Bill Requires Rental Property Owners to Do The Right Thing In the wake of California’s foreclosure crises, unscrupulous property owners who have rental homes that are being foreclosed upon are continuing to accept new tenants, taking large security deposits, and not informing the tenants that the property is being foreclosed upon and the tenant may be forced to move shortly thereafter. In these situations, the tenants have a hard time getting their security deposits back, if at all, and are forced to find a new place to live after the bank takes over. The legitimate rental housing industry has been hard hit in the press as a a result of these unethical owners. As a result, Senator Joe Simitian (D-Palo Alto) introduced SB 1191 to require a property owner who owns one to four units and who has received a recorded Notice of Default for failure to pay the mortgage to inform any new prospective tenant that a Notice of Default has been filed against the property. Ninety-nine percent of all foreclosures are taking place on single family homes and buildings with 2 to 4 units. These default notices are typically filed 5 to 6 months after the property owner has failed to pay the mortgage. The bill doesn’t prohibit the owner from proceeding to sign a rental agreement with the tenant; It simply requires the owner to ensure that the tenant has full disclosure about the current situation. CAA has taken a support position on the bill. The bill has made it through the legislative hearing process and is current on the Assembly Floor for a vote.

MEETING NOTICES

QUESTION: Our HOA posted a board meeting agenda four days ahead of time but it was up for less than half a day. They said they only have to post it four days before, not leave it there for four days. Is that true?

ANSWER: No, it's not true. By their reasoning, boards could post a meeting notice for ten minutes and then take it down . . . or two minutes . . . or thirty seconds. Not only does it not pass the smell test, it violates the Open Meeting Act. The statute calls for a period of time not a point in time: 

Unless the bylaws provide for a longer period of notice, members shall be given notice of the time and place of a meeting . . . at least four days prior to the meeting. (Civil Code §1363.05(f))

Sabotage. If someone is trying to sabotage a board meeting by tearing down notices, that does not invalidate the meeting if the board is unaware of the vandalism. If the board/management is aware that notices have been removed, they have an obligation to re-post them. If the problem is ongoing, the board should invest in a bulletin board that can be locked.

DILIGENT VISUAL
INSPECTION

QUESTION: The law in California requires a "diligent, visual inspection" every three years of property the association is obligated to maintain. What is diligent?

ANSWER: You are referring to language found in the Davis-Stirling Act which requires boards "as part of a study of the reserve account requirements" to "every three years" cause to be conducted a:

a reasonably competent and diligent visual inspection of the accessible areas of the major components that the association is obligated to repair, replace, restore, or maintain . . . (Civil Code §1365.5(e))

"Diligent" is not defined in the statute but is clearly more than a cursory inspection. Black's Law Dictionary defines diligent to mean "attentive and persistent in doing a thing." In addition to "diligent," we must factor in what proceeds diligent, i.e., “reasonably competent" and what follows, "accessible areas." 

Reasonably Competent. "Reasonably competent" does not require a particular professional license but there are two national credentials available to reserve study professionals. One is the Professional Reserve Analyst (PRA) administered by the Association of Professional Reserve Analysts (APRA). The second is the Reserve Specialist (RS) administered by the Community Associations Institute. Both organizations require a demonstrated background of training and experience in properly preparing reserve studies before they will issue designations.

Accessible. Inspection of "accessible" areas does not mean tearing off roofs and opening walls. In my opinion, it means getting onto roofs, going into elevator rooms, opening electrical panels, and opening equipment service panels (such as on boilers) to obtain equipment information. A diligent person would do all of the above.

Disclosure. Finally, industry standards require that reserve professionals disclose whether a complete inspection or representative sampling was used, whether field measurements or plans/schematic take-offs were utilized, and whether destructive testing was employed.

Thank you to Scott Clements, RS, PRA, CMI of Reserve Studies, Inc. and Robert Nordlund, PE, RS of Association Reserves for their assistance with this question.

DISTRIBUTING
THE BUDGET

QUESTION: Our bylaws state that the budget must be sent out no less than 45 days prior to the start of the new fiscal year. Davis-Stirling states a 30-90 day window prior to the start of the fiscal year. Does the 45-day requirement conflict with the statute? I can't figure this out.
ANSWER: Your bylaws are more demanding than the Davis-Stirling Act, which means the two are in conflict. Which one prevails? Interestingly, the Act does not always override governing documents but in this case it does. The statute states that "Notwithstanding a contrary provision in the governing documents, a copy of the operating budget shall be annually distributed not less than 30 days nor more than 90 days prior to the beginning of the association's fiscal year."Civil Code §1365(a)4. As long as your budget goes out within that 60-day window, you're fine. For more on resolving conflicts, see "Rules of Interpretation."

FEEDBACK

Laundry Noise. Ha! Not all seniors are in bed by eight p.m.! -Marion K., aged one

RESPONSE: You might not be but I am.

Committee Meetings. I understand that a board member can not enter into committee discussions but can the board member speak during the Open Forum? -John K.
RESPONSE: Of course.

Association v. Membership. When will we stop referring to “the Association” and begin referring to "the Membership"? There is no entity separate from the homeowners. If I am being sued as part of the membership of the Association I would certainly wish to be informed. We continue to speak about the Association as if it is a Landlord to whom all responsibility is transferred without detriment to the individual owner. Each and every one of us who owns a property in a CID is affected by litigation. -Diana S.

NO NEWSLETTER 

Sorry, no newsletters for the next two weeks. I will be spending time in the Yukon with Larry Stirling and assorted Army buddies camping and panning for gold. We fly into White Horse and then head down river for fishing, fun and that glittery stuff.

At the same time, attorney Jasmine Fisher will be in Canada competing in an Iron Man race hitting the water at 7 a.m. to swim 2.4 miles, then biking 112 miles, followed by a 26.2 mile marathon. I think she's nuts. She will come back tired--I could come back rich!

Adrian J. Adams, Esq. Adams Kessler PLC

NOTICE OF LAWSUITS

QUESTION: If my association is being sued, does the board have a duty to tell all the members? Our insurance rates have gone up because of one such lawsuit. It seems the homeowners have a right to know why.

ANSWER: Currently there is no statutory duty to report litigation to the membership. Over the years California  has enacted extensive disclosure requirements for homeowners associations. To date, the legislature has not required HOAs to give members notice of litigation other than intended litigation against developers for construction defects. Civil Code §1368.4.

Escrows & Audits. Nor do boards do not have a duty to volunteer information about litigation when units/lots go into escrow. Although sellers have an obligation to provide relevant information to buyers, associations have no duty to volunteer such information. Kovich v. Paseo Del Mar. Even so, most associations disclose litigation matters when asked. Moreover, any litigation that could have an unfavorable outcome for an association is disclosed in its annual financial statement to the membership pursuant to FASB Statement No. 5, Accounting for Contingencies.
Reserve Borrowing. Litigation disclosures also take place when an association transfers reserve funds to pay for litigation. Such disclosures to the membership occur "in the next available mailing."Civil Code §1365.5(d).

Case Law. The courts have noted, however, that boards have a general duty to disclose facts that materially affect the rights and interests of members. Ostayan v. Nordoff Townhomes. Whether a particular piece of litigation should be disclosed to the membership will depend on the facts surrounding the case and its potential impact on the membership.

Retaliatory? Interestingly, when owners sue their associations and boards disclose the litigation to the membership, plaintiffs sometimes get upset. They would rather that members not know. In one case I was involved in, the plaintiff actually complained to the judge that the disclosure was "retaliatory." He didn't think the membership had a right to know he had sued them. Nor did he think members should be told that a pending special assessment was due to his litigation. The court was not sympathetic.

Litigation Privilege. If an association discloses litigation to the membership, such disclosures are protected by the litigation privilege--a type of immunity given to statements in connection to litigation. The protections are found in Civil Code §47(b) and Code Civ. Proc. §425.16which are construed broadly to protect a litigants' access to the courts without the fear of being harassed by derivative tort actions. Thus, a board's communication to the membership about litigation is immune from tort liability provided it has some relation to the judicial proceedings. Healy v. Tuscany Hills.

RECOMMENDATION: Unless there is a reason to temporarily withhold information, boards should disclose the existence of litigation involving the association. When I refer to litigation I don't mean small claims actions. Such actions are by their nature small with limited, if any, impact on the association. Even so, these are routinely reported to the membership by many associations.

JOB SHARING

QUESTION: Can a couple that own one condo together share one board seat (job-sharing)?

ANSWER: No, they can’t. The membership elects a specific person to the board not the "Occupants of Unit #209." If Mr. Smith is elected to the board, Mrs. Smith can’t fill in when he is out of town. There is an amazing modern convenience today called the telephone. Mr. Smith can attend telephonically if he can't physically attend. Rumor has it that someday telephones will be portable.

CONDUCTING MEETINGS

QUESTION: If board members do not have the knowledge to conduct a meeting, who is responsible to guide them?

ANSWER: No one is "responsible" for guiding the board (unless the duty has been imposed via contract with the management company). The buck stops with the board. If directors don't know how to run their meetings, they have a lot of great resources available to fill that gap.

Written Materials. A simple 16-page illustrated guideline which serves as a basic introduction to parliamentary procedure is the A-B-C's ofParliamentary Procedure. Another more complete but easy to understand guide is the Complete Idiot's Guide to Robert's Rules. Both can be ordered throughAmazon.com.

Classes. Directors can also attend classes offered through the Community Associations Institute that teach boards the basics of parliamentary procedure. In addition, they can hire a parliamentarian to attend meetings and/or give them private training.

Other Resources. Additionally, boards can ask for guidance from their managers and legal counsel, most of whom have a working knowledge of running meetings. Both CAI and CACM teach this topic in their certification programs for managers. Many recording secretaries who take the minutes for board meetings also have a working knowledge of parliamentary procedure and can assist boards with their meetings. And last but not least, YouTube has a number of video training sessions on how to run meetings.

LAUNDRY NOISE

QUESTION: I was wondering if an association could limit my renter from doing laundry in her own unit to the hours of 8 a.m. to 10 p.m.? It does not specifically say washer/dryer or laundry in the noise ordinance.
ANSWER: Yes they can. Just as associations can regulate loud parties, loud music and anything else that might disturb neighbors, the specific disturbance need not be spelled out in your rules. The board has authority under thenuisance provisions of your CC&Rs to regulate noise from washers and dryers.

By 10 p.m. most people are headed for bed (in senior communities they're in bed by 8). If you properly insulate your laundry room against noise and vibration and purchase higher-end "quiet" machines, I bet your renter could run them all night long and no one would know it. If you don't want to spend the money, make sure your tenant washes clothes between 8 a.m. and 10 p.m. If her schedule does not allow it, she could hire domestic help to wash clothes during the day.

FEEDBACK

Committees. Your response to the question regarding manager certification made me chuckle. For those of us in SoCal who pay attention to the influence of the stars and planets---a Taurean's tendency toward down-to-earth practicality and no nonsense approach to finances would make him an excellent candidate for the position of manager. He would have received my vote also. -Susan M.

Ditto. I've got to ditto all the positive feedback that you received. You are a great source of knowledge and I've learned a lot from your newsletter and refer to your letter frequently. Thank you very much. -Sam M.

Newsletter. LOVE the newsletters--they're a big help to our little (37-unit) association. -Pamela D.

Adrian J. Adams, Esq. Adams Kessler PLC