern and protect depositors.

Richard Schwartz with the FDIC wrote that depositors of an insured depository institution are not creditors of a financial company subject to the FDIC’s Title II receivership authority. He wrote that, the Orderly Liquidation Authority established under Title II of the Dodd-Frank Act is separate from the authority granted to the FDIC to resolve insured depository institutions under the Federal Deposit Insurance Act (FDI Act). The OLA allows for the orderly resolution of systemically important financial institutions (SIFIs) when bankruptcy would have serious adverse effects on financial stability in the United States. When invoked, this authority permits the FDIC to place a covered financial company, including a holding company of an insured depository institution (IDI), into a Title II receivership in order to avoid systemic consequences. The creditors and shareholders of the financial company placed into a Title II receivership bear the losses of the financial company in accordance with statutory principles and without imposing a cost on U.S. taxpayers.

He noted that even if the FDIC insurance were to run out of money, “the fund is backed by the full faith and credit of the United States to resolve all deposit insurance claims.”

Other Responses. There were too many reader responses to print and some were edited because of space limitations. Here is a sampling:

#1. As in all crises, economic or not, policy reactions tend to be emotionally charged, which might explain the Congress’ need to cover all bases (hence the need for 848 pages). Alternatively, it might simply be the fact that the brevity of the 1864, 1914 and 1930 policies were no longer sufficient to address the complexity of our current economy nor the creativity that Wall Street had developed in dealing with its risk. The fact that the FDIC still exists suggests that the banks (big and small) have always had the opportunity to “seize” our money to cover their bad investments. Now the burden will shift back to their depositors and shareholders where the liability should have remained all along. -Chet S.

#2. In your recent article regarding FDIC insured and banking regulation you suggested that president Bill Clinton repealed the Glass-Steagall Act. A president could not repeal that Act and thus it is misleading to state that. It would have been repealed by the Senate and the Congress. -Ashley W.

RESPONSE: It was a joint effort between Congress and the President. Congress passed legislation and President Clinton signed it into law. Once repealed, the wall between commercial and investment banking came down and then it was off to the races.

#3. Bernie Madoff may be the biggest single thief the world has known to date, but his theft is small compared to how the banks and federal government steal from us daily. When people say the government is too big, they don’t mean they want less effective regulators, they mean they was less government waste and abuse. We seem to need far more enforcement people at many agencies. Preferably people who are not bought off or co-opted by the companies they regulate. Thanks for all you do. -Tony V.

#4. I must say, I really enjoy reading your weekly newsletter. -David C.


 
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.

Protecting Association Deposits

On occasion, we get to cover more complicated subjects in our newsletter. This is one of them.

Wall Street Reform. Following the collapse of the economy in 2008, Congress rushed through a bloated piece of legislation known as the Dodd-Frank Wall Street Reform Act, sometimes referred to as “Dodd-Frankenstein.”

Massive Bill. The extent of the legislation was unprecedented. As the Economist Magazine* noted, “The law that set up America’s banking system in 1864 ran to 29 pages; the Federal Reserve Act of 1913 went to 32 pages; the Banking Act that transformed American finance after the Wall Street Crash, commonly known as the Glass-Steagall Act, spread out to 37 pages. Dodd-Frank is 848 pages long.”

Associations Affected. The Economist described the reach of Dodd-Frank over the economy as one that affects “veterans, students, the elderly, minorities, investor advocacy and education, whistle-blowers, credit-rating agencies, municipal securities, the entire commodity supply chain of industrial companies, and more.” To the “and more” we can add homeowner associations.

Bail-In Provision. When the economy collapsed, the Federal Reserve used taxpayer money to bail out distressed banks that were deemed “too big to fail.” Dodd-Frank now prohibits the Fed from providing emergency funds to failing banks. Instead, distressed banks must rely on depositor funds. This is known as the “bail-in” provision. It requires banks with assets of $50 billion dollars and more (BofA, JPMorgan Chase, Union Bank, Wells Fargo, etc.) to take depositors’ money to offset losses.

Seize Your Money. In other words, if the bank suffers losses from risky investments, it can use depositors’ money (from checking accounts, CDs, money market funds, IRAs, etc.) to cover its losses. It can bail itself out by seizing your money. Previously, banks were obligated to return your money upon demand. Now, under Dodd-Frank, you might get a share of stock in the bank instead of cash.

FDIC Insurance. Even though depositor accounts are insured by the FDIC for $250,000.00 for each depositor, the FDIC has only $67 billion in their fund to resolve account problems. The FDIC has a credit line of $511 billion with the Treasury which can be used as well. Unfortunately, derivative losses could be in the trillions of dollars. That means there will be no money to protect depositors.

Election Issue. Banking industry regulation has become a political issue between candidates Bernie Sanders and Hillary Clinton. They have clashed repeatedly on this issue in their recent debates. Bernie Sanders wants to reinstate Glass-Steagall, which was repealed by President Bill Clinton and was a factor in the collapse of the U.S. economy. Both candidates want to increase banking regulations, which could further impact an association’s deposits.

RECOMMENDATION. For associations who are risk-averse, they should consider moving their funds to smaller local banks and credit unions. To avoid the bail-in provision, the institutions should be smaller than the $50 billion dollar asset limit set by Dodd-Frank.

Thank you to Ted Loveder CMCA AMS PCAM for the genesis of this article. Ted manages one of the many highrise condominium associations we represent. Ted is part of a growing pool of talented and credentialed managers in our industry.

*The Economist, Feb 18th 2012.

COMMERCIAL CID
RULE CHANGE


QUESTION
: If the board of a commercial CID changes their collection policy, does it require 30-day review and comment period like residential associations?

ANSWER: For commercial and industrial common interest developments there is no notice or 30-day review requirement for adopting and revising operating rules.

In the Commercial CID Act, the procedure for adopting rules is determined by the development’s governing documents. If your documents require advance notice to the membership and a 30-day review period, then you must do so. If your governing documents are silent, the board may adopt rules by a motion at a board meeting. The rules immediately become effective upon notice to the membership.

RECOMMENDATION: Even if not required by your governing documents, it is still a good idea to notify the membership of any proposed rule change. Members like to stay informed and it gives the board a chance to find out if there are any serious problems with the rule change.

Thank you to attorney Wayne D. Louvier for researching this issue. Wayne works out of our Orange County office.

FEEDBACK


Ballot Envelope #1.
I do so enjoy your newsletter. Often it ranks right up there with the Sunday funnies. May I make a fourth suggestion to your response to Election Envelope #2? That would be to mail the envelope with its signature (and the inner envelope and ballot) in a third envelope with just a regular return address label to the inspector of elections. Please keep up the entertainment; it’s a great way to start the week! -Nancy H.

Ballot Envelope #2. As an inspector, I have always used #9 envelopes for return envelopes and my instructions say this: “
IF YOU DO NOT WISH YOUR SIGNATURE AND ADDRESS INFORMATION TO BE VISIBLE ON THE RETURN ENVELOPE, fill it out as above, place it in another envelope (#10) and address that envelope to Mister Parliamentarian and mail it.” -James S.


 
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.

Consultant’s Emails

QUESTION: As a vendor, we email our reports to the manager and copy the entire board. The manager told us to stop because it violated the Davis-Stirling Act. Is that true?

ANSWER: No, it’s not true. Sending information to the board does not violate the Open Meeting Act. It is perfectly acceptable for community managers, consultants, vendors, and attorneys to report to the board by email on projects or litigation so the board can monitor their progress.

Noticed Meetings. It would, however, be a violation if the board discussed the information and made decisions by email. Unless it is an emergency, the board must hold properly noticed meetings to discuss and make decisions related to board business.

BOARD INSTRUCTIONS TO
REPRESENTATIVES


QUESTION: Our community has over 550 homes with one master association and multiple subassociations. How can a subassociation board communicate their preferences to their representatives on the master board yet stay within the law, especially with time constraints regarding posting of agendas by the master?

ANSWER: Just as receiving information via email (described above) is permissible, sending instructions to your representative via email is permissible. Neither is a violation of the Davis-Stirling Act.

FEEDBACK


Recall Legal Fees #1
. With the questions posed from HOA members it’s obvious that board members, who are volunteers, rarely know how to handle anything. It’s time to declare HOAs to be a failed business experiment. The experiment didn’t work! Our wallets are drained paying attorneys for advice! -Priscilla K.

RESPONSE: Actually, most HOAs work quite well. According to research conducted in 2014 by Public Opinion Strategies, 90% of residents rated their HOA experience as positive or neutral; 90% said their boards served the best interests of their communities; 83% said they got along well with their neighbors; and 70% said that rules protected and enhanced property values, while only 4% said they harmed property values. It’s mostly the crazies (both on the board and off) who get all the attention, run up legal fees and create bad press. (See “Verdict, Americans Grade Their Associations.”)

Recall Legal Fees #2. As usual I enjoy reading the newsletter. Reading about recall legal fees, the HOA board appears to have a real issue. A wise resolution would be for the entire board to resign in writing and the HOA hold new elections where the resigned HOA board members can re-run for a board position. If you have been on an HOA board, then you can understand the relief to not be re-elected. -Ted S.

Recall Legal Fees #3. We just went through a very ugly recall of two directors. They in turn went to court to be reinstated and of course for costs, I believe their main allegation is that the decision to recall was adopted or advanced by other directors in a secret meeting and for that reason the recall was invalid or illegal. Attorneys of course are involved. My feeling is that if it was done in secret it was in violation of the Davis Stirling Act and therefore illegal. -Anthony L.

RESPONSE: I don’t know about the secret meetings but directors have the right to launch a recall against a fellow director who is out of control.

Recall Legal Fees #4. I agree it is smart to get legal advice. However, if it is given in closed session the directors should pay for it since it does not fall under the required executive meeting matters. The questions you listed are just as important to the members as it is to the directors, the members are being recalled for a reason, I don’t think they would be trusted to not be selective in using the legal advice. -Finn M.

RESPONSE: I disagree. Legal issues surrounding a recall properly fall into approved executive session topics.

******


Election Envelopes #1. I’m confused with respect to voting envelope instructions. The sample envelope shown appears to be ineligible since the upper left has place for signature but nowhere indicates the required resident address specified in your guidance. Please clarify or explain what I’m missing here. -Mack T.

RESPONSE: You missed the sample I provided via a link labeled “sample envelope.” It shows how to properly configure the outer envelope.

Election Envelopes #2. I have an issue with the 2-envelope secrecy recommendation you gave. You are asking someone to mail an envelope with their home address and their signature on the outside of the envelope. That’s two items of information that an identity thief needs. There are two ways to avoid this…a 3-envelope solution, or a 2-envelope solution where the ballot envelope itself has the homeowner’s address and signature on the outside. That ballot envelope will only be opened and separated from the ballot itself by the inspector of election at the annual meeting. -Bob F.

RESPONSE: I can’t take credit for the two-envelope system, that was your legislature hard at work. If someone is paranoid about signing an envelope, they can (i) put the signed envelope it in a FedEx or UPS package and send it to the inspector of elections, (ii) personally deliver it to the inspector, or (iii) attend the annual meeting and cast their ballot in person.

Election Envelopes #3. Before counting ballots, an election inspector is allowed to unlock the ballot box to see if the ballots are valid. This is not the same as counting the ballots. Our boards and the election inspector routinely count the envelopes before the deadline date for voting, and they then extend the voting time if a quorum is not reached at the designated closing time. This doesn’t seem fair. I have asked this question before, and the replies given were references to various codes. As a layperson, I find the replies inadequate, and would appreciate clarification from you. -John L.

RESPONSE: Counting unopened envelopes to register them in advance of the meeting and/or to determine if quorum has been met is perfectly acceptable. Doing so is not a violation of the Davis-Stirling Act. The Act specifically allows the “inspector of elections, or the designee of the inspector of elections, may verify the member’s information and signature on the outer envelope prior to the meeting at which ballots are tabulated. (Civ. Code §5120(a).)

*****

Voting #1. I am a new HOA member of a condo association. It seems that the only people who ever vote are the four board members. Is this normal? -Steph F.

RESPONSE: Your question is a bit cryptic. If you’re referring to board meetings then, yes, only board members can vote. If you’re referring to membership meetings, all is lost. It’s time to move.

Voting #2. Please give me the logic behind restricting voting to one person per unit when two owners live in the space. -Jim K.

RESPONSE: Voting in federal, state and local elections is based on the number of living registered voters. Chicago is more democratic, they allow the dead to vote as well. Association voting is based on the number of units/lots. If it were based on the number of owners, one unit in a small association with ten investors on title could control the outcome of all elections.


 
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.