Author Archives: Davis-Stirling Condo Law

Adopting Rules

QUESTION: Our board sent a notice of rule change without giving the text of the change. They simply stated the parking rules were reworded. It is my understanding the board must provide every homeowner with the exact wording of the new rule.

ANSWER:
Your understanding is correct; the board must provide the exact wording.

CC&Rs. Although you asked about rule changes, let’s start with CC&Rs. Unlike Congress where they have to pass it first to find out what’s in it, common sense dictates that members receive and read what they vote on. Under the Davis-Stirling Act, the text of any proposed CC&R amendment must be included with the ballot so people can see what they’re voting for. (Civ. Code §5115(e).)

Rules. When it comes to rule changes, the Davis-Stirling Act requires the text of any proposed change be distributed to the membership at least 30 days prior to their adoption by the board. (Civ. Code §4360(a).) “Text of the proposed change” means exact wording, not a general statement that changes were made.

Possible Exception. In addition to the exception for emergencies
(Civ. Code §4360(a)), if the board is doing nothing more than correcting grammar or renumbering provisions, I don’t believe the 30-day notice period is triggered since the rules are not being changed. Even so, the board must distribute a copy of the “cleaned-up” set along with an explanation of what was done and that no changes were made to the rules.

TIMOTHY M. HOWETT
JOINS ADAMS KESSLER PLC

I am pleased to announce that attorney Tim Howett has joined Adams Kessler PLC. Tim is “AV” Rated by Martindale-Hubbell, the preeminent national peer review lawyer rating service. He is also an accomplished trial lawyer and a chartered member of the “Million Dollar Advocates” Forum.

Experience. In addition to 20 years of experience serving as corporate counsel to homeowner associations, Tim has wide experience in real property and construction law issues, including real estate development and HOA formation, construction contract negotiation and disputes, mechanic’s liens, public works litigation, commercial lease negotiation and disputes, Coastal Act issues, view protection, earthquake and soil subsidence litigation, and insurance claim issues.

Professional Activities. Additionally, Tim is a speaker and author on corporate, construction and community association law and served as guest lecturer in Design and Construction Law at Woodbury University’s School of Architecture in Burbank, California. Tim currently serves as a member of CAI National’s Amicus Committee reviewing legal briefs on issues of importance to community associations for submission as amicus curiae (“friend of the court”) to appellate courts nationwide.

Education. Tim earned his BA in Political Science and Philosophy from Claremont McKenna College in Claremont, California. He also studied comparative government and political philosophy at the London School of Economics and interned in the House of Commons in London, England. Mr. Howett earned his J.D. from Loyola Law School in Los Angeles, California and is admitted to practice in all California courts, all United States District Courts in California, and the Federal Ninth Circuit Court of Appeals.

To send Tim a note or request legal services, you can contact him at thowett@adamskessler.com.

FEEDBACK ON 10TH ANNIVERSARY
OF DAVIS-STIRLING.COM

Thank you to everyone who sent notes of congratulation. There were far too many to print them all. Following is a sampling:

Anniversary #1.Congratulations! An amazing site, should be mandatory for every board member! Couldn’t hurt any condo owner to use, either. As a board member myself, I want to express my gratitude for your work and most of all, you, for your gracious generosity to a community you serve. -Anita H.

Anniversary #2. Happy 10th Anniversary! I have found your weekly newsletters as well as the website to be a wonderful resource for questions and issues that I have had. Your clear and precise way of explaining complicated laws and refraining from using complicated “legalese” to explain pertinent matters is in a class by itself! You and your staff should be commended for a job well done! -Ellen M.

Anniversary #3. Adrian–Applause, applause, applause. Your website rises far above the nominal purpose of self-promotion. It is a substantial benefit to the world of community associations. When I think of homeowner’s law I think of Adams Kessler. Congratulations on 10 great years. -Bob M.

Anniversary #4. CONGRATULATIONS, and HAPPY DECADE! I for one, and I know I am not alone, appreciate very much what you do. You have simplified my life and saved my ass on many an occasion!! -Fred G.

Anniversary #5. Congratulations and thanks for all your hard work. Just an HOA worker who appreciates the information you provide. -Hal G.

Anniversary #6. Congratulations on 10 years. Here at Oak Shores the Manager and all the Board Members read your newsletter regularly as a wonderful reference. I save every copy for future reference. The humor is always appreciated as well. We are also so happy to have you and the firm representing us as needed. Thanks for your service. -Randy F.

Anniversary #7. My congratulations to you and the entire staff. You all are great to work with. You have done a great job and provided us all with great insight and information. There isn’t a day that I do not visit the site and a minimum at least once a day and many days several times. -Wayne B.

Anniversary #8. Congratulations on your tenth year publishing the Davis-Stirling.com newsletter. As the founder/publisher/designer/editor/reporter, the plaudits you deserve to receive are without number. Your personal labor of love continually shows in the website and proves your devotion to the well-being of the entire HOA community spectrum. I’m delighted by the success you have achieved and the esteem you so deservedly merit. -Bond S.


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

Davis-Stirling.com 10th Anniversary

Thanks to you, last year the Davis-Stirling.com website had more than half a million visitors and 2.7 million page views, making it one of the highest ranked websites in California.

Humble Beginnings. It seems like yesterday but ten years ago this week Davis-Stirling.com was launched. I built it at night with a website coding manual in one hand and a computer keyboard in the other. My goal was to create a small website where managers, directors and homeowners could easily access information about the Davis-Stirling Act.

Naming the Baby. After months of work in the Fall of 2003, it occurred to me that I needed to name the website. To my dismay, I found that every industry-related domain name had already been taken. I was stumped–what do I call it? Somewhere a light bulb went on and I looked to see if Davis-Stirling was available. Much to my surprise, it was. And on January 2, 2004, Davis-Stirling.com went live.

Links and Indexing. It took another two years to build a stockpile of commentary explaining the law in plain English. To this was added a library of case law. Into the mix sprouted legislation with explanations on its impact on boards, managers and homeowners. Everything was then indexed and cross-linked with each other and to the statutes. A Google search engine was added to the website and a mobile app was created to make the information accessible via tablets and smart phones. My staff threatened to disown me for spending 18-hour days wading through code and building a website they were sure no one would use.

Related Services. Because of the stressful nature of our industry, we thought a little humor might be warranted. To that end, two popular cartoonists were contacted and, with their permission, their cartoons were added to the website under Humor. As the website grew, companies asked about advertising and a Vendor Directory quickly followed. When boards inquired about onsite managers and how to find them, we launched a free Job Market. To speed the placement process, we included an auto-notification feature that emailed managers the instant jobs were posted on the website. Currently, over 100 managers throughout the state subscribe to the feature.

Management Software. Larry Stirling, the author of the Davis-Stirling Act, joined the firm and added his ideas to the growing body of services. This was followed by the release of Smart HOA, a cloud-based management system to help boards and managers easily and inexpensively manage their associations. The program seamlessly tracks work orders, violations, tenants, architectural approvals, parking, visitors, and packages. It also allows associations to “go green” by storing documents in the cloud.

Future Announcements. This year even more will be added to the Davis-Stirling.com umbrella of legal services, programs, products and companies. Stay tuned for more announcements during our year-long celebration! (In between the announcements we may include some news about the law and a pinch of humor.)


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

Year-End Thank You

As the year draws to a close, we want everyone to know how much we appreciate their business. Thanks to you, this past year our newsletter has grown to a subscriber base of 18,000 readers. Our website has had over half a million visits with over 2.7 million page-views. And we added four new lawyers to the firm.

Starting in January, we have some exciting announcements for the New Year. In the meantime, may you and your families enjoy the holidays and have a New Year filled with peace, prosperity and happiness.

This is our final newsletter for the year. Merry Christmas and Happy New Year from all of us at Adams Kessler PLC.

AK TEAM: Attorneys. Larry Stirling, Adrian Adams, Gary Kessler, Paul Ablon, Aide Ontiveros, Jasmine Fisher, Wayne Louvier, Karen Jacobs, Azadeh Saghian, Tina Chu and Matthew Deenihan. Staff. Nathalie Ross, Laura Whipple, Carolyn Houtz, Kathy Marasciulo and Laurie Paramore.

FEEDBACK

Transient Housing #1. Many cities have regulations with respect to transient renters. These types of rentals trigger hotel tax regulations and potentially all the other regulations that come along with hotel businesses. -Tina M.

Transient Housing #2. I deal with problems of transient housing all the time in my Santa Monica properties. The City of Santa Monica enforces state laws regarding tenancy, which is established on day 30 or 31. Therefore, anything less than a 30-day rental is considered transient housing and prohibited by the City in non-hotel establishments. Other cities may have similar restrictions. Since the CC&Rs require compliance with municipal codes, short term rentals are prohibited and reported to the city whenever they are discovered. -Vanda H.

*****


Tree Damage #1. Thanx for all the information you provide us, it makes my job so much easier -Varda A.

Tree Damage #2. Reading your response about the tree damage made me smile. You are so funny. THANK YOU! -Lorna L.

*****


Holiday Gifts #1. $1,000 in cash? Wouldn’t we like to be these guys! -Ann H.

Holiday Gifts #2. Please tell me what HOA is receiving $100 bills. I am moving right now and signing up for a board position. Your reply was right on. -Gloria F.

Holiday Gifts #3. Regarding cash Christmas gifts: why not keep the cash, deposit it in the HOA account, and notify all owners of same? No harm, shared foul (if any). -Bill D.

*****


Treadmill. It’s highly unlikely that you’ll find any restriction in your HOA insurance policies about the type of exercise equipment your HOA can use, purchase, or maintain for the benefit of its residents. What is common is to find an application for insurance asking if certain high risk exposures are present on your property: swimming pools, spas/hot tub, trampolines, as they are associated with major injury and death claims. -Anthony Verreos, Verreos Insurance Agency

Thanks for the Laughs. Wishing you a Happy and Healthy New Year! Thanks for all of the information and for sure, the LAUGHS!! -Helene S.


Adrian Adams, Esq.
Adams Kessler PLC

We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

Accepting Holiday Gifts

QUESTION: I am the president of our association. Members of our board and many employees received envelopes today from our security company. I opened mine to find ten $100 bills. An employee opened hers to find a $100 Visa card. I immediately took custody of all the envelopes and put them in a sealed envelope. To avoid any appearance of accepting kickbacks, I plan to return them to the vendor. Is this the right thing to do?

ANSWER: That is exactly the right thing to do. Even though the act of giving or receiving a gift is not illegal, it becomes a problem if (i) the gift influences a director’s judgment when contracts are awarded or (ii) it gives the appearance that your vote has been influenced. If directors approve contracts based on gifts they receive, the gifts become bribes. That’s why most organizations adopt ethics rules setting strict limits on gifts. (See House Ethics Manual for the U.S. Congress concerning gifts.)

Appropriate Gifts. If your gifts had been nominal (a basket of cookies), the gesture of appreciation by the vendor would have been appropriate. In your case, the gifts are not appropriate.


Wayne Louvier, Esq.
Adams Kessler PLC   

RECOMMENDATION: Associations should adopt ethics rules so board members will know where the ethical boundaries are located. We have a sample Ethics Policy on our website that boards can use as a model.

LIEN NOTICE
REQUIREMENT

QUESTION: We have four owners of a single property living at three different addresses. The dues for that property are delinquent and we need to send a certified letter. Do we need to send it to three different addresses?

ANSWER: In collection and foreclosure matters, whenever the question is “Should we mail to this address?” the answer is always “Yes.” It is better too give too much notice than not enough.

RECOMMENDATION: You can write one letter with multiple addressees and addresses (all owners on title at all addresses) at the top of the letter and then mail it to everyone. You can also charge the account for all of your collection costs.

Thank you to Richard Witkin, Esq. of the collection firm Witkin & Neal for his assistance with this question.

TREE DAMAGE

QUESTION: My tree fell on my neighbor’s car. The HOA says it’s my responsibility not theirs. Am I liable for fixing my neighbor’s car???

ANSWER: Your situation sounds like an Allstate commercial. The first thing you need to do is call your insurance agent. The next thing that comes to mind is, “Why are you dragging the association into this?” It was your tree.

HOA Negligence? The only way the association could be liable is if (i) it owned the tree and was negligent or (ii) you own the tree but the HOA is responsible for maintaining it (and did so negligently). Under those circumstances, the HOA would by liable for the loss.

RECOMMENDATION: If you don’t have any insurance (shame on you) and you want to see if there is any way to blame someone else for the loss, you should consult legal counsel.

TRANSIENT RENTALS


QUESTION: One of the associations we manage has no rental restrictions in its CC&Rs. The board is considering an amendment which would restrict rentals for “transient or hotel purposes” and require all leases to be in writing for a term of not less than 30 days. Do you think that current owners would be exempt per Section 1360.2?

ANSWER: You raise a good question. The Davis-Stirling Act provides that rental prohibitions adopted after January 1, 2012 do not apply to existing owners in a development; they only apply to those who acquire property after the prohibition has been adopted. (Civ. Code §1360.2(a).)

No Case Law. Because this new requirement in the Act is so recent, there is no case law yet telling us what’s an acceptable restriction versus an unacceptable prohibition. In my opinion, a 30-day minimum rental requirement is acceptable since it does not prohibit rentals, instead a requires a minimum rental period. Another argument in favor of the amendment is that it’s required by HUD for FHA-insured loans.

RECOMMENDATION: In my opinion, such an amendment would apply to all owners not just those who acquire property after it was adopted. Unfortunately, we won’t know for certain unless the matter is litigated or the Legislature clarifies the statute. The more cautious approach is to do nothing but then you lose FHA insured financing for the development. Your board must weigh the risks and benefits and make a business decision. If you decide to proceed, let me know if you need assistance with amendment language.

FEEDBACK

Treadmill. We have dealt with offers of donated gym equipment. You make good points but what will the HOA’s insurance carrier allow? Our carrier requires commercial gym equipment and no private use equipment. Additionally, they will not cover free-weights as they can be dropped on limbs, body, etc., whereas machines are fixed often with safety features. Look at the hotel industry, very few offer free weights. Lastly, our gym servicing vendor will only service commercial equipment. -Joseph L.


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

Forced 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. If your association needs assistance with the amendment, contact me.

Thank you to Tim Cline of the Timothy Cline Insurance Agency for his assistance with this question.

BUILDING ORDINANCE
COVERAGE

Condominium associations need “Building Ordinance” insurance coverage if they wish to be compliant with Fannie Mae requirements. It affects the ability of some buyers to purchase in condominium associations. See Form 4335′s highlighted description of Ordinance or Law Coverage and talk to your association’s insurance broker to find out if you have such coverage.

DONATED TREADMILL

QUESTION: We have someone that wants to donate a treadmill to us. One board member thinks its a great idea to put it in the recreation room. I say it is a huge liability.

ANSWER: It is a potential liability but not a huge one.

No Risk-Free Environment. It is impossible to be free of risk in an association. If you have common areas, you have risk from sidewalks (trip and falls), lobbies (slip and falls), trees (falling branches), roofs (water leaks), plumbing (water leaks), drain lines (backups), etc.

Weigh & Manage Risk. The more sensible approach is to weigh the risk and benefits. If you have risk with no reward, avoid the risk. If you have low risk and high reward, take the risk. If the risk equals the reward, figure out how to reduce the risk. There are common sense ways to manage risk related to a treadmill. First and foremost, make sure your exercise equipment is covered under your HOA’s insurance policy. Second, make sure you properly maintain the equipment by setting up a regular inspection and maintenance program for all equipment. Putting a sign on the wall that equipment is used at the user’s own risk offers only limited protection but it can’t hurt. Finally, you could have users sign a hold harmless agreement releasing the association from liability in the event the person is injured.

RECOMMENDATION: For some associations, ensuring that everyone sign a release is manageable. For others, it is impossible. Associations should talk to legal counsel about how best to minimize risk when it comes to exercise equipment.

SMART HOA
MANAGEMENT

Associations that want an inexpensive, cloud-based, paperless management system should try Smart HOA. You can test the program at no cost. Contact info@SmartHOA.com for a free trial.

FEEDBACK

Please Move! #1. Wonderful response! -John C

Please Move! #2. Good Grief! Do not tell a toxic homeowner to sell and move to another association. Tell him/her to sell and buy a single family home. That person is unsuited to community living and should not be inflicted on other HOAs. -Bill R.

RESPONSE. I don’t know what I was thinking.

Baby Attorney #1. Great picture of the baby-you are so thoughtful to include everyone. -Mom

RESPONSE: Thanks Mom. I had a good teacher.

******

Readers seem to have a lot of interest in growing pot. This is the second week of feedback on the issue.

Growing Pot #1. Just an additional thought on the marijuana plants. As a board member, I have fiduciary duties. Regardless of my personal point of view, I have an obligation to see that rules, regulations, and laws are adhered to. Even though local jurisdictions may have decriminalized certain aspects of marijuana use and possession, Federal Law clearly forbids it. As a result, it’s my duty to protect the property of the HOA. Should the federal government prosecute such activity, this could result in property being seized, which would be detrimental to the HOA. -Bret R.

Growing Pot #2. We deal with a certain amount of pot growers (patients) in our dental practice. We serve the rich and the poor on medical/dental assistance through the state. Almost half of them sell their medicinal pot for extra income to survive society or live foolishly spending it on self-gratification. How can it be regulated safely–who knows? My biggest beef is the one who drives under the influence and causes harm to the innocent person in an accident and yet there is the one person who truly needs it for medical conditions and stays home while using it. Let it be grown under controlled regulations (pot farms) and then perhaps it can be monitored better and then there would be no concern for any homeowner having to smell it or visualize it. -S.C.


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

Death & Delinquent Assessments

QUESTION: A delinquent resident passed away. We sent a letter requesting the executor of the estates’ information but have not received anything in return. What action can we take, if any, on this property?

ANSWER: Collecting delinquent assessments from a deceased owner with no executor or administrator is challenging but not insurmountable. First, a pre-lien letter must be sent to the deceased owner at his/her address of record. Next, an assessment lien must be recorded against the property in the name of the deceased owner.

Foreclosure. If payment is not forthcoming, the board can authorize foreclosure of the lien by non-judicial or judicial foreclosure. In your case, judicial foreclosure may be preferable because the court can authorize service of certain required documents by publication in a newspaper in lieu of personal service.

Thank you to Richard Witkin, Esq. of Witkin & Neal for his assistance with this question.

PLEASE MOVE!


QUESTION: A board member suggested I sell my unit and move to a different HOA. Is this an abuse of power by the director?

ANSWER: It is not an abuse of power for a director to express an opinion. In your case, there are two distinct possibilities. Either (i) your director is thin-skinned and doesn’t know how to interact with your or (ii) you’re a toxic homeowner who should move to another association. I will leave it to the two of you to sort out.

INSURANCE
FOR BOARD MEMBERS


QUESTION: Is Public Officials and Management Liability insurance the same as Director and Officers (D&O) Liability?

ANSWER: They are similar but not the same. Both are errors and omissions policies, i.e., they protect the insured in their decision-making. The difference between the policies is who gets insured.

In the Public Officials policy, elected/appointed officials of state and local governments are the insured. A D&O policy, on the other hand, covers directors and officers of corporations. However, common interest developments need broader coverage than a straight corporate D&O policy.

Management Liability. D&O policies for community associations are designed like a management liability policy. That is to say, they typically include coverage for errors and omissions and fiduciary liability. Many also include employment practices liability, with others offering coverage on endorsement. In addition, they cover volunteers on committees and the onsite manager (if any). In other words, they are specifically tailored to the HOA industry.

RECOMMENDATION: It goes without saying that boards should talk to insurance brokers with expertise with homeowner associations. The last thing a board wants is to have a claim denied because they bought inadequate insurance.

Thank you to Michael Berg of Berg Insurance for his assistance with this question.

BABY ATTORNEY JOINS
ADAMS KESSLER PLC

I’m pleased to announce that Olivia Jacobs joined our firm on November 4. She is 20.5 inches but we expect her to quickly grow into the position in our Los Angeles office.

She and her mother, attorney Karen Jacobs, are at home busy working on briefs and such things.

Orange County Opening. We still have an opening for an experienced attorney in our Orange County office. If you know someone you can refer, please contact me by e-mail or at 310-945-0280. -Adrian Adams

FEEDBACK

Constant Bickering. Personal agenda disorder? I can’t stop laughing! -Lorna L.

DS Rewrite. “As the President promised, ‘If you like your governing documents, you can keep your governing documents. Period.’” hahahahaha- I just LOVE this newsletter! Who knew HOA stuff could be fun! -Sandi F.

Growing Pot #1. If the “garden” is a bona fide nuisance then so be it; but if the owner is cultivating a few plants much as our parents and grandparents did with their victory gardens then let’s leave them alone. Limit the heights if you must to what cannot be viewed by neighbors across the fence -Jim S.

RESPONSE: Boards must make a business decision regarding enforcement. Just because an association can go after a pot grower does not mean it should. Directors must first decide if the plants represent a true nuisance, i.e., (i) Is there any criminal activity associated with the plants? (ii) Is the odor strong enough to really affect anyone? (iii) Do the plants represent a visual blight? (iv) How many people are impacted by the plants? If, however, only one person is complaining, and there has been no criminal activity surrounding the growing of the plants, and the number of plants is within prescribed limits, and in the board’s opinion the plants do not represent a nuisance, then the board can decide not to charge the grower with a CC&R violation no matter how loudly a neighbor might be complaining.

Growing Pot #2. Oh, that is just wrong about marijuana. If the HOA board is seeking a remedy or solution, they should follow state law and provide harmony within the neighborhood, they should never be considered the HOA police unless they want a claim against their D&O insurance carrier. A second solution is to report the violation with the Federal Drug Enforcement Agency and stay clear of any disciplinary action. -Ted S.

RESPONSE: The city of San Rafael passed a smoking ban that took effect last week (Nov. 14) that is one of the toughest in the nation. Because secondhand smoke is harmful regardless of the source and because it seeps through walls, floors and ventilation ducts, the ordinance prohibits smoking in any residence with shared walls, including condominiums. It will be interesting to see how they handle marijuana since the ordinance does not exempt it. The ordinance defines smoke as “gases and particles released into the air by combustion when the apparent or usual purpose of the combustion is human inhalation of the resulting combustion products, including, but not limited to, tobacco smoke.” I think it is clear that pot smokers cannot harm the health of others even if their smoking is for medicinal purposes.

Growing Pot #3. Many of the people who need this medicine don’t have the funds to purchase it from collectives because of the unfair taxation that is imposed. They have no choice but to cultivate. Cultivating indoors is also a far more expensive process that outdoor cultivation. Our “President” promised the country he wouldn’t allow the gestapo style DEA raids on law abiding medicinal marijuana collectives because he would recognize the will of the people. He admitted to being a prodigious user himself. Another campaign promise broken, just like keeping our medical plan. Your argument for citing federal laws seems like the last hope of someone who just doesn’t like people who use medicinal marijuana. It comes off as discriminatory and beneath civilized debate. -Kris K.

RESPONSE: I hate to disagree but civilized debate is always appropriate.


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

Growing Pot

ANSWER: Following is a response prepared by one of the rising stars in my office, attorney Matt Deenihan:

Illegal Conduct. Under the federal Controlled Substances Act, the cultivation of marijuana is prohibited. Most governing documents include a restriction that restricts an owner from using his property to engage in illegal or criminal conduct. If your CC&Rs include such a provision, growing marijuana is a violation and would subject the owner to disciplinary action by the association.

Medical Marijuana. What if the person has a prescription (also known as a “card” or “license”) for medical marijuana? Although federal law does not recognize a distinction between medical and recreational use of marijuana, California does. In 1996, marijuana was legalized for limited medical use. Under California’s Health & Safety Code §11362.77, qualified patients are allowed to cultivate up to 6 mature or 12 immature marijuana plants. Thus, if your resident has a prescription her pot farm is authorized under state law (provided she does not exceed the allowed number of plants).

Conflict of Laws. Obviously there is a conflict between state and federal laws. However, just because the state allows the growing of marijuana does not mean an HOA must allow it. It is still illegal under federal law, which makes it a violation of the governing documents if they contain a provision against illegal conduct.

Nuisance. If your documents do not prohibit illegal conduct, all CC&Rs have a provision against creating a nuisance. Regardless of the legality of the marijuana plants under state law, their presence may still be deemed a nuisance. Marijuana plants have a strong odor that some find extremely unpleasant, and several plants grouped together can produce an overwhelming odor for neighbors or passers-by. Also, they may attract criminal activity, a legitimate concern of the person’s neighbors. The strong smell as well as safety and security issues fall under the nuisance provisions of the CC&Rs.


Matt Deenihan, Esq.
Adams Kessler PLC   

RECOMMENDATION. The first step for an association is to send a warning letter to the owner detailing the nature of the violation.

If the resident can’t produce a valid prescription for medical marijuana, the association can call the police. If the person has a license to grow marijuana, the association can still proceed under the criminal activity and nuisance provisions of its CC&Rs. The grower could “cure” the violation by moving her plants inside where they can’t be seen or smelled.

Matt Deenihan and I will be speaking on the impact of the Davis-Stirling rewrite on HOAs and answering general legal questions affecting associations.

We will be presenting to members of the South Coast Homeowners Association, an organization of 140 homeowners associations in Santa Barbara County that provides educational forums to its member associations.

The presentation will be this Monday, November 18, 2013 at the Encina Royale Clubhouse at 250 Moreton Bay Lane in Goleta, California and is open to board members, managers and homeowners. For more information or to RSVP please contact Mike Gartzke at Gartzke@silcom.com or (805) 964-7806.

CONSTANT BICKERING


QUESTION: Our board had to hire a recording secretary because of constant bickering on the format and content of our minutes. One of the directors insists in changing minutes that have already been approved. This director nags until she gets her way and frustrates other directors until they quit the board. Can this director keep insisting that the same minutes be changed every month with different corrections?

ANSWER: No she can’t. Your director either has an obsessive-compulsive disorder or she has a personal agenda disorder. Neither disorder entitles her to disrupt the board’s business. Just tell her “No” and move to other agenda items. If she continues to disrupt the meeting, censure her for bad behavior.

FEEDBACK

Semper Fi. Thanks Mr. Adams for your service to your country. L/Cpl. Ed Healy (1971-1972) Quang Tri, Vietnam.

Davis-Stirling Rewrite. Our attorney disagrees with you. He said our documents will be unenforceable starting January 1 if we don’t amend them to comply with the Davis-Stirling rewrite. -Mike D.

RESPONSE: As the President promised, “If you like your governing documents, you can keep your governing documents. Period.” In this instance, I agree with the President. You might need to amend your documents for other reasons but the D-S Rewrite is not one of them.


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

CC&R Update Required?

QUESTION: Will my homeowners association have to update its documents to conform to the 2014 Civil Code changes including references to past Civil Code numbers?

ANSWER: No, you don’t need to update your documents. You may need to update them for other reasons–because they are badly written, contain Declarant language, are ambiguous about maintenance duties, etc. but changing Civil Code numbers is not one of them.

Renumbering. The most noticeable change in the Davis-Stirling Act is the renumbering. The current Act is found in sections 1350 to 1378 of the Civil Code. The rewrite moves everything to sections 4000 to 6150 of the Civil Code. For example, Civil Code §1350 becomes §4000 starting January 1, 2014. If your CC&Rs and bylaws refer to the old numbering system, there is no legal requirement that you switch to the new numbering system. Since the existing Civil Code numbers roll over to new numbers on January 1, references in your documents automatically flow to the new Code. In other words, your documents don’t become obsolete and unenforceable on January 1 because they refer to old Civil Code numbers.

Conversion Chart. All you need is a conversion chart to find the new numbers. Charts can be found on many law firm websites, including my own (see Conversion Chart). You can download and distribute our chart to the membership and include it in escrows for new owners. That should allay any angst about the new numbering system.

Substantive Changes. Also, the handful of substantive changes in the Rewrite are not sufficient to trigger a restatement of your association’s governing documents.

RECOMMENDATION: If your governing documents need amending for other reasons then it makes sense to restate them and convert the Civil Code numbers. Talk to your association’s attorney about the merits of restating your documents. If you don’t have legal counsel, contact us for a proposal.

ELECTRIC VEHICLE
CHARGING STATION


QUESTION: I want to install an electric charger for my car. What does the Civil Code consider an “unreasonable” expense? Since my car is over 100 feet from the meter, it will cost me $4,000 to run electricity & install the charger. Isn’t that an unreasonable amount?

ANSWER: The reasonableness of the expense is a matter between you and your electrician. By statute, the association must allow you to install a charging station but the cost is yours not theirs. Following is the relevant portion of the EV statute dealing with reasonableness:

(a) …any provision of a governing document… that either effectively prohibits or unreasonably restricts the installation or use of an electric vehicle charging station in an owner’s designated parking space… is void and unenforceable. (b)(2) For purposes of this section, “reasonable restrictions” are restrictions that do not significantly increase the cost of the station… (Civ. Code §1353.9.)

The association is not imposing any unreasonable restriction on you nor did it move the meter so as to drive up your costs. You’re simply the victim of sticker shock and you cannot expect your neighbors (the association) to subsidize your costs.

RECOMMENDATION: Before buying that shiny new electric vehicle, owners should investigate the cost of installing the equipment to keep it running.

EXPERIENCED
HOA LAWYERS NEEDED


Adams Kessler PLC is continuing to grow and needs two more attorneys on our team.

We are expanding our Orange County office and need an attorney with 5-10 years of experience in community association law. The second attorney will work out of our Los Angeles office and also needs to be an experienced HOA attorney.

If you are interested, please contact me by email or at 310-945-0280. -Adrian Adams

FEEDBACK

Following are comments about the HOA that was sued for not obtaining FHA certification.

FHA Certification #1. A civil rights action??? Really? -Stephany Y.

FHA Certification #2. Another argument for FHA certification is for owners to qualify for the best reverse mortgage loans, which are only obtained through the FHA program, and certification of the condo complex is required. A lot of older condo owners rely upon reverse mortgages to remain in their homes. -Jay M.

FHA Certification #3. The costs associated with certification and the amount of paperwork is not insignificant. The benefit of being FHA certified serves the needs of both buyer and seller. Our board has chosen to assist homeowners through the process if they pay the costs. -Robert S.

FHA Certification #4. FHA certification is rather costly. Also the FHA rules are constantly changing and would cause BODs to be on top of this almost on a daily basis or they could be held responsible for any errors. As a board member, I would not want that responsibility and would refuse to place myself in that situation. Also my pay scale as a board member is too low to take on that responsibility. -Gloria F.

FHA Certification #5. Interesting response on the FHA. I had one of my properties certified a couple years ago but when I submitted the paperwork to have it re-certified, we were turned down. In the two-year interim they had amended the CC&Rs to include rental restrictions, now requiring a buyer to live in the unit at least 24 months before it can be rented. (Too many investors were coming in, rental numbers were going up and lenders were backing off on new loans and refinancing.) The other side of this is it’s also not possible to get FHA certification in the first place if more than 50% of the units are rented. In other words, it’s a perfect Catch-22–a property won’t be certified if it has too many rentals or if it limits rentals. -Trudy M.

RESPONSE: Our tax dollars at work.

FHA Certification #6. One other downside to a lack of certification is a lack of a reverse mortgage for anyone qualified. This is becoming a larger issue with our aging population. -Len M.


BIRTHDAY
. On November 10, 1775, the Second Continental Congress passed a resolution establishing the Continental Marines, thus giving birth to the United States Marine Corps. Happy Birthday and Semper Fi fellow Marines!


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight and experience.” We are friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

Multipurpose Assessment

QUESTION: A board member and I have conflicting beliefs as to the number of projects a special assessment can cover. I believe it is one; the board member believes it can be more than one. Who is right?

ANSWER: Your board member is right. For special assessments approved by the board (up to 5% of the current year’s budgeted gross expenses) there are no limitations on the number of items for which the assessment can be used. (Civ. Code §1366(b).) The same is true for member-approved special assessments. There are, however, limitations imposed by the ballot measure when the assessment is approved.

Ballot Limitations. For example, if the membership approves a special assessment of $100,000 for two items, roof and boiler repairs, the board cannot use the funds to asphalt the parking lot. They must use the funds for the roof and boiler. The limitation also applies to left-over funds. If at the conclusion of the work, $8,000 is left over, the board cannot use the surplus funds for new artwork in the lobby. The board must either (i) transfer the funds to reserves for future roof and boiler repairs, (ii) obtain membership approval to buy new artwork for the lobby, or (iii) return the money to the membership.

CANCELING A
SPECIAL ASSESSMENT

QUESTION: Can a new board rescind a special assessment?

ANSWER: It depends on who passed the assessment and what it was for.

Board-Approved Assessment. A special assessment levied by a prior board (up to 5% of the budget) can be rescinded by a successor board but they need a good reason for the cancellation.

Boards have a statutory duty to “levy regular and special assessments sufficient to perform its obligations under the governing documents and this title [Davis-Stirling Act].” (Civ. Code §1366(a).) If the prior board levied a special assessment to repair deferred maintenance or build stronger reserves, a successor board could be in breach of its fiduciary and statutory duties if it cancels the assessment. If, on the other hand, the prior board’s special assessment was to buy a full-sized reproduction of Michelangelo’s David to install at the front gate, the assessment can (and should) be rescinded.

Member-Approved Assessment. If the special assessment was approved by the membership, in my opinion the board does not have the authority to rescind it. For example, if the membership voted to assess $50,000 to repaint the buildings, a successor board cannot refuse to collect the money and refuse to paint the buildings.

FHA CERTIFICATION
WARNING

There has been a debate for years about the wisdom of certifying a development for FHA loan guarantees. Following are the pros and cons of certification:

Argument For Certification. FHA insured loans have become a significant percentage of all condo loans in California. In 2007, they accounted for only 3% of the market. By 2012 they accounted for more than 50% of all new home loans and 80% of first time home buyers. Moreover, loan limits now go to $729,750. As a result, failing to certify would eliminate a significant percentage of potential buyers.

Argument Against Certification. The cost to become FHA compliant may be significant or unachievable. In addition, FHA buyers may be financially unstable. An FHA-insured buyer has a low down payment (3.5% of the purchase price vs. 20% for conventional loans), low closing costs, and easy credit qualifications, which is why the loan must be insured by the federal government. Because FHA buyers are financially weaker, they are less able to handle special assessments and dues increases. As a result, they are more likely to become delinquent and slide into foreclosure. This would have a negative affect on property values and the association’s budget.

Lawsuit Over Refusal. Last week David Byrne of Herrick Feinstein LLP reported that an Ohio condominium association was sued when it chose not to seek FHA recertification. A single mother with a child wanted to purchase a unit using FHA insured financing. When the board declined her request for recertification, she filed a complaint with the Ohio Civil Rights Commission. The Commission, in turn, sued the association. The case is pending.

RECOMMENDATION: Although no decision has been handed down in the case, the fact that the Civil Rights Commission sued the association is troubling. As a defensive measure, boards should review their status as an FHA certified development. If their condominium development is not certified, boards should weigh the pros and cons and make a decision whether certification is beneficial or even achievable. The matter should be put on the board’s meeting agenda and discussed in open session. Any decision not to seek certification must be based on non-discriminatory reasons. The board’s decision and the rationale behind it should then be recorded in the meeting minutes.

Thank you to James C. Harkins, IV, Esq. of Cane, Walker & Harkins LLP for bringing this case to my attention.

FEEDBACK

Davis-Stirling.com. Great response on your website design–hilarious! -Derek S.

HOA Organizers Seminar. Thank you so much for the fabulous seminar held with HOA Organizers and all the panel members, attendees and financial supporters of the event. It was very informative… Thank you, thank you, thank you. -Elizabeth H.

NN Jaeschke Seminar. Thank you for giving an excellent presentation on the changes to the Davis-Stirling Act. The both of you are great speakers as well as outstanding attorneys and I enjoyed the humor. I always learn something new from your engagements. I’m so glad you are representing our HOA. -Chris S.

RESPONSE: It was our pleasure. Above is a picture of the Hon. Larry Stirling (center) with board members who attended the seminar, and Ned Heiskell, CEO of N.N. Jaeschke, Inc. (far left).


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight and experience.” We’re friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.

False Resume

 QUESTION: What can be done, if anything, if a candidate includes qualifications in his/her election biography that are not genuine? What if they are elected?

ANSWER: When candidates puff their resumes or lie about their background, board members, candidates and homeowners can point out the false statements to anyone who will listen. This is no different than political campaigns for city council, governor or president–mud and truth fly with equal velocity and voters are left scratching their heads trying to figure out who to vote for.

Equal Access. Board members have a right to campaign the same as anyone else. However, they must do so at their own expense. If the board were to use the association’s newsletter or website to campaign, they must provide equal access to everyone who has an opinion on the matter.

Post Election. If the candidate succeeds in lying his way onto the board, fellow directors cannot remove him/her for lying unless it has to do with their qualifications to be a director as found in the bylaws. For example, he/she is a convicted felon or a non-owner and the bylaws require candidates to be owners and non-felons. If that were to happen, fellow directors could immediately remove the person from the board. In addition, the membership can remove directors at any time with or without cause. If someone lies and gets elected, the membership has two options: (i) wait until the next election and vote the person out of office or (ii) mount a recall campaign.

DEVELOPER
TRANSITION

QUESTION: My neighborhood has CC&Rs but the Declarant no longer exists and there is no public record of their ceding or transferring their rights to anyone. What does that mean for the declaration?

ANSWER: Unless there is something else lurking in the bushes, your Declaration of Covenants Conditions & Restrictions (CC&Rs) should be fine as-is. Your CC&Rs were recorded by the Declarant when he created your development and their recordation brought your association into existence. Your HOA is not the successor in interest to the developer. Instead, it is a separate entity that continues to exist even when your developer ceases to. You don’t need the developer’s powers, your association has its own powers via the CC&Rs, bylaws, Davis-Stirling Act and Corporations Code.

Property Transfers. It is possible, however, that the developer failed to transfer title to the common areas from his company to the association. That sometimes happens in planned developments and creates a problem. If that were to happen, your association would need to go into court on a quiet title action to have title transferred to the association.

RECOMMENDATION: When associations go through a transition from developer to homeowner control, they should use a checklist of records to make sure everything is transferred before the developer disappears into the night.

BOARD EDUCATION

Our firm will present at the Associa/N.N. Jaeschke annual “Board Education Event” on October 30 in San Diego.

The event will be held at Associa’s office at 9610 Waples Street. Judge Larry Stirling will speak about the historical aspects of the Davis-Stirling Act, after which Christina Ciceron and I will cover the nuts and bolts of the Davis Stirling Rewrite.

N.N. Jaeschke is one of the premier management companies in the San Diego area and part of Associa, North America’s largest and most successful community management company. They provide service to single family/master planned communities, mixed use, luxury highrise, active adult, golf & club, commercial and condominium communities.

There is limited space available for this event. To RSVP, please contact Mary Pat Saffel at (858) 795-7031 or joinus@nnj.com.

FEEDBACK

Investment Policy #1. I spent over 40 years in banking and dealing with the FDIC and never did see that bank CDs were backed by the full faith and credit of the United States. The FDIC is funded by assessments on banks. In the event of massive bank failures I am not sure where the full faith and credit would apply. Hence some of the concern with “too big to fail.” If you want an investment tied to full faith and credit of the United States you need to invest in US Treasury bonds or notes and Ginnie Mae securities. -Bill D.

Investment Policy #2. Just a quick comment on your article on investments. I would encourage a board to never allow one board member with this type if authority. If they are just going to local non-HOA banks there is a risk that he is the only signer on the account. Two board members must be signers. When a board uses a non-HOA friendly bank usually the board is required to visit the bank to complete the signature card. If he is doing it be himself this most likely means he is the only signer. The investment policy should state that two board members must be present or on the signature card. -Cyndi Koester, CommerceWest Bank

CAI Legal Forum #1. I wanted to say congrats and thanks for a great seminar last Friday at the CAI event. Educational with a little humor. Best seminar there. Thanks for your hard work and time. -Tom F.

CAI Legal Forum #2. You and Steve Roseman are great together! Yours was the highlight of the day. And you know how much I love your graphics… they were even BETTER than ever! -Linda H.

Website. I love your website, not only for the information you make available, but also for the design. Thank you! -Pauline K.

RESPONSE: I didn’t use government website designers.


Adrian Adams, Esq.
Adams Kessler PLC


“Legal solutions through knowledge, insight and experience.” We’re friendly lawyers; you can contact us at (800) 464-2817 or info@adamskessler.com.