PHONED-IN VOTE

PHONED-IN VOTE

QUESTION: Can a committee member attend a meeting via phone, vote on a measure, then disconnect?

ANSWER: Board members and committee members alike can attend their respective meetings by telephone, make motions, participate in discussions and vote, provided it's a conference phone or speaker phone where participants can all hear each other. Corp. Code §7211(a)(6); Civil Code §1363.05(k)(2)(B). The statutes address director meetings but the same would apply to committee meetings. So, can a committee member (or director) call in to vote on one measure and then hangup? It may be poor form but there is nothing prohibiting it.

FORCE-PLACED INSURANCE

FORCE-PLACED INSURANCE

QUESTION: Can an HOA use force-placed insurance? Force-placed insurance is when the banks buy an insurance policy for homeowners to protect the bank's investment. I'm wondering if an HOA can do the same thing if owners fail to insure their units? The HOA needs a way to protect itself.

ANSWER: Banks are able to “force-place” insurance because of two important conditions: (i) the loan agreement gives the lender authority to do so and (ii) banks has an insurable interest in the property because the home is collateral for the loan.

No Authority to Purchase. Unless an association's governing documents grant authority, boards cannot purchase insurance for an owner and charge back the premium to the homeowner. Even if the governing documents allow it, the association does not have an ownership interest in the unit. Without an insurable interest, it's unlikely a carrier would sell them a policy.

Administrative Nightmare. Assuming an association could purchase individual policies for owners, it creates an administrative problem for the association. To purchase insurance for owners who fail or refuse to purchase their own insurance, the board would have to monitor every owner's insurance. If there are 100 units in the development, there are 100 different insurance policies to monitor with 100 separate expiration dates to calendar and track. Since homeowners could let their coverage lapse at any time during the policy term by simply missing one or more monthly installments, the board would need to monitor their insurance daily and immediately purchase coverage for the owner when it lapsed. 

Expensive. Because force-placed insurance is very expensive, the homeowner has incentive to buy his own insurance as soon as the costly back-billed premiums hit. This creates yet another task for the person monitoring the insurance. Once the homeowner buys his own insurance, the force-placed coverage must be immediately removed and any unused premiums refunded to the homeowner. Forced-place insurance is so complex that even lenders don’t administer their own programs; they rely on third-parties to oversee them.

RECOMMENDATION: Instead of force-placed insurance, associations should consider amending their governing documents to require owners to carry insurance. To protect the association from administrative headaches and potential liability, the amendment needs to exempt the association from the duty of monitoring the provision.

E-CIGARETTES

E-CIGARETTES

QUESTION: My HOA wants to adopt a complete smoking ban--no smoking in the common areas and no smoking inside units. Can we also ban e-cigarettes?
ANSWER: Good question. Electronic cigarettes are battery-powered devices that deliver nicotine in a vapor to the user. According to advocates, they have fewer toxins than regular cigarettes and none of the tar, making them less harmful to users than traditional cigarettes. Moreover, there is no second-hand smoke, no carcinogens in the vapor and no odors; therefore, no problem. Not everyone agrees.

Airlines. The Department of Transportation adopted a policy that passengers cannot smoke e-cigarettes on commercial aircraft. When proposing the ban, the DOT stated:

In light of the unknown health risks with the use of electronic cigarettes by individuals who ‘smoke’ them or the people around them and the growing availability and use of electronic cigarettes, the Department is proposing this amendment … to explicitly ban the use of electronic cigarettes aboard aircraft.

Governments. Two weeks ago, the European Parliament issued strong regulations requiring health warnings on e-cigarettes. Tuesday, the second largest city in the country, Los Angeles, voted to prohibit them in all workplaces as well as parks, city beaches and outdoor dining areas. Contra Costa County, Richmond and Carlsbad have already banned them and other cities around the state are taking steps to either regulate or ban them.

Universities & Businesses. The University of California banned e-cigarettes on all its campuses. It did so because many of the elements in their vapor "are known to cause respiratory distress and disease." According to the U.S. Food and Drug Administration samples of the nicotine liquid they tested had "detectable levels of known carcinogens and toxic chemicals. The National Business Group on Health issued a "Fact Sheet" on why businesses should consider banning them in the work place. 

HOA Common Areas. It is clear from the growing number of regulatory agencies, municipalities and business organizations that associations have sufficient basis to ban e-cigarette use in the common areas. Boards can do so with a simple rule change. The rationale for banning them inside condos, however, is less clear.

Inside Condos. Because condominiums (and most stock cooperatives) have shared walls, ceilings and floors where cigarette smoke can drift into adjoining units, the annoying odors and carcinogens give associations a solid basis for banning smoking inside units, and many already have done so. Banning e-cigarettes, however, may be more difficult to justify since they are not a fire hazard and their vapors might not create detectible odors in adjoining units or cause harm to neighbors.

RECOMMENDATION: If associations decide to completely ban all smoking, including e-cigarettes, they should do so via an amendment to the CC&Rs. If the ban is a recorded restriction, it is presumed reasonable and the burden is on the challenger to prove it is not.

DIRECTOR QUALIFICATIONS VIA RULE CHANGE

DIRECTOR QUALIFICATIONS VIA RULE CHANGE

QUESTION: Our bylaws have only one qualification for serving on the board--that directors be members. By a rule change, the board added a new requirement that a director's primary residence must be in the development. The changeeliminates 40% of the membership from holding office.Some believe the president took this action because of disagreements with individuals who do not live in the complex who may run against her. Doesn't a change like this need a vote of the membership?

ANSWER: Because of a recent court decision, it appears that boards can unilaterally add new director qualifications without input by the membership.

Friars Village. Friars Village HOA had only one qualification for serving on the board, the nominee had to be a member of the association. The board adopted a rule that no one could serve on the board with another director related by blood or marriage. It's a good requirement but it was done without membership approval. A homeowner sued in small claims to invalidate the rule since it was inconsistent with the bylaws. The board moved the dispute to superior court and the case ultimately ended up in the court of appeals.

Reasonableness Requirement. The court of appeals concluded that boards have the authority to adopt additional director qualifications without the need to amend the bylaws, provided the qualifications are "reasonably related to the performance of the Board and will serve to protect its overall mission -- protecting the best interests of the Association." (Friars Village Association v. Hansing.) I'm not comfortable with the court's decision but it's now the law.

Residency Rationale. Is the residency requirement adopted by your board reasonable? Probably. The argument in favor of residency is that board members who live in your development will have a stake in the community and will be more inclined to act in the best interests of the membership.

RECOMMENDATION: Despite the arguments for a board-imposed residency requirement, a judge could easily decide that disqualifying 40% of the membership from serving on the board is not reasonable. Therefore, the safer course of action is to seek membership support for new director qualifications and then amend the bylaws. Doing so reduces the risk of a legal challenge and an adverse ruling.

CUMULATIVE VOTING 

QUESTION: Thanks to cumulative voting, an attorney whose home was heading into foreclosure got herself elected to the board. She then sued the board for failure to enforce the CC&Rs. She then demanded the association's insurance represent her as she was doing this "for the good of the community." Our insurance company declined with the explanation that "We don't pay for people to sue us." It makes one wish there was some kind of entrance exam before becoming an HOA owner.

ANSWER: As someone once noted, "Common sense is like deodorant--the people who need it most never use it." The scenario you describe is exactly why associations should amend their bylaws to eliminate cumulative voting. It helps to keep some of the more ethically challenged owners off the board. Or, if they happen to get elected, they can more easily be removed by the membership.