DAVIS-STIRLING
REWRITE SIGNED INTO LAW 

On Friday, August 17th, Governor Brown signed into law the long-anticipated rewrite of the Davis-Stirling Act. The billreorganizes and renumbers the Act to make it more user-friendly. In addition, the rewrite made substantive changes which I will cover in future newsletters.

Current CC&R Restatements. Associations that are currently restating their CC&Rs and Bylaws do not need to wait for the rewrite to take effect. One of the provisions in the bill allows boards to update their governing documents by replacing old statutory references with new ones without the need for a membership vote: 

Civil Code §4235(a) Notwithstanding any other provision of law or provision of the governing documents, if the governing documents include a reference to a provision of the Davis-Stirling Common Interest Development Act that was repealed and continued in a new provision by the act that added this section, the board may amend the governing documents, solely to correct the cross-reference, by adopting a board resolution that shows the correction. Member approval is not required in order to adopt a resolution pursuant to this section.

Sneak Peak. Although signed a few weeks ago, the rewrite does not go into effect until January 1, 2014 so as to give everyone a chance to familiarize themselves with the new Act. To get a peak at the new Davis-Stirling Act, see Assembly Bill 805. I will be speaking about the rewrite to the annual conference of CPAs later this month. See next article. 

Adrian Adams and Kelly Richardson will be speaking to the "Common Interest Realty Associations Conference" put on by the CalCPA Education Foundation. The event will be held September 20, 2012 at the Burbank Airport Marriott. The conference will highlight:

• State of the Common Interest Industry
• Davis-Stirling Rewrite
• Foreclosure Issues
• CID Fraud
• Financial Statement Disclosure Issues
• Insurance
• Taxes

The program is designed for CPAs, attorneys, association managers and other professionals interested in homeowner association management, taxation and auditing. Other speakers include Ron Stone, John Elhai, Thomas Noce, Patrick Prendiville, Cheryl Martin, and Ron Maddox. If you want to attend, sign up at www.calcpa.org.

DEVELOPER ARBITRATION

On August 16, developers won a major victory in thePinnacle Museum Tower case. The California Supreme Court reversed direction from prior decisions and held that homeowner associations are bound by arbitration provisions in their CC&Rs, even though those provisions were written and recorded by the developers. In other words, associations lose their right to go to court for a trial before a judge and a jury.

The expected benefit to developers is the elimination oflarge jury verdicts by removing juries from the process. Historically, monetary awards by judges and arbitrators are smaller than those given by juries. As a result of the Pinnacle decision, developers may offer smaller settlements for construction defects. If their offers are rejected, HOAs will be forced to prove their cases in binding arbitration. Even so, the arbitration process is streamlined and less expensive than litigation and could produce good results if the association can prove its case to the arbitrator. Only time will tell what effect it will have on the industry.

The bulk of existing associations in California will not be affected by the Pinnacle decision. Only those developments less than 10 years old that have construction defects and an arbitration provision will be affected (unless they are already in litigation).

RECOMMENDATION: If your development is less than ten years old, various statutes of limitations are running on any defect claims you may have. To avoid losing your rights, you should contact legal counsel to determine your best course of action. To read the case in its entirety, see Pinnacle Museum Tower Assn v. Pinnacle Market Development.

ASSEMBLY BILL 2273

Good news! On Friday, September 7, Governor Brown signed AB 2273.
The bill requires lenders to record foreclosure sales within 30 days of the foreclosure. It makes banks accountable for the properties they acquire, i.e., once the sale is recorded, the lender must pay HOA dues and assessments.

As expected, lenders strenuously opposed the bill. Thanks to the thousands of letters you sent to legislators and the efforts of CAI’s legislative advocate Skip Daum and others the bill overcame lender opposition.

JASMINE FISHER
IRONMAN ATTORNEY

Ironman. How did Jasmine do in her Ironman race? -Paige B.

RESPONSE: Jasmine not only survived the grueling race (a 2.4 mile swim, followed by 112 mile bike race, followed by a 26.2 mile marathon), she received a medal. I think she had an unfair advantage, she speaks Canadian.

YUKON TRIP

Comment. As always, a great newsletter. I hope you get rich panning for gold. -Wendy M

RESPONSE: I had so much gold it set off the screening equipment at the airport. They made me empty my pockets and now I have nothing. Such is life. 

Comment. Bring a mosquito net for your head, and lots of bug repellant - I'm not kidding. -Mark D. 

RESPONSE: At one campsite I fed so many mosquitoes they made me an honorary environmentalist. Other than that, the trip was fabulous. We canoed, fished, camped along the river, explored the remains of log cabins and paddle wheel boats from the early 1900s, admired bald eagles and watched for bears. At night around the campfire Judge Stirling read humorous tales of the Yukon such as "The Cremation of Sam McGee" and "The Shooting of Dan McGrew" by celebrated author and poet Robert Service.

FEEDBACK

Budget. In your August 12th newsletter under the topic of "Distributing the Budget" the person's bylaws stated "no less than 45 days prior to the start of the new fiscal year" and D-S states "not less than 30 days nor more than 90." Your reply stated that these two are in conflict. In reality, they are not as the 45-day requirement of their bylaws easily falls within the 30-90 day requirement of D-S. They merely need to send their budget out at least 45-days, but no more than 90-days, to be in full compliance with both. -Bruce F.

RESPONSE: If the budget is sent out out 30 days before the start of the fiscal year, it violates the CC&Rs. Which prevails? The statute. The Davis-Stirling Act gives associations more flexibility when it comes to distributing the budget and controls over any provisions to the contrary in the governing documents. Civil Code §1365(a)4.

Association v. Membership. The feedback from "Diana S." is way off base, at least in the discussion of incorporated associations. There is definitely a specific "entity separate" from the membership. Such corporations, defined in Corporations Code §7110 et seq clearly defines these entities. Corporate officers and directors of the corporation owe their fiduciary duties and responsibilities to that entity, NOT the members. Officers and directors are responsible to maintain the operational and physical assets of the corporation such that it is capable of delivering to the members those goods and services appurtenant to membership in that association. The benefits derived from membership in the association come from the corporate entity, not from the members themselves. Misunderstanding that concept causes many members to expect or demand from boards more than is appropriate. -Ted L.

Adrian J. Adams, Esq. Adams Kessler PLC