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Things You Didn’t Know You Needed to Know Music to your Ears? We Think Not page 14 2013 Bowling Tournament Highlights page 22 don’t fear Mechanics’ C o mLiens m o n Apage s s e s 36 sment

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Features

Departments

6 It’s the Law, Not an Option

4

by Cindy Collins, CCAM, PCAM

by Marie Donovan

10 Meeting Minutes or Community Soap Opera?

16

24

by Jean-Marie Salvia, CCAM, PCAM

14 Music To Your Ears? We Think Not

By Jodi Konorti, Esq.

18 Running It Past Legal: Why Association Legal Counsel Should Review Contracts

President’s Message Platinum Business Partner Spotlight: Featuring Bald Eagle Security New and Renewing Members

26 Newsstand

Back Cover 2013 Marketing Plan Members

by Deborah M. Kornheiser, Esq. and Craig L. Combs, Esq.

30 Don’t Fear Mechanics’ Liens

Chapter News

by Stephen M. Kirkland, Esq.

36 Seeking Protection from Creditors in Bankruptcy Court

By Cheryl L. Stengel, Esq.

40 Cause for Celebration!

By Lucas Sisneroz, CCAM, CMCA

22

33

Bowling Tournament Highlights

34

February 8 Trade Show Sponsors

Thank You To Our Sponsors: March Morning Educational Program

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Common

President’s Message Living Up to the Meaning of Community Our actions evidence who we are as a “community.” As we go through the year, our programs and outreach activities reflect this concept. Our aim is helping others while achieving chapter goals.

This year, San Diego was the site of the 2013 CAI National Conference April 17-20. In conjunction with the Conference, on April 18, we hosted a fantastic Chapter Party at the San Diego Air and Space Museum. The event was emblematic of San Diego being a military, aviation and seaport town: from an emotional and stirring national anthem with Marine Color Marie Donovan has been Guard, the red, white and blue decor, to the California/Mexican involved with the CAI cuisine themed buffet, and the lively entertainment and San Diego Chapter as a homeowner volunteer dancing music provided by a local band, “Atomic Groove.” The since 2001 serving on entire museum was ours for the evening. All exhibits, interactive the Educational Services Committee and is the 2013 and simulator rides were also available for attendees to explore Chapter President. and test their skills. Fly an F-35 or Transport 6 anyone? We had over 600 attendees and they all enjoyed the evening.

The chapter donated a portion of the party’s proceeds to the San Diego Armed Services YMCA. This non-profit organization provides comprehensive, ongoing services to military service members and their families.

Volunteers are unpaid, not because they are worthless, but because they are priceless. - Anonymous A number of innovative ideas and projects now are in progress, with more planned for next year to – increase membership, program attendance, educational options, volunteer opportunities and communication throughout the chapter.

Marketing/Public Relations is working with “Rebuild Together,” a community service project to rebuild a house in CAI’s name this summer. Membership and Marketing/Public Relations have teamed to do a Mini Trade show membership drive in a park. The Golf committee is including a food drive as part of the Golf Classic.

The Business Partners committee has planned an appreciation event just for Business Partners and is planning a Reverse Trade show for 2014.

Education Services’ May Education Conference had something for everyone: a keynote session on staying positive and productive in a changing workplace, an advanced architectural review process presentation and roundtables with experts on multiple topics.

Committee Chairs are meeting quarterly to foster information sharing and collaboration between committees. In addition, your Chapter Executive Director and I are meeting with management company CEOs to confirm their educational needs.

I am pleased to announce that our Chapter Executive Director, Barbara Ozenbaugh recently earned the Certified Association Executive credential. The CAE is the highest professional credential in the association industry. Only four other CEDs have earned this designation. I am also pleased to announce that at the 2013 CAI National Conference the Chapter received a Chapter Achievement Award for our 2012-2013 Membership Directory.

Through their efforts, our volunteer committee members, managers and business partners continue to demonstrate how they are “Living up to the Meaning of Community.”

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EXECUTIVE COMMITTEE Marie Donovan................................................ President Homeowner Jason Payne............................................ president elect Payne Pest Management Shannon SMith.........................................VICE PRESIDENT Reconstruction Experts Bruce Rosenblatt........................................... treasurer Manager Elaine Gower.................................................... secretary Homeowner Louise stettler................................................ ex-oFficio Epsten Grinnell & Howell, APC DIRECTORS Kerry Beatty, PCAM........................................................Manager Co-LEE GREV, PCAM.....................................................Manager Rick Salpietra, Esq................. Law Offices of Richard Salpietra

CHAPTER Executive DIrector barbara ozenbaugh, CMP, CAE 619-299-1376 Managing editor and New & Renewing Advertising sales barbara ozenbaugh, CMP, CAE 619-299-1376, barbara@cai-sd.org design & production Kristine GAITAN Rey advertising & design / The Creative Dept.

760-746-8700 Magazine EDITORIAL committee Laurie S. Poole, Esq. (CHAIR)............... Peters & Freedman, LLP Lauri Croce, Esq. .................................. Anderson & Kriger, APC Sam Dolnick............................................................... Homeowner Jeff French, Esq.............................. Green, Bryant & French, LLP Elaine Gower.................................................................. Homeowner Yvette Huffman...................................... DC Property Management Brian Kalmenson, CCAM...........Michael Abdou Insurance Agency Jodi Konorti, Esq. ........................ Epsten, Grinnell & Howell, APC Cyndi Koester, PCAM.................................... CommerceWest Bank Jeff Morin................................Global Disposal Reduction Services Jean-Marie Salvia, CCAM, PCAM................ Walters Management Lucas Sisneros.......................................NNJ, An Associa Company Louise Stettler................................ Epsten Grinnell & Howell, APC All articles and paid advertising represent the opinions of authors and advertisers and not necessarily the opinion of either Common Assessment Magazine or the Community Associations Institute – San Diego Chapter.

Information contained within should not be construed as a recommendation for any course of action regarding financial, legal, accounting or other professional services and should not be relied upon without the consultation of your accountant or attorney.

Common Assessment Magazine is the official quarterly publication of the San Diego Chapter of the Community Associations Institute. CAI San Diego Chapter encourages submission of news and articles subject to space limitation and editing. Signed letters to the editor are welcome. All articles submitted for publication become the property of CAI San Diego Chapter. Reproduction of articles or columns published permitted with the following acknowledgement: “Reprinted with permission from Common Assessment Magazine, a publication of the Community Associations Institute San Diego Chapter.” © 2013 CAI - San Diego Chapter

Advertising & Correspondence should be sent to: Common Assessment Magazine CAI - San Diego Chapter 1081 Camino del Rio South, Suite 109, San Diego, CA 92108 619-299-1376 / fax 619-299-1377 / www.cai-sd.org

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By Cindy Collins, CCAM, PCAM

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Why do we have to follow all these stupid laws?

Who cares about the DavisStirling Act? If there are no condo police and no one ever shows up for our meetings anyway, why do we have to do all those silly things like post

agendas, send out secret ballots with two envelopes, mail all those documents with the budget and the annual financial review that no one reads? What a waste of time and money!

The simplest answer is: it’s the law and you have to. The intent of the DavisStirling Act was to establish laws that govern how homeowners associations are to be operated. They are designed to protect owners. Protect them from what? Volunteers that give up countless hours of their time to make decisions to better their communities and safeguard the value of the homes? Or from managers that work well over 40 hours a week trying to make everyone happy, meet expectations and retain accounts so they can make a living and feel some sense of satisfaction for a job well done? Those aforementioned volunteers and managers are the majority.

The unfortunate reality in the HOA world is that many laws are created based on the experiences of the minority. The minority consists of board members that may have a hidden agenda or seek power at the expense of their communities, or the ill-informed or inadequately prepared manager. It only takes a few people to feel that they have been slighted or to suspect that something not quite appropriate took place during an election to lead to an outcry of corrupt election practices, ballot box stuffing, and all the things unfair and unjust in this world.

They feel disenfranchised. When a person feels that they are not valued, are violated or treated unjustly, changing his or her perspective is difficult.

Since compliance with the law is not optional, and we must do certain things that may seem to betray all logic and common sense, perhaps it is time to take a step back and consider a different, more productive approach. Instead of dwelling on how ridiculous and expensive some of these laws may be for our communities, let’s try shifting our mind set. A shift in perspective and thinking can make these laws work to the benefit of the community, enhance the image of the board and manager to help make everyone’s role more fulfilling.

How about coupling a healthy dose of the ‘Golden Rule’ with a bit of the “what’s in it for me” approach? Instead of viewing these requirements as simply Continued on page 8

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minority may have experienced and relayed to

Since it is the law and not an option, take time to check the documents for your associations and ensure you have the following: Election Rules – These have been required since 2006, yet many associations still have not adopted formal Election Rules. If your management company has been acting as the inspector of elections, the Election Rules must specifically contain such authorization.

our elected officials, voter fraud does not run rampant in HOA elections. However, this is not to say that there have never been any incidents of someone making a decision on a ballot with bias or campaign efforts to get their candidate elected. Instead of fighting the negative impressions which lead to these laws, how about approaching the process as an opportunity to instill trust in the fair election system? Hire a third party inspector of elections to take all the subjective emotion out of the election and see if folks do not accept the results with less suspicion.

The annual budget packet mailer with the

Filings with the Secretary of State – Associations are routinely required to file certain documents with the California Secretary of State. Failure to timely file these documents can result in imposition of monetary penalties and even suspension of the corporation. If the corporation is suspended, it may not take any action.

countless legally required disclosure documents most likely overwhelms the average homeowner.

Most readers probably go straight to the sentence that tells them if the assessment rate for the next year will be going up and never read the other documents. Speculating that folks will

Filing Tax Returns – It goes without saying that filing tax returns on time is essential for any association in order to avoid substantial monetary penalties and possible suspension.

only read and care about the first paragraph of the cover letter, why not use this opportunity to provide information and capture their attention.

Instead of just saying something generic like, “after a thorough review of the operating expenses and reserve allocations needed, the

expensive and burdensome tasks, how about considering them as

board has determined the assessment rates need

tools to help restore and maintain the trust and confidence of our

to be increased (or decreased) by…”, why not take just a bit more

owners?

time and space to inform them of exactly what has caused the

Posting the meeting agenda is an opportunity to keep folks informed about the business of the association and to engage

need for increase or the reason for a decrease?

This would be a perfect opportunity to let owners know the

them, to make them a part of the process, thus working towards

types of expenses that are on the top of the list and continue to

eliminating the “us against them” attitude that many times

increase. An example might be “the board has determined the

develops. Approach the board meeting as a business meeting

need to raise the assessment rate by 5% due to the 12% increase

with shareholders that have a large stake in the company. After all,

in water costs, increased vandalism and graffiti in the community

they do. For the majority, their home is their largest investment.

which resulted in expense of $15,000 last year, and a 10% increase

Be respectful and fair; treat people the way you would like

in insurance premiums.” Or if you were able to decrease the

to be treated. Maintain an objective perspective while making

assessment rate, this is a good platform to showcase the good

decisions that are in the best interest of the entire community.

work of the board or manager with cost containment efforts,

Those that do attend the meetings will come to appreciate the

negotiating new contracts or implementing more cost effective

fairness and professionalism in which you handle the community

measures of maintaining the common areas. Use this legal

business. Those that don’t choose to attend the meeting will

requirement as a vehicle to celebrate your successes and show

have eyes on the business from the agenda posting, hopefully

your struggles on behalf of the owners.

feeling that the board is taking care of the important business of safeguarding their investments.

The election process has become one of the most

While these are just a few of the top legal requirements you face daily, try approaching your daily association activity with a different perspective and see if it doesn’t yield a different

administratively laborious and expensive examples of legislators

outcome. To build trust and confidence, be transparent in your

trying to protect the rights of owners to ensure dirty politics do

actions and decisions. There should be less focus on cost and

not prevail in our backyards, with no regard to financial impact

more focus on the investment you are making in the community

of the secret ballot, double envelope system. Despite what the

by engaging your owners in a positive way.

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What’s in it for you? Peace of mind and harmony within the community. A utopian perspective, perhaps, but we find what we look for in life. Look for the positive and the negative will diminish.

Do it because it is required by law but most importantly, do it because it’s the right thing to do, and because it’s the responsible and reasonable thing to do to help build a cohesive and pleasant community.

Cindy Collins, CCAM, PCAM, is Vice President of Community Management for Merit Property Management, LLC, a First Service Residential Management Company.

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C o m m o n A s s e s s m e n t Ma g a z i n e

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Meeting Minutes or Community Soap Opera?

By Jean Marie Salvia, CCAM, PCAM

I

magine yourself on a board of

member was playing on his phone

directors and sitting in a deposition

while two others were eating pizza

or in a courtroom. One of the

and a fourth appears to be taking a

homeowners in your community

nap.

is suing the board for not taking appropriate action or investigating

Scenario 2: Detailed meeting

his concerns. The plaintiff’s attorney

minutes submitted as plaintiff’s

accuses you of not taking his client

evidence.

seriously, not allowing him to be heard and putting the association at

Board Member: We take our position

risk. Review the scenarios below and

and all homeowners seriously. We

decide which one would you prefer to

listened attentively to your client but

be involved in.

did not believe his claims warranted further action.

Scenario 1: Video tape submitted as plaintiff’s evidence.

Plaintiff attorney: Oh really? The minutes state that when my client

Board Member: We take our position

brought this issue to your attention,

and all homeowners seriously. We

“several owners agreed it was an

listened attentively to your client but

issue. John and Sara debated the

did not believe his claims warranted

matter. Sam interjected stating that

further action.

this was a waste of time and he was hungry. The board unanimously

Attorney: Oh really? Let’s watch the

agreed and ended the meeting so

video of your meeting…When my

that they could get pizza.”

client raised the issue, one board

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Meeting Minutes

criticize the board for its process rather

some heartache and keep the minutes

Continued from page 10

than its decisions.

brief. Document the meeting time,

Scenario 3: Meeting minutes submitted

training or extensive practice, recording

or decisions, and leave the gossip and

as defense’s evidence.

meetings is strongly discouraged. If

heated debates in the boardroom.

If board members have not had media

you find yourself on a board and the Board Member: If you review our

those present, and the actual actions

Court drama can be entertaining

other members decide to videotape

and fun to watch, but it’s a completely

minutes, they state that time was provided

the meetings, keep in mind that the

different experience when you are caught

for homeowner comments. At every

association does not have the right to

defending yourself in the trial of the

meeting we provide homeowners with

record your actions or speech without

century. So, if you do have community

time to address the board. Then, we

your knowledge or consent. So, speak up

members looking to use their new

take their comments under consideration

and let them know that you do not want

recording devices or practice their screen-

for future decisions and action. Please

to be recorded – either on or off camera.

writing skills, consider starting a theater

provide your evidence that we did not

Similarly, meeting minutes that script

or broadcasting group. Keep the drama

allow your client to exercise his right to

all of the discussions of a meeting can

fun and save on the potential liability and

address the board or that the board did

also get you in trouble. Minutes are

defense costs.

not take his concerns seriously.

intended to document the decisions of Jean-Marie Salvia, CCAM, PCAM, is a Regional Manager for Walters Management.

Vide o doc um e nta ti o n c an be us e d to dis s e c t t h e de cis ion- m a king pr o c ess an d c ritic ize th e b o ar d fo r it s p roce s s ra th er t h an its de c is ions .

We live in a litigious society, and

12

the board—not the discussions. Detailing

unfortunately, some of our best intentions

discussions in the meeting minutes can

are used against us. Video recording or

become problematic. First, it is extremely

streaming board meetings sounds like

difficult for the recording secretary to

a great idea at first. Homeowners are

note the entire discussion, so sometimes

not able to attend meetings and want

the language that is mistakenly omitted

to actively participate. Board members

make the things that are included look

want the association to be cutting edge,

worse. Second, the minutes can be

and there is some really great technology

misconstrued and used against individual

available. However, video documentation

board members for slander or libel.

may get a board of directors into trouble.

Third, an insurance carrier may review the

It can be used out of context to suggest

minutes and, based on the information

the board is not taking appropriate action

included, will not provide defense

or to build a case of slander against one

coverage for a lawsuit. At that point, the

or more individuals. It can be used to

individual board members may be left

dissect the decision-making process and

to defend themselves. So, save yourself

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Music to Your Ears? No

Common Interest Developments Must Obtain Music and Movie Licenses

By Jodi A. Konorti, Esq.

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ot Without a License!

s for Public Performances

With summer here, many associations are planning their community BBQ or movie-under-the-stars nights. While these types of gatherings generally enhance the sense of community in an association, being hit with a copyright infringement lawsuit for failure to obtain a performance license will do little more than extinguish the rest of a community’s summer line-up.

Continued on page 16

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FOCUS

Business and property owners have relied on Bald Eagle Security Services, Inc. to provide unparalleled security services since 2005. The San Diegobased company, co-founded by Andrea Robinson and Dmitriy Todorov, operates under a simple philosophy: take great care of the client and exceed all expectations with a strong emphasis on customer service.

Dmitriy graduated from the Black Sea Naval Academy in Sevastopol, Ukraine and served in the Ukrainian Navy for 6 years. He went on to receive an advanced degree in Criminal Law from Odessa State University and a Security course at the Odessa Police Academy, Ukraine. This ultimately led to his twelve-year career as a Chief Security Officer on various cruise ships.

Ten years ago, on board a British cruise liner, Dmitriy met an American couple who encouraged him and his wife to accept a proposal to start a new business venture in America – Bald Eagle Security Services, Inc. They moved to San Diego 8 years ago.

CAI-SAN DIEGO PLATINUM MARKETING PLAN MEMBER

Dmitriy landed his very first contract in 2005. Now with almost 100 accounts Bald Eagle Security is one of the top security service providers in the Southern California residential market.

While many of Bald Eagle’s clients are residential communities in downtown San Diego, the company experienced huge growth by expanding services throughout San Diego county.

Bald Eagle provides a wide range of first class security solutions including unarmed uniformed or plain-clothed security officers, scheduled vehicle patrols in a highly visible fleet of hybrid cars as well as 24/7 emergency response services.

A shining example of excellence in the security industry, Bald Eagle understands the value of differentiating itself through its people. To ensure client satisfaction, its security officers go through an exacting hiring and training process, and 24/7 supervision in the field.

Officers remain very professional while on duty, with attention given to the highest levels of customer service.

Continuously striving to be the best security service provider in the residential industry, Bald Eagle Security was awarded the prestigious “Mark of Excellence Award” as the best service provider by the San Diego County Apartment Association consecutively in 2009, 2010, 2011 and 2012, competing against a large field of service providers in all trades.

Bald Eagle Security has been active member and sponsor of CAI since 2009. In December 2012 Bald Eagle Security was honored with the prestigious “Business Partner of the Year” award by CAI-San Diego.

Music to Your Ears…

Continued from page 15

Copyright Law – Protected Work The Federal Copyright Act (Title 17 of the U.S. Code) protects songwriters, music publishers, film producers, and the like, from unauthorized use of their copyrighted work.

Federal copyright laws consider the creation and publication of music and film as “property” owned by the creator and publisher. If a work is copyrighted, the owner of the work has the exclusive right to publicly perform that work and give their permission for someone else to lawfully perform or display1 the work in public. These laws directly affect community associations that play music or films in the clubhouse without obtaining a performance license before playing the work to the public in a community gathering.

What is a Public Performance?

In the performance licensing context, an association clubhouse or other common area may be considered a public place. While viewing a movie or listening to music in a private home does not require a license, to the extent a work is performed or displayed in a place “open to the public or at any place where a substantial number of persons outside the normal circle of family and its social acquaintances is gathered,” a public performance is deemed to exist (without regard to whether a fee is charged). (17 U.S.C. §101.)2 This definition extends to performances in semi-public places such as clubs and lodges (e.g., an association clubhouse), and presumably outdoor common areas. A conservative interpretation could extend this definition to association-sponsored events even if only residents are invited.

Examples of two cases demonstrate how copyright infringement liability can arise. In one case, an association held a dance, open to the public, with an orchestra and requested a $3 donation.3 While the court did not opine on whether the clubhouse was a public place, it held that an unauthorized public performance took place because the association invited the public and a fee was charged. The court’s opinion in this case indicates that if the association limited attendance to only members

16

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C o mm o n A ssessme n t M a g a z i n e

and did not request the donation, it may

plus attorneys’ fees and costs. The damages

have avoided liability (liability might still have

substantially increase for intentional

been found based on the number of guests,

infringements (up to $150,000).

however).

In another case, a semi-private golf club played music in the dining room for

Risk Management Save for a few limited exceptions, the

21 members and their guests.4 The court

public performance of a work requires

held this transmission of music was a public

the permission of the owner through

performance because 21 guests constituted

a performance license. To manage risk

a substantial number of persons outside a

associated with federal copyright laws,

normal circle of friends. This case indicates

community associations should either: (1) not

that an association clubhouse could be

allow the playing of music or movies in the

deemed a public place, and even when a

common areas, or (2) obtain the necessary

small number of attendees gather in the

license from the appropriate performing rights

clubhouse to listen to music, a license could

organization (see side bar). An association

be required.

could also obtain an indemnity agreement from the performers, but this may not protect

Exemptions to License Requirement Even if a performance is public, an association may be exempt from the license

the association entirely, because joint and several liability is imposed on all parties who participate in the infringement.

As the determination of whether a license

requirement if it can meet an exemption.

is necessary is fact-specific, we recommend

The most obvious exception to the license

you contact your legal counsel for advice.

requirement is if the performance is not “public.” In addition, the law exempts the playing of radio or television stations in a public place if the association does not charge a fee to enjoy the performance (the exemption does not include playing DVDs, CDs or iPod/mp3 playlists). The law also exempts performances that are not “transmitted,”5 where there is no commercial advantage to the performers, organizers, or promoters, if there is also no admission charge. (17 U.S.C. §110(4)(A).) A common example of this exemption is a spontaneous sing-along at the clubhouse, but would probably not include an associationsponsored event with music playing, even without an admission charge.

Copyright Infringement Liability Liability exists if, among other things,

1 “Display” is defined as “to show a copy of it, either directly or by means of a film, slide, television image, or any other device or process or, in the case of a motion picture or other audiovisual work, to show individual images nonsequentially.” (17 U.S.C. §101.)

2“Perform” is broadly defined as “to recite, render, play, dance, or act it, either directly or by means of any device or process or, in the case of a motion picture or other audiovisual work, to show its images in any sequence or to make the sounds accompanying it audible.” (17 U.S.C. §101.)

3 Public performance is further defined as transmitting or communicating a performance or display of a work to a place open to the public, or to the public by means of any device whether the public is capable of receiving the performance in the same place or separate places and at the same time or at different times. This somewhat convoluted definition means that a community with a central television channel that plays music or movies that can be viewed from individual owners’ homes may be considered a public performance. (17 U.S.C. §101.)

3 Hinton v. Mainlands of Tamarac 611 F.Supp.494 (S.D. Fla. 1985).

4 Fermata International Melodies, Inc. v. Champions Golf Club, Inc. 712 F.Supp. 1257 (S.D. Tex. 1989).

5 “Transmit” is defined as communicating a performance by any device or process where images or sounds are received beyond the place from which they are sent. (17 U.S.C. § 101(2).)

a work is copyrighted and the defendant publicly performed the work without first obtaining permission. The potential financial liability for copyright infringement is substantial. The Copyright Act provides for federal statutory damages of $750 $30,000 for each inadvertent infringement,

Jodi A. Konorti, Esq., is an Associate Attorney at Epsten Grinnell & Howell, APC, attorneys with offices in San Diego, the Inland Empire, and Coachella Valley

So, You Want to Have a Party… Now What?

If your party constitutes a public performance, the proper license(s) must be obtained from the relevant licensing entities. These entities ensure songwriters, music publishers and film producers are properly compensated when their work is played in public.

The three recognized Performing Rights Organizations (PROs) for music are:

• The American Society of Composers, Authors and Publishers (ASCAP),

• Broadcast Music, Inc. (BMI), and/or

• The Society of European Stage Authors and Performers (SESAC).

Two of the major licensing firms for movies are:

• Motion Picture Licensing Corporation, and/or

• Criterion Pictures.

Each of these PROs maintains an expansive catalog of music and movies.

• A license from one PRO does not allow the licensee to play a work from the catalog of the other two PROs – separate licenses must be obtained from whatever PRO protects the work.

• Licensing fees are generally dependent on the number of times a work will be shown or played and the size of the audience.

• PROs actively pursue license and copyright infringement violations.

• Practically, the cost to obtain a license is likely much less than the cost of the risk to the association and directors and the cost to the association to litigate an infringement action and pay-out significant damages.

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running it past legal Why Association Legal Counsel Should Review Contracts

By Deborah M. Kornheiser, Esq. and Craig L. Combs, Esq.

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C o mm o n A ssessme n t M a g a z i n e

In practical terms, managers are the hub in the spoke of vendors required to keep a community’s wheels turning smoothly.

While it is the volunteer board making the binding decisions with respect to vendor contracts, the community manager is expected to provide ad hoc opinions on the merits of many board decisions pertaining to retaining vendor services. The community manager is also expected to coordinate and problemsolve with vendors as the contract is executed.

Of course, coordination and problem-solving with certain vendors and with certain boards (apologies to volunteer directors everywhere) do not always go as smoothly as anticipated. Were there “extras” or “change orders” embedded in the contract that are now being demanded? Is the vendor not performing as anticipated? Does the board have expectations for which they did not bargain?

Or, as is common enough, does the written contract not contain the oral promises that were made during the vendor’s board presentation?

Once a problem arises, what sort of contractual mechanisms are in place to resolve the dispute? Must the vendor be given notice and opportunity to cure?

Have emails and other efforts to resolve the dispute informally with the vendor already convoluted the actual dispute resolution provisions set forth in the written contract? Do you have to pay this vendor? What will happen if you don’t pay the vendor as the board quite adamantly insists? What if the board wants to sue? The vendor has to have insurance, right? What if the vendor wants to sue?

No worries. You ran the vendor’s boilerplate contract past the association’s attorneys before the board signed off on it. Right? Right?!

CYA: Consult Your Attorney As a community manager, you are accustomed to many of the routine contracts entered into by associations. Your board isn’t going to want to pay legal to review every mundane, boilerplate agreement. But when in doubt, there are important reasons you may want to remember “CYA” and tell the board “Consult your attorney.”

Ultra Vires?

Does the board have the authority to enter into the contemplated contract?

Or is it “ultra vires” – “beyond the power” of the board to bind the association?

Although the board will almost certainly have the power to enter into routine maintenance contracts, some contracts may have terms of performance which exceed the timeframe permitted under the CC&Rs. Other times the price of the contract may require a special assessment which must be approved by the members.

Continued on page 20

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Run it Past Legal

Almost invariably these contracts are self-

performed. Legal counsel can help guide

Continued from page 19

serving, especially when it comes to right to

you between the Scylla and Charybdis of

cure a breach of contract, right to terminate

these possible payment problems.

Who are these guys?

When dealing with an unfamiliar vendor, there may be questions beyond the terms of the contract. You may advise the board to

the contract, notice and procedure to

Before any action is taken to put the

terminate, indemnification, and jurisdiction

vendor on notice, informally or formally, that

to hear grievances.

the board is dissatisfied with its performance

Some of the most common problems

it may be prudent to run it by legal counsel

have legal counsel do a background check

arise when the board becomes dissatisfied

in order to determine how to put the

into the vendor to check their corporate

with the vendor’s contractual performance.

association in the best position should

status, to see if they are properly licensed

Depending upon the relationship with

the relationship continue to deteriorate.

and bonded, and their litigation history. A

the vendor, efforts to resolve the dispute

Contracts often contain specific procedures

quick background check may raise enough

may range from conciliatory phone calls

which must be followed before the contract

flags to warrant a search for another vendor.

and emails with the vendor to attempts to

can be terminated. Failure to follow these

Is the vendor properly insured? Does

immediately hold the vendor in breach with

procedures can put the association in a

the vendor’s insurance policy name the

immediate termination and withholding

highly unfavorable position even when it is

association and management as additional

of all payment. These efforts can backfire

the vendor that is totally screwing up!

insureds?

on management and the board when not consistent with the terms of the contract.

Vendor-supplied contracts

Other problems are often related to

Many vendor supplied contracts also have provisions by which the contract is automatically renewed absent some formal

payment terms. You do not want your

notice by the association within a set period

When the vendor is signing off on a

association to pay for the entire contract

of time. The renewal language is often

contract prepared by legal counsel there is

prior to the satisfactory completion of the

buried in the fine print and doesn’t leap out

less risk than when the vendor supplies their

work. On the other hand you want to avoid

to the nonlegal eye. Whenever the board is

own contract for the association to sign.

mechanic’s liens for nonpayment of services

thinking of switching vendors at the end of a contract, you may want to remember to tell them “Consult Your Attorney” well before the term of the contract ends in order to avoid automatic renewal of the that contract.

You have a lot to think about when managing your communities. A hurriedly executed contract may end up giving you even more to think about – and not in a good way. When it comes to contracts for your clients, when in doubt send it out to legal.

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Deborah M. Kornheiser is a partner in the law firm of Wasserman Kornheiser, LLP. Wasserman Kornheiser’s practice is focused exclusively on the representation of community associations.

Craig L. Combs is an associate attorney with Wasserman Kornheiser. The emphasis of Craig’s practice is community association dispute resolution and litigation.

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New & Renewing Members Welcome new chapter members!! Thank you to our chapter members that have renewed their CAI membership.

We appreciate your continued support and participation in our chapter.

New Members Aaron Levine..................................................... 3/13 Access Professional Systems, Inc.................... 1/13 Allison Lucy....................................................... 2/13 Andrew Sheldon............................................... 3/13 Anne Perez........................................................ 1/13 Annie Vongphosy............................................. 2/13 Becky Camp...................................................... 3/13 BELFOR Property Restoration......................... 3/13 Black Diamond Paving, Inc.............................. 1/13 CDW.................................................................. 2/13 Christian Raymundo......................................... 2/13 Christine Gonzales........................................... 2/13 Clayton M. Anderson & Associates................ 2/13 Daria Veliz.......................................................... 2/13 David Demoranville.......................................... 1/13 Deena Arvizu..................................................... 3/13

Eli Whitney........................................................ 3/13 Erik Runsvold..................................................... 2/13 Erin Lindley........................................................ 2/13 First Citizens Bank............................................ 1/13 Golden State Reserves Studies, LLC.............. 1/13 Hanni Andersen................................................ 2/13 Iris Andrade....................................................... 2/13 Jennifer Patstone.............................................. 1/13 Jimmy Nevarez................................................. 3/13 Jocelyn Harris.................................................... 3/13 Joel Kownacki................................................... 2/13 John Doria......................................................... 3/13 Kami Goldstein................................................. 2/13 Marina Chavez.................................................. 2/13 Maura Eisele...................................................... 2/13 Melissa Vaughn................................................. 3/13

Melodie Nickell................................................. 2/13 Nancy Dobson-Villarreal.................................. 2/13 Pacific Premier Bank.................................................

2/13 Pro Pacific Pest Control.................................... 3/13 Project Approval Services................................ 2/13 Rayco, Inc.......................................................... 2/13 Sean Sutton....................................................... 2/13 Star Towing........................................................ 2/13 Suzanne Bryant CPA......................................... 1/13 Tasha Martinez-Dettmer................................... 3/13 The Edward Group General Contracting Corporation....................................................... 3/13 The Lazarus Group Internet Services, LLC..... 3/13 Thomas Normoyle............................................ 3/13 Thomas Peterson.............................................. 2/13

Jeff Greene...................................................... 2008 Jerry Bice, CMCA............................................ 2007 Jim Osborn...................................................... 2013 Joel Owens...................................................... 2013 John LaBlanc, CMCA..................................... 2010 Karen Medley.................................................. 2009 Kasdan, Simonds, Weber & Vaughan, LLP.. 2011 Katheryn Padilla............................................... 2013 Katy Camp, CCAM......................................... 2008 Kelley Brewster................................................ 2009 Pernicano Realty Management Company... 2000 LandGraphics Landscape & Arborcare Management................................................... 2012 Landsystems.................................................... 2013 Leanne Ardilla, CMCA.................................... 2008 Linda Hill, CCAM, CMCA............................... 2007 Lisa Isaacson, CCAM, PCAM......................... 2007 Lloyd Pest Control.......................................... 2012 Lohse2.............................................................. 2013 Lori Graham, CCAM, CMCA, AMS, PCAM. 2006 Mark Albert...................................................... 2013 Maureen Coobatis.......................................... 2009 Melanie Hudson.............................................. 2010 MeterNet......................................................... 2011 A1 All American Roofing................................ 1997 Michael Zumbahlen........................................ 2011 Mike Lutz.......................................................... 2006 Monique Douglas........................................... 2012 Morning View Associates, LLC...................... 2006 Nelson Paving/Goldstar Asphalt................... 2012 Nicolas Brennan.............................................. 2009 Nina Stanley..................................................... 2010 Orange Coast Building Services, Inc............ 2006 Pacific Rim Property Management............... 2011 Pamela Kindig................................................. 2010 Patio Guys........................................................ 2012 Patrick McNamara........................................... 1992 Paul Polowski................................................... 1991 PCM of California, Inc., CMF......................... 2009 Personal Touch Cleaning & Maintenance, Inc....2012

Peter Penzes, PCAM....................................... 2005 Popular Association Banking......................... 2005 R&D Pest Services, Inc.................................... 2009 Randy Hegwood, CMCA............................... 2010 Rebecca Groenewold..................................... 2013 Richard Cavanaugh......................................... 1992 Rita Petrekova.................................................. 2012 Robert Dolry.................................................... 2009 Robert Donaldson........................................... 1992 Robin Fennell, CMCA..................................... 2009 Romy Brown..................................................... 1991 Roy Palacios Insurance Agency, Inc.............. 2005 Russell Buckley................................................ 2011 Community Archives, Inc............................... 2008 Sam Dolnick..................................................... 1990 San Diego Roof Doctor.................................. 1990 SHE Manages Properties............................... 2013 Sherri Medlin................................................... 2005 Sky Security Services....................................... 2013 Smart Property................................................ 2008 Steven Bennett, CMCA, AMS....................... 2013 Steven Cassleman........................................... 2003 Susan Christian................................................ 2010 Tara Graviss...................................................... 2010 The Forestry Group Tree Care Services....... 2012 The Naumann Law Firm................................. 2012 Three Phase Electric, Inc................................ 2003 Tom Larkin........................................................ 2008 Tracy Mays....................................................... 2010 Transpacific Management Service................ 2012 Villa Park Landscape....................................... 2012 Vista Paint Corporation.................................. 1991 Vita Tarantino................................................... 2013 Western Gardens Landscaping, Inc.............. 2006 William Kiel...................................................... 2013 William Stewart, PCAM.................................. 2005

RENEWING Members 4-Points Management Agency...................... 2004 Adam Robinson............................................... 2010 Agricultural Pest Control................................ 2013 Albert Pryde..................................................... 1992 Alicia Loyd........................................................ 2007 AlliedBarton Security Services, Inc................ 2009 Amber Korody................................................. 2013 Animal Pest Management Services, Inc....... 2004 Asael Sandoval, CMCA, AMS........................ 2006 Association Reserves San Diego, LLC.......... 2009 Associations Insurance Agency, Inc.............. 2009 Bald Eagle Security Services, Inc.................. 2009 Brinks Services, Inc.......................................... 2006 CertaPro Painters, Ltd.................................... 2003 Christina Mercer.............................................. 2012 Christine Salas................................................. 2013 Cori Shipp, CMCA, AMS................................ 2006 Curtis Management Company, Inc............... 1984 Cynthia Van Cleave......................................... 2009 Deborah Griffiths............................................ 2006 Don Kerl........................................................... 2012 Donald Michaels............................................. 2006 Donna Walters................................................. 2007 Dorothy Champange...................................... 2009 Eagle Glen Master Homeowners Assn........ 2009 Emercon Construction, Inc............................ 2013 G.R.G. Management Inc................................ 2009 Gary Schwertly................................................. 2010 Glen Johnson.................................................. 1977 Green Bryant & French, LLP.......................... 2005 Greg Montulli.................................................. 2010 Haney Accountants, Inc.................................. 2009 Heaviland Enterprises, Inc............................. 2011 Houston Burnside........................................... 2013 Interiors: By Design......................................... 1996 Ivey Engineering, Inc...................................... 2012 Jamie Kim, CCAM, CMCA, AMS.................. 2007 Janet Wagner, CCAM, CMCA....................... 2012 Janice Liese, CMCA, AMS............................. 2005 Janis Russell..................................................... 2013

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Newsstand Trigiani, Dyekman Among Members and Chapter Leaders Honored by CAI Lucia Anna “Pia” Trigiani, Esq., a principal with the Virginia-based law firm MercerTrigiani, received one of CAI’s most prestigious honors April 19 at the organization’s 2013 Annual Conference and Exposition. Given at the discretion of CAI’s immediate past president, Kathryn C. Danella, CMCA, LSM, PCAM, the President’s Award was presented to Trigiani in recognition of her exemplary service to CAI and the instrumental role she has played to support CAI and the 63-million-plus Americans who live and work in community associations.

Donald E. Dyekman, Esq., a member of the Central Arizona

chapter and a past president of both CAI and the College of Community Association Lawyers, received the prestigious Distinguished Service Award for long-standing and extraordinary contributions to CAI. Among other activities, Dyekman prepared case law update materials for the Community Association Law Seminar attendees for more than a decade.

Trigiani has been a major contributor to CAI for 20 years, providing her talents as an advocate, advisor and educator on both the chapter and national levels. She is a member of CAI’s College of Community Association Lawyers (CCAL); served on the Foundation for Community Association Research’s

Board of Directors from 2006-2012; and acted as chair of CAI’s National Government and Public Affairs Committee from 1996-2008. Trigiani is also the author of Reinventing the Rules (Community Associations Press, 2002) and in 2009 received CAI’s Distinguished Service Award.

Trigiani and Dyekman were among eight CAI member leaders, three chapter executive directors, 21 chapters and a state legislative action committee recognized for excellence, achievement and leadership during CAI’s Annual Conference, April 17–20 in San Diego. The event attracted attendees from all over the globe— including Australia, the Bahamas, Brazil, Canada, Dubai, Saudi Arabia and South Africa. More than 1,400

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• Lockbox Services • ACH Origination • HOA Financing • Online Dues Program

conference participants—including 23 past national presidents—also celebrated CAI’s 40th anniversary during the event.

Other Award Recipients The following members also received 2012 awards at this year’s conference: • Stephen R. Bupp, CMCA, AMS, PCAM (Washington Metropolitan), Educator of the Year • Dana Davidson, CMCA, AMS (Orange County Regional– California), Recruiter of the Year • Linda Van Gelder (Central Arizona), Award of Excellence in Membership • Bruce R. Gran, CMCA, AMS, PCAM (Central Arizona chapter), Award of Excellence in Chapter Leadership • Stephen M. Marcus, Esq.

(New England), Outstanding Volunteer Service Award • Earl “Dick” Pruess (Greater Los Angeles), Award of Excellence in Government and Public Affairs The California Legislative Action Committee (CLAC) was named the LAC of the Year for its advocacy efforts and successes in the state legislative arena. CLAC successfully advocated many difficult bills, including executing a grassroots campaign to support a foreclosure notification bill (AB2273).

“In 1973, a group of passionate volunteers had the foresight to realize the importance of providing advocacy and education for community associations, and from their grassroots efforts CAI was born,” says CAI Chief Executive Officer Thomas M. Skiba, CAE. “Today, that same spirit lives on in our members—many of whom volunteer on 61 chapter boards,

educate their peers and work through 35 CAI legislative action committees to help ensure appropriate public policies affecting common-interest communities. I can only imagine all of the ways our members will help shape CAI over the next 40 years.”

Chapter Awards Several CAI chapters and chapter executive directors (CEDs) were also honored during the Annual Conference. Michelle Leary, the Washington State chapter’s CED, was named the Chapter Executive Director of the Year, while Stacey Drayer (Central Virginia) and Vicki Hancock, CMCA, AMS, PCAM (Michigan), were named Chapter Executive Director Rising Stars.

The following chapters were recognized for their excellence in various categories of achievement: Central Arizona (three awards); Central Virginia; Connecticut; Gold Continued on page 28

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Newsstand

10 percent) Orange County Regional (very large chapter, 16 percent) The membership growth of all chapters helped CAI surpass the 32,000-member mark in 2012.

Chapters recognized for the highest net membership retention in 2012 were: • San Antonio (small chapter, 89 percent) • California North (medium chapter, 94 percent) • Chesapeake (large chapter, 91 percent) • Connecticut (very large chapter, 90 percent) CAI’s national member retention rate for 2012 exceeded 85 percent.

With more than 32,000 members dedicated to building better communities, CAI works in partnership with 60 domestic chapters, a chapter in South Africa and housing leaders in a number of other countries, including •

Continued from page 25

Coast; Greater Inland Empire; Greater Los Angeles; Heartland; Illinois (two awards); Jacksonville Metropolitan; Orange County Regional; Oregon; Pennsylvania/Delaware Valley; San Antonio; San Diego; Southeast Florida; and Wisconsin (two awards).

“Year after year, our CEDs and chapter member volunteers continue to play an invaluable role for CAI,” says Crystal L. Wallace, IOM, CAE, CAI’s vice president of membership and chapter relations.

Chapter Growth and Retention The following chapters were recognized for having the highest net membership growth in 2012: • Southern Arizona (small chapter, 19 percent) • Austin (medium chapter, 26 percent) • South Carolina (large chapter,

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Australia, Canada, the United Arab Emirates and the United Kingdom.

CAI provides information, education and resources to community associations and the professionals who support them. Visit www.caionline.org or call (888) 224-4321.

CAI Annual Report Outlines Member-Driven Accomplishments Community Associations Institute (CAI) set yet another membership record, expanded its professional development programs and achieved key accomplishments in critical regulatory and legislative venues in 2012, according to CAI’s Annual Report, Collective Success.

The report is published beginning on page 48 in the March-April issue of Common Ground, CAI’s flagship magazine. Below are just a few 2012 accomplishments: • Membership reached a record of 32,059, an increase of more than 500 in one year.

• CAI elevated its role as a major influence in mortgage and condominium certification issues.

• More than 2,500 members attended four of CAI’s major events, including the Annual Conference and Exposition.

• Almost 3,800 students took CAI professional development courses in the classroom and online.

• More than 800 professionals earned CAI designations.

• CAI Press, the publishing division of CAI, sold more than 36,000 books and brochures.

• Almost 300,000 people visited CAI’s website for information and resources.

“When we succeed as individuals, we gain respect and recognition, accelerate our careers, strengthen our professions and grow our businesses,”

said 2012 CAI President Kathryn C. Danella, CMCA, LSM, PCAM. “When we succeed collectively, we fulfill our mission of supporting and strengthening communities and serving the people who call them home.”

CAI’s achievements, she added, “reflect an organization with members and leaders who understand the importance of both our individual responsibilities and our collective contributions.”

Added Chief Executive Officer Thomas M. Skiba, CAE: “With the help and support of countless CAI member volunteers, we will continue to provide information, education and representation that support you, your associations, your residents, your careers and your professions.”

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M

ost of us understand

Supplies, who has not been paid

the concept of

for the roof tiles he supplied

a “lien” as an

to Jack’s Roofing, may record

encumbrance recorded against

a mechanic’s lien against Mr.

the title to real property in

and Mrs. Smith’s condominium

order to secure payment of a

unit even though there is no

monetary obligation, such as

contractual relationship between

the all too familiar “Notice of

Bob and the Smiths.

Delinquent Assessment Lien.” A

Fast forward to the next

mechanic’s lien is no different.

board meeting attended by

Pursuant to a specific

the Smiths and every one of

procedure provided by statute,

their neighbors whose units are

California law allows any person

subject to a mechanic’s lien and

or entity who furnishes labor

are now unable to refinance or

or supplies materials for a

sell the same through no fault

construction project or work

of their own, or through no

of improvement to record a

fault of the association or the

mechanic’s lien against real

board. Despite the association

property to secure payment for

having paid the contractor,

that labor or those materials.

the supplier is threatening to

The right to record a mechanic’s

foreclose on the mechanic’s lien.

lien extends to any contractor,

In order to avoid that action,

subcontractor, material supplier

the association may have to pay

or laborer regardless of whether

Bob for the same materials it

they have direct contractual

has already paid Jack. Of course

relationship with the owner of

the association would have

the real property.

legal recourse against Jack’s

So, while an association

Roofing but whether or not the

involved in such a construction

association is ultimately made

project or work of improvement

whole depends on Jack staying

may have diligently remitted

in business and being solvent.

timely payment to its contractor,

So how does an association

if the contractor does not in

minimize its exposure to the

turn pay the subcontractor,

risk that its contractor may not

that subcontractor may record

pay their subcontractors and

a mechanic’s lien against the

suppliers? Not surprisingly, the

property improved by the labor

best protection is through the

or with the materials supplied,

written contract between the

including the homeowners’

association and the contractor.

separate interests. In other

Have the association’s legal

words, Bob’s Roofing Material

counsel prepare the contract Continued on page 32

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The right to record a mechanic’s lien extends to any contractor, subcontractor, material supplier or laborer regardless of whether they have direct contractual relationship with the owner of the real property.

Don’t Mec

Fear

chanic’s Liens

By Stephen M. Kirkland, Esq.

Continued on page 20

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Don’t fear...

Continued from page 30

because the typical contractors’ document does not contain provisions requiring them to indemnify and hold the association harmless from claims for mechanics’ liens. More often than not, a contractor’s “contract” is simply a proposal, bid or scope of work containing none of the provisions necessary to adequately protect the association.

In addition to express provisions in the contract, an association can further minimize its exposure to mechanics’ liens by requiring a “waiver and release” from the contractor of its right to record or to foreclose on a mechanic’s lien.

The waiver and release can be either “conditional” when the contractor has not yet been paid, or “unconditional,” when the contractor has been paid. The “unconditional” waiver and release should state on its face that by signing the same, the contractor is acknowledging receipt of that payment and that the payment covers the work performed under the

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32

Prior to issuing progress payments to the contractor, associations should require that the contractor provide waivers and releases for not only the contractor, but all subcontractors and suppliers. In fact, the contract should state that waivers and releases are required prior to issuance of any payments.

Another layer of protection is to record a “notice of completion” with the county recorder’s office within ten (10) days of completion of the work. Doing so can shorten the period within which a subcontractor or supplier is required to record its mechanic’s lien. While the

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contract, or some portion of the work.

association can require a provision in the underlying contract obligating the contractor to record a notice of completion, the prudent practice is for association to record the same to ensure that this occurs within the required ten (10) days in order to be effective.

So what should an association do upon learning that a mechanic’s lien or liens

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C o mm o n A ssessme n t M a g a z i n e

have been recorded against the project?

First, DON’T PANIC, but immediately refer the matter to the association’s legal counsel. The statutory procedures governing mechanic’s liens contain very specific, short time constraints and require strict compliance. It is not uncommon for contractors, subcontractors or suppliers to fail to comply with the requirements.

Any such deviation from those procedures and time constraints by the contractor, subcontractor or supplier may give the association leverage in negotiating a resolution of the dispute. The association’s legal counsel can also concurrently pursue the remedies against the contractor expressly set forth in the underlying contract.

Stephen M. Kirkland is a partner with the law firm of Peters & Freedman, LLP specializing in representing common interest developments throughout Southern California with offices in Encinitas and Palm Desert.

Thank you to our March Morning Educational Program Sponsors March 13 Epsten Grinnell & Howell, APC JW Cleaning & Restoration KR Landscape Maintenance, Inc. Pacific Green Landscape Servpro of Carlsbad The Termite Guy Western Gardens Landscaping, Inc. March 15 Bald Eagle Security Services Epsten Grinnell & Howell, APC Green Valley Landscape Maintenance Mutual of Omaha Bank/Condo Certs O’Connell Landscape Maintenance Reconstruction Experts, Inc. Seacoast Commerce Bank

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Thank you to our February 8 Trade Show Exhibitors Agricultural Pest Control Animal Pest Management Arborwell Association Reserves San Diego, LLP AT&T Connected Communities Bald Eagle Security Service Barrera and Company Behr Paint Black Diamond Paving Bob Piva Roofing Co. Brinks Services California Tree Service, Inc. Dunn-Edwards Corporation Epsten Grinnell & Howell, APC Green Valley Landscape & Maintenance, Inc. Heritage Landscape Services Horizon Lighting

Your nerdy best friend Beth Z and chapter president Marie Donovan at the February 8

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tradeshow.

JW Cleaning & Restoration Landsystems LOHSE 2 Mission Landscape Mt. Helix Pest & Termite Control, Inc. Mutual of Omaha Bank/Condo Certs New Way Landscape & Tree Service O’Connell Landscape Maintenance Pacific Green Landscape Pacific Western Bank Pacific Western Painting Patioshoppers, Inc. Popular Association Banking Premier Roofing CA PrimeCo Painting and Construction Pro-Tech Painting Roy Palacios Insurance Agency, Inc. Seacoast Commerce Bank Southern Cross Property Consultants Sullivan Construction Management The Termite Guy Three Phase Electric, Inc. Tierra Verde Resources, Inc. Union Bank Universal Protection Services US Bank Western Towing 34

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Annual Golf Classic at Coronado September 13, 2013 C o m m o n A s s e s s m e n t Ma g a z i n e

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Seeking Protection from Creditors in Bankruptcy Court

By Cheryl L. Stengel, Esq.

M

ost homeowners associations are non-profit mutual benefit corporations. When an association’s assets dip below its liabilities, an association can find itself in the

kind of trouble only a Chapter 11 bankruptcy can fix.

An association has one primary asset: the sum total of assessments it collects monthly and accumulates in its operating and reserve accounts. When an association runs low on cash, it can specially assess its members. But what happens when an extraordinary situation arises? The usual option for the association is to decrease discretionary services and limit repair and maintenance projects to “emergencies” only. Furthermore, as a “pass-through” corporation owned and funded by its shareholders (the homeowner members), an association is expected to impose a special assessment to put its financial picture into balance. Assuming the

36

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C o mm o n A ssessme n t M a g a z i n e

association membership cannot make up the shortfall, negotiation with creditors is the next logical step. But negotiations can take too long without yielding net positive

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$100,000, and possibly more, depending on creditor opposition and other obstacles in the case. There are also fees due quarterly to the Office of the U.S. Trustee (“OUST”) which oversees bankruptcy case

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administration by scrutinizing the actions and business affairs of the association preand post-filing. Association management must meet with the OUST, attend court hearings, respond to document and information requests, and prepare and file monthly financial reports. Court approval

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of many actions will be needed, including employment of professionals, payments to insiders, borrowing, sale of any assets and use of any revenues generated by a secured creditor’s collateral. The likelihood of a successful Chapter 11 case is dependent on many factors, including the association’s post-Chapter 11 management

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assess operations, restructure contracts, restructure debt and, if necessary, obtain financing to pay mounting unpaid bills. The filing of a bankruptcy petition invokes the Bankruptcy Code’s “automatic stay” under 11 USC §362. The automatic stay operates as an injunction to stop all acts to collect or enforce a debt against the debtor or its property. The stay stops lawsuits, judgment enforcement, foreclosure, repossession, creation or enforcement of a lien, and asset Continued on page 38

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Seeking Protection Continued from page 37

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the creditor’s interest or lack of equity in property. The court will grant relief from stay to an unsecured creditor under very limited circumstances.

When an association files for bankruptcy protection under Chapter 11, it remains in control of operations as a “debtor in possession” unless mismanagement or mishandling of its duties results in the appointment of a trustee. During the

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association alone may propose a plan of reorganization. The plan is the debtor’s road map for paying existing debt over time, usually from future revenues, Member FDIC

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liquidation of assets or financing. The plan

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payment terms or other treatment for claims. The association’s creditors have the opportunity to vote on the plan. Rallying

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support from “friendly” creditors is critical to help push the plan through confirmation.

Shortly after the plan is confirmed by the court, the debtor will commence payment to creditors.

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reorganize in a reasonable time, or profit corporations in Chapter 11. It is essential that the debtor generate net income to have a chance at a successful reorganization. If the debtor’s financial condition continues to degrade postChapter 11 with no realistic remedy to increase cash flow, the case is doomed.

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And while the Bankruptcy Code allows a debtor to reject or restructure certain contracts to make right its listing financial ship, doing this can discourage companies

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a halt as potential buyers see joining a

SUMMER 2013

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760/745.9916

C o mm o n A ssessme n t M a g a z i n e

Lic No. 456160

in the future. Sales in the community or refinancing transactions could grind to

bankrupt association as too high a risk to their personal financial well-being, and lenders become skittish or downright hostile towards an association in apparent – even if only temporary – disarray.

Lastly, as a corporate entity, a homeowners’ association cannot obtain a discharge in bankruptcy the way individuals can. In other words, corporate obligations are not eliminated by the filing of a bankruptcy proceeding. Successful reorganization is the only acceptable outcome.

Bankruptcy for a homeowners’ association is probably most beneficial in a situation that is a one-time urgent event: a balloon payment due on a loan, a large repair bill, an expiring land lease the debtor hopes to re-negotiate or a lease with unfavorable terms which the debtor wishes to reject altogether and limit damages. The time afforded an association to restructure the deal could make it worth the cost of the “bankruptcy” label, and eventually allow the organization to reorganize and move onto a brighter, less distressed future.

It’s amazing what good community management will do.

Cheryl L. Stengel, Esq., practices in San Diego with the Law Office of Michael T. O’Halloran. She is a Certified Specialist in Bankruptcy Law by the State Bar of California Board of Legal Specialization.

800.227.6225 • www.waltersmanagement.com SA N DIEGO • CHU LA VISTA • CA R LSB A D • MU RRIETA C o m m o n A s s e s s m e n t Ma g a z i n e

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By Lucas Sisneroz, CCAM, CMCA

T

here are pivotal moments in

throwing the party, the association

every person’s life that deserve

or individual member, there are a

recognition. Whether it’s the birth

few checklist items that need to be

of a child, a graduation, a new job or

considered:

What happens if things get out of hand?

Associations should have a reservation system in place along with rules for

retirement, there is always a reason and

•

What kind of celebration?

the type of events that can be held.

season to celebrate. While not every

•

What is the maximum capacity?

These guidelines will communicate to

party will be reminiscent of a ticker tape

•

What does the association’s

homeowners what is allowed and what

insurance cover?

is not permitted. If homeowners know

Is there a risk factor (does the

the rules ahead of time, the odds of the

recreation room connect to the

event going south are much less. These

pool area)?

guidelines also apply when the association

parade, homeowners associations have much more to lose when the good times

•

go awry.

As a community manager or board member, a request to reserve

•

Will there be a need for security?

hosts a community event such as a holiday

the recreation room, the pool or the

•

Is there a deposit?

party, summer picnic, annual meeting or

park may come as an everyday task

•

What other parts of the common

movie night.

that may be as simple as putting up a sign that says “Reserved.” However,

area may be affected?

•

sometimes ”simple” turns into downright complicated. Regardless of who is

40

SUMMER 2013

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•

Unfortunately, disaster can strike at

Will other homeowners be

any time and there are many underlying

affected?

factors that can lead to catastrophic

What time will the festivities end?

events. Some examples are:

C o mm o n A ssessme n t M a g a z i n e

•

Serving of alcohol. Associations should never sponsor an event where alcohol is served, including at holiday parties or annual meetings.

•

Uninsured outside vendors that cause damage, such as a catering van that plows into a house.

•

An injury or death occurring on association property.

•

An association sponsored event where something goes awry such as an assault, fire or property damage.

•

Lack of child supervision. No one wants a lost child.

•

Catered events that may lead to food issues such as allergies or spoiling.

Make sure you clearly state what ingredients are in the food being served.

•

Bounce houses can lead to a child with a broken limb. Yes, it happens and someone will inevitably blame the association.

•

Live animals, such as when Dolly the pony gets spooked and causes harm or damage to people and property.

•

Misappropriation of association funds and theft. Ensure that if association funds are involved, the association has the authority to spend funds on social events. If so, it is necessary to keep track of all expenditures, stay within budget and by all means, do not go over the top.

What happens when the worst case scenario happens? In community management, we are always putting out fires so arm yourself and prepare for the worst. “Murphy’s Law” states that if anything bad can happen, it probably will. Good luck and remember to have fun at your next association event.

Lucas Sisneroz, CCAM, CMCA is a Community Manager with N.N. Jaeschke, Inc.

C o m m o n A s s e s s m e n t Ma g a z i n e

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Service Directory Display advertisers receive a complimentary listing in the Service Directory.

Attorneys cont’d.

Financial Services

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fax 619-698-3937 mjfcpa@juno.com

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ASphalt REPAIR/PAVING

Associated Professional Services Neal Chazin......................619-299-6899 x101

fax 619-299-8242 nchazin@apsmanagement.com www.apsmanagement.com

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fax 858-587-9972 pcampbell@curtismanagement.com www.curtismanagement.com

Please see our ad on page 25 Professional Community Management Jim Fraker.................................. 760-918-8040

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AMS Paving Liz WIlliams................................ 800-357-0711 Walters Management

fax 888-357-0715 Joe Farinelli, PCAM.................. 858-495-0900 liz@amspaving.com

fax 858-495-0909 www.amspaving.com jfarinelli@waltersmanagement.com

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Attorneys Community Legal Advisors Inc. Madeline Orey ......................... 760-529-5211

fax 760-453-2194 madeline@AttorneyforHOA.com www.AttorneyforHOA.com

Please see our ad on page 29 Epsten Grinnell & Howell, APC Jon H. Epsten, Esq. ................. 858-527-0111

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SUMMER 2013

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Consulting Curtis Management Company, Inc. Patrick S. Campbell, CCAM....... 877-587-9844

fax 858-587-9972 pcampbell@curtismanagement.com www.curtismanagement.com

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Financial Services Curtis Management Company, Inc. Patrick S. Campbell, CCAM....... 877-587-9844

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C o mm o n A ssessme n t M a g a z i n e

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Pacific Western Bank Susan Abubo............................. 760-432-1335

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Please see our ad on page 35 Popular Association Banking Larry Hooper.............................. 714-864-5171

fax 714-864-5190 lhooper@bpop.com www.bpop.com

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fax 949-540-0218 kimberly@BergInsurance.com www.BergInsurance.com

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Landscape Maintenance and/or Construction Landscapes USA Charlie Carter............................ 858-386-9820

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Towing Western Towing Kathy Tighe................................ 619-297-8697

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SAVE THE DATE!

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Scan this code with your smartphone to visit the chapter website.

1081 Camino del Rio South Suite 109 San Diego, CA 92108

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Marketing Plan Members

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