ECHO Journal - January 2014

2014 ECHO Seminars p.7

A New Design for Leadership p.8

Focus on Earthquake Coverage in HOAs in California p.14

Basic Homeowner Association Income Tax p.18

Avoiding Fraud in Your Association p.24

Whom Do You Trust? p.30

January 2014

Serving Community Associations

A New Design for Leadership Who needs policy governance? p.8

echo-ca.org

ECHO 1602 The Alameda STE 101 San Jose, CA 95126 Change Service Requested

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CONTENTS

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A New Design for Leadership Who needs policy governance? Boards who want to make a positive contribution. The model of policy governance provides a discipline, a plan to attain a goal, values and a technology that will help you maintain the course.

14

Focus on Earthquake Coverage in HOAs in California This is an article that briefly discusses earthquake insurance, both by an individual owner and through an Association’s policy, within an imaginary Homeowners’ Association community in California.

18

Basic Homeowner Association Income Taxes Homeowner associations, whether formally incorporated or unincorporated, were and are subject to tax as regular corporations. It was not until 1976 that Congress specifically addressed homeowner associations.

24

Avoiding Fraud in Your Association In the tight economic conditions that now exist with foreclosures, tight credit and job layoffs, every board needs to be diligent in watching and guarding association moneys.

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Whom Do You Trust?

Trust garnered over a decade or more can be lost in a moment over some hasty comment, a transparent motive, a departure from the truth, or an emotional outburst. Community associations rely on contracts and statutes for their authority, but their leaders need trust for legitimacy. The law dictates the rules but cannot dictate trust.

The ECHO Journal is published monthly by the Educational Community for Homeowners. The views of authors expressed in the articles herein do not necessarily reflect the views of ECHO. We assume no responsibility for the statements and opinions advanced by the contributors to the magazine. It is released with the understanding that the publisher is not engaged in rendering legal, accounting or other professional service.

If legal advice or other expert assistance is required, the services of a competent professional should be sought.

Acceptance of advertising does not constitute any endorsement or recommendation, expressed or implied, of the advertiser or any goods or services offered. We reserve the right to reject any advertising copy.

Copyright 2014 Educational Community for Homeowners. All rights reserved. Reproduction, except by written permission of ECHO is prohibited.

The ECHO membership list is never released to any outside individual or organization.

ECHO 1960 The Alameda, Suite 195 San Jose, CA 95126 408-297-3246 Fax: 408-297-3517 www.echo-ca.org info@echo-ca.org Office Hours Monday-Friday 9:00am to 5:00pm Board of Directors and Officers President David Hughes Vice President Karl Lofthouse Treasurer Diane Rossi

DEPARTMENTS

Secretary Vacant

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News from ECHO

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2014 ECHO Educational Calendar

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San Francisco Luncheon — Thursday, January 16th

13

Marin Educational Seminar — Saturday, February 8th.

Directors Jerry L. Bowles Stephanie Hayes Robert Rosenberg Brian Seifert Steven Weil

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Santa Cruz Educational Seminar — Saturday, March 1st.

36

ECHO Bookstore

38

ECHO Event Calendar

39

ECHO Volunteers

41

Advertiser Index

42

New ECHO Office (We Moved!)

John Garvic David Levy Kurtis Shenefiel Wanden Treanor

Executive Director Brian Kidney Director of Marketing & Membership Vacant Director of Communications Tyler Coffin Legislative Consultant Government Strategies, Inc. Design and Production Design Site ECHO Mission Statement Serving Community Associations

January 2014 | ECHO Journal

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news from ECHO

News From ECHO January 2014 Do you have your New Year’s Resolutions all organized? Have you given up any yet?

Aside from going to the gym more often, my resolution for 2014 is to make ECHO an even more valuable resource for our members.

Last year, we expanded the number of Regional Educational Seminars by adding halfday sessions in Fresno, Monterey and Walnut Creek. We brought back the popular San Francisco luncheon seminar. We added a new trade-show size event in Oakland, and changed the location of our Annual Seminar to San Jose, where the exhibit space is adjacent to the educational sessions. We also included complimentary lunch for all attendees, with no price increase. 2013 saw the unveiling of our new website, with lots more functionality and information, including online access to both the old and new Davis-Stirling Statute. The ECHO Journal got a new look, and we changed the size to the more standard 8.5X11 inches (did you notice?).

We’re starting off 2014 in new offices, at 1960 The Alameda, Suite 195 in San Jose.

Our seminar schedule for 2014 is available on the next page. We hope to expand the attendance at each of our educational sessions so more HOA board members can get the expert advice and information needed to successfully oversee your communities.

We hope you will attend one or more of our seminars, and tell your fellow board members and friends in other communities.

Our website is being loaded with new content every day, so we hope you’ll visit www.echo-ca.org often to get answers to the questions you have about virtually any aspect of homeowner association law, legislation, management and maintenance.

We will continue to publish the ECHO Journal and provide a monthly copy to each member association board member. Please let me know if there are subjects you would like to see covered in a future edition. You will also shortly receive our updated 2014 Statute Book, with the “New” Davis-Stirling Act provisions, an extensive index and conversion table.

As in the past, ECHO will be monitoring and advocating on your behalf on legislation affecting homeowner associations. With the “New” Davis-Stirling Act now effective, there will surely be initiatives brought before the legislature that require scrutiny.

We are here to protect your interests.

In closing, I hope you will let me know how we can make your membership in ECHO as valuable and rewarding as possible. Our Mission Statement is “Serving Community Associations” and we take that seriously. A well informed and properly functioning HOA and board mean healthier and happier communities.

Happy New Year!

Best,

Brian Kidney Executive Director Brian Kidney Executive Director 6 echo-ca.org

2014 ECHO educational calendar

ECHO Seminars Now there’s one near you.

Santa Rosa

If you’ve ever wished that ECHO would hold a seminar closer to your association, chances are that we’ll be nearby during 2014. Don’t miss an opportunity to get the education you need with guidance from some of California’s top HOA attorneys and professionals. Take a look and mark your calendar. We can’t wait to see you there!

Marin Walnut Creek Oakland San Francisco

Jan. 16

Feb. 8

March 1

San Francisco Luncheon (see page 11)

Marin Educational Seminar (see page 13)

Santa Cruz Educational Seminar (see page 19)

McCormick and, Kuleto’s San Francisco

Embassy Suites San Rafael

Hotel Paradox Santa Cruz

DATE

EVENT

March 15 March 22 May 16-17 May 31 June 14 August 22-23 October 4 October 18

South Bay Educational Seminar Wine Country Educational Seminar ECHO Oakland Fresno Educational Seminar Sacramento Educational Seminar ECHO San Jose Monterey Educational Seminar Walnut Creek Educational Seminar

Sacramento

San Jose Campbell Santa Cruz

Fresno Monterey

Register today!

Online: www.echo-ca.org;

By Phone: 408.297.3246

January 2014 | ECHO Journal

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A NEW DESIGN FOR LEADERSHIP POLICY GOVERNANCE: What is it and who needs it?

By Douglas Christison, PCAM

P

olicy in this context is a written statement that causes others to take action in the attainment of a stated expectation. Governance is made up of all the things that people, in this case the members and the board, put into writing. These writings state the association’s expectations, limits and values.

January 2014 | ECHO Journal

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W

ho needs policy governance?

Boards who want to make a positive contribution. Other directors who are interested in self-promotion and personal glory will wish to continue doing business in the traditional way. The present model follows a pattern of when things don’t work out, look for someone to blame. The present model is reminiscent of politics of unaccountability. It is a game of holding the administration responsible for the lack of leadership by the membership’s representatives. The model of policy governance provides a discipline, a plan to attain a goal, values and a technology that will help you maintain the course. The following is a brief outline of the principles embodied in the concepts of policy governance. The primary contributor in contemporary literature is John Carver, PhD.1 Those with a view of history and the American experiment of government will recognize that the concepts parallel the ideals of a number of authorities: John Locke, John Calvin, James Madison, Thomas Jefferson and many more.

What is different from the way we have managed our associations and the policy governance model? In short, it works;

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the “old” method is not working. Outside observers are focusing on the tragedies of character and fairness of actions that represent our management style.

Our association governments are under attack from courts and legislatures. Much is because the anecdotal information paints a dismal picture on our ability to govern ourselves. The old method was built on the architecture of the 1962 FHA, Form 1400 CC&Rs. Its concept was based on a total authority residing in a board as officers whose duties were both policy2 and executive3 in nature. There was little emphasis on the policy and significant ink was wasted on defining processes and procedures.

This old model persists in modern CC&Rs and bylaws. Most governing documents fail to define the role of the directors as the keepers of values and the leaders who translate the membership’s needs into coherent (written) plans. Rather, the model that controls our industry is the hands-on boards. While active involvement is necessary, the allure for boards to skip from issue to issue without a consistent vision and direction is the practice. Boards that act in an executive

capacity are misguided. Boards are not in a position to monitor themselves or other directors objectively.

The old management model focuses boards on the urgent issues rather than the important and long-term issues. If a board is blessed with directors who have had executive experience, then the process may work satisfactorily. However, in most cases, due to the urgencies, the practices of board will be less than satisfactory. The role of the board as the people’s representatives to oversee is seriously conflicted with the need to oversee oneself, a function of which none of us are capable. The policy governance model depends upon the principles of the separation of powers and checks and balances between the board and management. Policy governance defines the roles or functions of the board, its committees and the management.

Some boards which exemplify a great relationship between the members are known as “trustees.” The role of the board /trustees is to own the organization on behalf of the individual homeowner. In this relationship, the board/ trustees act

Join us at the San Francisco Luncheon Thursday, January 16th, 2014

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11:30 AM to 1:30 PM

Register online at www.echo-ca.org or fill out the form below.

Yes, reserve ______spaces for the ECHO SF Luncheon Amount enclosed: $______(attach additional names)

Agenda

Managing the Manager and Managing the Lawyer Steve Weil, Esq., Berding | Weil LLP Bruce Ratliff, Action Property Management Stephanie Hayes, Esq., Hughes Gill Cochrane P.C.

Name: Email Address: HOA or Firm:

ADDRESS

Address: City: State:

Zip:

Phone: Visa/Mastercard No. Exp. Date: Signature: Return with payment to: ECHO, 1960 The Alameda, Ste 195, San Jose, CA 95126 Orders will not be processed without payment in full. Fees for cancelled registrations will not be refunded. Phone: 408-297-3246; Fax: 408-297-3517

McCormick & Kuleto’s 900 North Point Street, Suite H301 San Francisco, CA 94109

Price: (Lunch Included) $59 Members $69 Nonmembers Prices go up on January 6!

December January2013 2014 | | ECHO ECHOJournal Journal 11 11

as a body, not as individuals. Acting as a body, their products are policies rather than procedures. The execution of various programs is not the role of the board. It is the function of those whom the board has reason to believe are qualified to carry out the association’s policies. The board/trustees’ duty is one of oversight, which means evaluating the results of policies rather than directing the means.

The manager determines the means.

The benefit of policy governance is the legacy it leaves for future leaders to build on. Policy governance directs the board / trustees to deal with long-term and important results and leaves the urgent and details to those qualified. One rule followed is that all policies are in writing and the board /trustees speak with a single voice or not at all. In the absence of written policies,4 the manager is obligated to exercise judgment in dealing with issues. This rule is the keystone of having proactive management.

You have heard that associations should be run like a business. The problem is that associations are not like ordinary businesses with a goal of providing a service or goods and making a profit.

This lack of “obvious economic purpose” in associations allows leaders to forget

the reason for the organization. It is necessary to build controls that direct the directors/trustees and their efforts. A way to focus the efforts of the leadership is to agree on the purpose or vision for which the organization exits. There is a board

The model of policy governance provides a discipline, a plan to attain a goal, values and a technology that will help you maintain the course. acceptance that the purpose of the association is to “protect the property values.”

Beginning with that as the “end” for which the association exists will guide and translate competing views/values/objectives into a coherent written set of policies. A vision statement provides a compass for the board/trustees to develop policies that establish expectations and control results.

A board/trustees need to organize policy making into groupings. In the policy governance model, the board/trustees

lead by putting into writing their expectations. Some of the following are good guidelines. Boards should consider the following: Does this issue concern protecting, maintenance or enhancement of the homes?

If the issue cannot be connected to the vision statement, then this is not an issue for the association.

Is this a board/trustees or policy issue or is it an operations issue? If it is an operation s issue then it belongs to management.

If the issue is a board /trustees issue, what has been said about this issue before and how will this issue impact other policies of the association?

This article is written with the hope that this will stimulate the reader to make further investigation into the concepts of policy governance as a means of improving your associations.

1Boards That Make Difference: A New

Design for Leadership in Nonprofit and Public Organizations, John Carver - Copyright © 1990 by: Jossey-Bass Inc., Publishers, 350 Sansome Street, San Francisco, CA 94104

2A policy is a written statement which

guides/describes to others the desired results, outcomes, or ends. In this case, the board’s policy statements define the results, limits and values.

3Executive, in this context, are the actions

taken by management to “execute” the procedures and to devise strategies and tactics to attain the results, avoid the prohibited limits and safeguard the values.

The Executive Branch of the organization is the management and is not the Policy Branch. The Policy Branch is the board, the membership and occasionally the laws.

4Written policies are defined above but

come not only from resolutions of the board but from the association’s governing documents (Articles of Incorporation, Declaration of Covenants, Conditions and Restrictions, and Rules and Regulations as defined in Civil Code 1351).

Douglas Christison, PCAM, works for Christison Company, Inc. in Livermore, Calif. He can be reached at: (925) 371-5700 or dougchristison@chiristisoncompany.com.

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Join us at the Marin Educational Seminar Saturday, February 8th, 2014

/

8:30 AM to 12:30 PM

Register online at www.echo-ca.org or fill out the form below.

Yes, reserve ______spaces for the ECHO Marin Seminar Amount enclosed: $______(attach additional names)

ADDRESS

Name:

Embassy Suites San Rafael 101 McInnis Parkway San Rafael, CA 94903

Email Address: HOA or Firm:

Price

Address: City: State:

Zip:

Phone: Visa/Mastercard No. Exp. Date: Signature: Return with payment to: ECHO, 1960 The Alameda, Ste 195, San Jose, CA 95126 Orders will not be processed without payment in full. Fees for cancelled registrations will not be refunded. Phone: 408-297-3246; Fax: 408-297-3517

$49 Members $59 Nonmembers Prices go up on January 27! speakerS David Feingold, Esq., Wanden Treanor, Esq. and Glenn Youngling, Esq. January 2014 | ECHO Journal

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FOCUS on EARTHQUAKE COVERAGE in HOAs in CALIFORNIA

By Barbara Ellen

Z

ombies and earthquakes. What do they have in common? Each is an example of something that can turn into a horrific disaster. (One, obviously, is fictional.) So how do we prepare? The Mossad agent character stated in the movie World War Z, “The problem with most people is that they don’t believe something can happen until it already has. That’s not stupidity or weakness, that’s just human nature.” We are nothing if not human, so I suspect something in each of us will resonate with that sentiment.

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January 2014 | ECHO Journal

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T

his is an article that briefly discusses earthquake insurance, both by an individual owner and through an Association’s policy, within an imaginary Homeowners’ Association community in California.

The hope is that this article will give homeowners some starting points to consider for themselves as well as for their community. Your own Association may or may not currently carry earthquake coverage.

in mind this is just the cost to rebuild; this figure is not related to selling prices.

Our example, for purposes of simplification, assumes there are no common area buildings.

Homeowners often do not choose this coverage individually for any number of reasons. Cost is a big reason. The coverage is not inexpensive and there is typically a 15% or higher deductible.

Next, some people believe their regular homeowner’s policy will cover losses resulting from an earthquake. This is not true since, in almost every case, damage resulting from earthquake is specifically excluded from basic coverage. (Basic coverage also excludes damage from flooding.) Third, some people mistakenly believe that in times of disaster, the government will always help them rebuild. Even if the FEMA agency had loans available, these are still loans and must be repaid.

The caveat here, however, is that in order to keep premiums at even that level, an Association typically obtains a “stoploss” limit of, for example, 25 million as payout by the insurance carrier instead of the full 60 million. This is explained below in more detail.

It’s true that if an owner chooses not to obtain earthquake coverage, he or she would save the expense of the insurance premium. Consider, however, that the USGS predicts a 62% chance that a 6.7 or larger quake (6.7 is considered a major quake) will happen in the Bay Area in the next 30 years. Simply dividing 62% by 30 is approximately 2% each year, but also note that the risk may increase each year there is no quake. Such calculations cannot, however, truly pinpoint the exact risk since statistics haven’t yet kept up with Mother Nature.

Premiums are based on the value of the development. We will use a sample value of $60,000,000.00 (sixty million) for a sample Association of 200 homes. Keep 16 echo-ca.org

The earthquake coverage premium based on this value would start at (and likely be even more than) $100,000 per year.

By contrast, property/fire insurance premiums per year for a development are typically, at least to a certain extent, already included in many Association’s annual assessments. Annual assessments are typically owed in monthly installments, sometimes called “dues.”

Dividing $100,000 by 200 homes comes to about $500 per each household per year, or roughly $42 per month (again, this is likely to be higher). This is the amount an owner’s monthly assessment would increase if this Association voted to add earthquake coverage.

In the event of an earthquake, homeowners should be aware that many Association governing documents provide an Association the right to assess funds from individual homeowners to cover the cost of rebuilding and repairs.

This could happen whether the Association had earthquake coverage or not.

If the above language is included in your governing documents, homeowners who obtain their own policies for earthquake coverage are encouraged to include the adequate amount of “Loss Assessment.”

Loss Assessment provides coverage to the homeowner for costs such an Association can assess to each owner for rebuilding. Again, if in governing documents, an Association would assess any insurance deductible amount to homeowners.

EARTHQUAKE COVERAGE, HO-6 POLICIES, DEDUCTIBLES To determine cost of a policy for an individual, there is a helpful calculator for premiums on the website

earthquakeauthority.com hosted by the California Earthquake Authority (CEA).

If you are in either a condominium development or in a planned unit development association, be sure to use the “condominium” instead of “homeowners” option. The insurance industry does not, to date, have a planned unit development (PUD) choice. The PUD is a development in which an owner owns the complete home but the home’s exterior (and sometimes more) is maintained and/or insured under a common master policy.

A tip: If you do decide to obtain your own earthquake insurance, there is NO deductible taken from the “loss of use” coverage available so obtaining higher coverage for this is a better value. (“Loss of use” covers your cost to stay elsewhere while your home is being rebuilt.)

Keep in mind an individual owner must first have his or her own property damage/fire policy (known in the industry as a Condominium Unit Owner Policy, or HO-6) before you can obtain any earthquake policy. You cannot obtain an earthquake policy without first having your own HO-6 policy.

According to earthquakeauthority.com, Loss Assessments in either $50,000 or $75,000 amounts may be included in an earthquake policy for an individual.

Even though the CEA offers four types of earthquake (EQ) coverage (EQ Real Property, EQ Personal Property, EQ Loss of Use and EQ Loss Assessment), an owner is not required to purchase all four types. As long as an owner has purchased an HO-6 from a participating carrier, he or she can purchase just the EQ Loss Assessment coverage if he or she desires.

An earthquake policy pays only if damage exceeds the deductible. If a community is perhaps 30 to 40 years old or more, deductibles would likely be in the 15% to 20% range. The deductible is based on the replacement cost of the damaged structure. Earthquake insurance is written on a scheduled basis, not blanketed like a master/ fire coverage.

What this means to an Association and the individual owners is that coverage for each individual building is capped at the amount stated on the insurer’s property schedule.

One damaged building with a replacement cost of, say, $300,000 would always have a deductible of $60,000 (20% of $300,000) regardless of how much damage that building sustained. Worst case scenario (if every building in the project was affected) the deductible would equate to $12,000,000. (These figures assume there are no common area buildings.)

For our imaginary development of 200 homes, that’s a potential special

assessment of $60,000 per owner if all buildings were lost. There would be an even higher special assessment due if the Association purchased a $25,000,000 loss limit. The total (deductible plus the shortfall) would then equate to a special assessment of $175,000 per household.

(See charts below.)

a homeowner’s individual earthquake policy unless an owner had another source of funds.

The following charts should help illustrate amounts covered by insurance and amounts due from the Association and individual owners of our imaginary development of 200 homes worth $60 million.

The deductible is assessed to the whole community, with each owner paying a portion. The cost of these deductible amounts would need to be covered by

$60 Million Development (200 Homes) (Value of Common Area Buildings Disregarded for Purposes of This Article)

ONE building damaged

Value per building

$300,000

ALL buildings damaged

Total value of development

$60,000,000

20% deductible = Special Assessment (amount due) total $60,000 20% deductible = Special Assessment (amount due) total $12,000,000

20% deductible = Special Assessment (amount due) divided by 200 owners $300 20% deductible = Special Assessment (amount due) divided by 200 owners $60,000

Loss Limit Policy of $25,000,000 (only 25M insurance proceeds available)

Loss Limit Policy of $25M

Loss limit (25M) plus deductible (12M) subtracted from total value of $60,000,000 = shortfall Shortfall = $23,000,000

Addl special assessment if ALL buildings damaged (amount due) divided by 200 owners

$115,000

Total due per owner if ALL buildings damaged and $25M loss limit in place $115,000 plus $60,000 = $175,000

January 2014 | ECHO Journal

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Whether or not an owner chooses to obtain earthquake coverage, don’t forget to take basic safety measures to protect yourselves and your property such as bracing water heaters, bolting bookcases to the walls, securing flat screen televisions, and so on.

Whether or not these measures help mitigate damage from an individual earthquake is still largely determined by the circumstances during each quake.

As early as 1948 the Uniform Building Code (UBC) in most municipalities required that dwellings be bolted to the foundation. If your development was built after that date, it is highly likely that your home has that feature.

You can always check behind the sheetrock at foundation level in your garages to find out how your individual home is situated in this regard if you want to be extra careful. Even if bolted, two-story homes are still at greater risk than one-story homes.

Contact your personal insurance agent for more details and information, how to obtain earthquake coverage if you wish to do so, and which options work best for you and your home. While there is no right decision, it is important to carefully determine whether you can afford to take the risk. Owners are encouraged to do their own research so as to make an informed decision. California residents can find detailed information on preparing for quakes, possibility of quakes, and more at earthquakeauthority.com and other sites. If you are an owner in such a community, encourage your board and association to provide you further information and if you are on a board, poll your community about purchase of earthquake coverage once your board, property manager, and insurance agent provide your community with the information it needs to help make that decision. Let’s not forget that everyone in an Association is in it together.

Barbara Ellen is President, Rancho Dorado Homeowners Association, in Walnut Creek, CA. Fact check provided

by Tim Cline of Timothy Cline Insurance.

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Santa Cruz Educational Seminar Saturday, March 1st, 2014 8:30 AM to 12:30 PM /

Yes, reserve ______spaces for the Santa Cruz Seminar.

Amount enclosed: $______(attach additional names) Name: Email Address:

Visit echo-ca.org/events for the latest information and online registration.

ADDRESS

HOA or Firm:

Hotel Paradox 611 Ocean Street Santa Cruz, CA 95060

Address: City: State:

SAVE THE DATE!

Zip:

Phone: Visa/Mastercard No. Exp. Date: Signature:

Price $59 $49 – Members $69 $59 – Nonmembers Prices go up after February 17!

Return with payment to: ECHO, 1960 The Alameda, Ste 195, San Jose, CA 95126 Orders will not be processed without payment in full. Fees for cancelled registrations will not be refunded. Phone: 408-297-3246; Fax: 408-297-3517

January 2014 | ECHO Journal

19

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Basic Homeowner Association Income Taxes

By William S. Erlanger, CPA

HISTORY

Before jumping into the discussion of homeowner association income taxes,

it helps if you get a limited understanding of the tax history.

Understanding the history will give you, the reader, a better insight into what the current tax laws are saying. Homeowner associations, whether formally incorporated or unincorporated, were and are subject to tax as regular corporations.

January 2014 | ECHO Journal

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I

t was not until 1976 that Congress specifically addressed homeowner associations and in 1976 Internal Revenue Code (IRC) Section 528 was signed into law. Congress wanted to enact homeowner association tax law because one, more and more associations were being formed by real estate developers and, two, Congress believed that regular corporation laws were too complex and, potentially, unfair (not that IRC Section 528 is simple or fair) for homeowner associations. IRC Section 528 is OPTIONAL: there is nothing requiring a homeowner association to calculate its tax under Section 528. Along with the new code section 528, the IRS created a new one-page tax form 1120-H U.S. Income Tax Return for Homeowners Associations. The California Franchise Tax Board (FTB) never created a California equivalent of Form 1120-H though it adopted the language in Section 528 to give certain corporations exemption from the $800 minimum franchise tax.

Revenue Ruling 70-604 Before 1976, the IRS issued a Revenue Ruling: 70-604. A revenue ruling is an official public pronouncement by the IRS of the IRS’s application of law to a particular fact situation and carries a lot of legal weight with it. This Revenue Ruling said that a homeowner association’s membership can elect to apply excess assessments from one year to the next year and, in doing so, the excess assessments are not subject to tax. There has been endless debate about this ruling: mostly whether or not an association’s membership can annually make this election and, thereby, annually make any excess assessments exempt from federal income tax. This article will not wade into the debate. I will say, though, that I believe that the election can be safely made each year. Going back even further in time, IRC Section 277, which addressed membership organization’s expenses was enacted in 1969.

Income So what are the similarities and differences between Form 1120 U.S. Corporation Income Tax Return and Form 1120-H. Both subject many similar 22 echo-ca.org

kinds of income to tax however, the income base is much broader under Form 1120-H than under Form 1120. By this I mean that more kinds of income are subject to tax under Form 1120-H than under Form 1120. Generally, though, the usual income subject to tax on either Form is interest earned from banks, etc. Other kinds of taxable income include cell tower rents, Comcast easement payments, etc. You probably get the drift: income earned from a source outside of the association’s members is subject to tax. Fees charged to members for services on Form 1120 are not taxable while on Form 11120-H they are. It is also open to debate whether or not late fees, penalties and interest charged to members is taxable on Form 1120-H or not.

They are not taxable on Form 1120.

Deductions Are there any deductions available to offset taxable income? The answer is yes but they are limited to those incurred to produce the taxable income. Since the usual taxable income is interest income, any expense the association incurs to produce interest income would be an allowable deduction. While you may not think there are any expenses, the IRS has generously gone along with a Tax Court decision that permits membership organizations (which include homeowner associations) to take a percentage of management fees as a reasonable approximation of investment management time expended by management without any documentation of such.

Since investment management is directly related to interest income, a percentage of the management fee is a reasonable directly-related expense to interest income. The usual only other available deduction is the cost to pay the person that prepares the income tax returns.

Form 1120 versus Form 11120-H So aside from a broader income tax base, the other major difference between Form 1120 and Form 1120-H are the tax rates. On Form 1120 the tax rates are graduated: 15% for the first $50,000 of taxable income, 25% for the next $25,000 of income, 34% for the next $25,000 of

income (we are now up to $100,000 of taxable income). On Form 1120-H the tax rate is a flat 30% (32% for time-shares).

Also, on Form 1120-H, a filer gets an additional $100 standard deduction.

Everything else equal, you pay less tax if you use Form 1120-H for taxable income less than $200. Otherwise you would pay less by using Form 1120 up to taxable income of about $186,000.

Tax Accounting Unlike an individual, a homeowner association can have any year-end it wants. Your individual return is due by the 15th day of the 4th month after your “year-end”. Since as an individual your “year-end” is December 31, your tax return Form 1040 is due by April 15.

A homeowner association’s corporate tax return is due by the 15th day of the 3rd month after the year end. In other words, if a homeowner association has a December 31 year-end, the tax return (either Form 1120 or Form 1120-H) is due

by March 15. If it has a June 30 year-end, the tax return is due by September 15. An extension of time to file, which gives the association an additional 6 months to file a return, must be filed with the IRS on or before the regular filing date. California has an automatic extension whereby no form needs to be filed with the FTB in order to extend the California filing date.

Of course, an extension is only an extension of time to file. There is no extension of time to pay and any estimated balance of tax due must be paid by the regular filing date or the association is subject to a penalty of ½% per month on such unpaid balance.

IRS Audits I would like to conclude this article by touching on that subject no one ever wants to have happen to their association: an IRS audit of your association’s tax return. As a corporation, your association is REQUIRED to file an income tax return with the IRS. Penalties for failure to file are based on any unpaid tax so, by not filing, you may not be subject to any penalties if you did not have any taxable income. But do you want to run the risk of an IRS audit of your unfiled tax return and the IRS finding that your association did owe tax? By the way,

the IRS is NOT limited by the passage of time for an unfiled tax return (the usual statute of limitations is 3 years for federal and 4 years for California). I have been involved in about 15 IRS audits in the past 3 years. In the fifteen or more years before, I had only been involved in about 3 IRS audits. The returns the IRS picked for examination were Form 1120 (this is no surprise since we most usually prepare Form 1120). The IRS made NO changes to any of these returns as filed.

Of course this does not mean that our interpretation of Revenue Ruling 70-604 is correct but there can be some comfort found here as well.

William S. Erlanger, CPA, is a founding partner of Levy Erlanger, an accounting firm in San Francisco specializing in accounting and tax preparation for HOAs. Bill is a member of the ECHO Accountants Resource Panel and a frequent speaker and contributor to ECHO events.

January 2014 | ECHO Journal

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24 echo-ca.org

AVOIDING FRAUD IN YOUR ASSOCIATION

By Joelyn K. Carr-Fingerle, CPA

Fraud takes motivation and opportunity.

If both are not present, fraud cannot occur.

The board of directors cannot control the motivation; that comes from the fraudster. The association board can, however, control the opportunity. In the tight economic conditions that now exist with foreclosures, tight credit and job layoffs, every board needs to be diligent in watching and guarding association moneys.

January 2014 | ECHO Journal

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ost of the typical fraud types and characteristics discussed by the fraud experts do not apply to common interest developments since their revenue stream is very predictable and the volume of expenses is small.

This is the main reason that the annual CPA review engagement is usually sufficient for associations and an audit is not necessary.

The board on a monthly/ quarterly basis can compare the revenues and expenses to budget and to the prior year and get a pretty good feel whether the financial reports are reasonably correct.

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Profile of a Defrauder Typically a defrauder, or a person planning to perpetrate a fraud, is a trusted long-term employee, not someone newly hired or a flashy, slick operator. The defrauder is someone who knows the association and its systems well, and knows how to get around the controls that are in place. However, what sets him or her apart from the ideal employee is the change in circumstances that makes him or her look to the association as a target for theft. This could be sudden money problems stemming from a spouse’s loss of job, new extravagant life style, sudden medical bills, stock market reversals, gambling debts, and/or alcohol or drug abuse. Often they think of what they do as a temporary borrowing or loan from the association. They will rationalize it by thinking they deserve the “extra� funds because they are underpaid or under-appreciated. Or they may seek to take revenge on a board that has thwarted them in some way.

Internal Control: The Key to Success The system of internal controls, the checks and balances, is what either keeps the fraud from taking place or allows it to happen. By setting up and using a system where no one individual alone is completely responsible for the intake or dispersal of money, the association will be protected from most significant fraud. There may still be the disappearance of office supplies, small tools, the unauthorized use of the association telephone for personal long distance phone calls, but the significance of these pale against the theft of association cash and cash equivalents.

Generally the safeguards over association cash receipts are good because little cash is received by most associations.

Usually assessments are paid by checks, and many payments go directly to a bank lockbox so there is no opportunity for someone to misappropriate the money

Typically a defrauder, or a person planning to perpetrate a fraud, is a trusted long-term employee, not someone newly hired or a flashy, slick operator.

coming in. However the board needs to discuss with the bank their procedures to ensure that the checks are properly applied to the association’s bank account.

If the cash does not go directly to the bank but rather to the treasurer or manager, more oversight procedures need to be installed. First, the person receiving the cash cannot be the one signing checks and reconciling the bank account. There needs to be a verification trail showing that all the cash received was deposited and that it was also credited to the proper owner or other account, such as the monthly laundry receipts. This is also made easier when an association has a policy that all monies coming in must be in the form of checks or money orders, not cash.

If receipts of cash are significant, procedures to safeguard the cash must be set up. These procedures would include cash counts, some sort of register and frequent bank deposits. If your association has significant cash receipts, then work with your association CPA to set up and maintain a good system of internal control over the cash. Generally cash coming in is not significant in associations when compared to the money coming in by check or automatic payment so that it does not become an issue in a review or an audit of the financial statements.

Cash going out, or cash disbursements, is the other area of exposure. The most common and logical method for covering

cash embezzlement is the false debit.

The trusted employee (let’s call him Sam, an authorized check signer) makes out a check for , say $500, to himself or his own phony company but indicates in the books that the check is voided. Then when Sam records the check for perhaps the gardener or someone else, he records that invoice at $500 more so the checkbook will balance. Lastly, Sam has to prepare the bank reconciliation so that he can destroy the check to himself and mark the gardener’s, or whoever’s check as properly cleared since the amounts net out. If Sam could not sign the check himself, he could not perpetrate the fraud.

Sam may need to have Jerry, the president, also sign the checks because the checks require two signatures. But if Jerry signs blank checks, or never really looks at what he is signing, the control is thwarted. The bank cannot be relied upon to check the signatures because the volume of checks they process is so great.

Every check signer has an obligation to review the documentation supporting the disbursement. In addition each signer should note his or her review on the documents in the form of a signoff of some kind (initialing or signing or something and making sure that the check number, date, and account coding are noted somewhere on the payment package) that signifies approval of the payment. If multiple invoices are paid at one time, the amount paid is also good to note. In the above example there would be two chances for Jerry to catch Sam’s fraud. The first check would have no support and the second one would not match the invoice. Even if false invoices were presented to Jerry, one would hope that he would remember that the usual payment to Carson Landscaping Inc was a lesser amount, and/or that the monthly payment had already been paid.

California Civil Code calls for the board to review the bank statements at least quarterly so that such items can be readily caught. But that means that the reconciliation and bank statement must be closely reviewed. The treasurer or someone other than the bookkeeper could periodically, without warning and on an irregular basis, prepare the bank reconciliation. That way “Sam” would not be able to cover his tracks. However, if the board chooses not to prepare the bank reconciliation, a board member January 2014 | ECHO Journal

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should at least inspect the cancelled checks or the copies sent by the bank with the statement. It is very hard to eliminate one of the returned checks when they are one of many micro-sized on a bank statement. Check out who the payees are—why is there a check to Carson Landscaping Inc. and another for the same amount to CLI. The board can even call Carson Landscaping Inc. to see if they are getting checks from you for CLI. If the board members are doing their job, this sort of embezzlement should be caught in the first quarter it is started.

The defrauder is someone who knows the association and its systems well, and knows how to get around the controls that are in place.

Another form of control would be to have the bank statement mailed directly to a board member who would open and examine it before giving it to the bookkeeper or treasurer for reconciliation. This would not eliminate the need to review the reconciliation on a quarterly basis, but it would ensure that the statement could not be altered without notice and cancelled checks could not be removed.

Mailing a copy of the bank statement directly to a designated board member is critical when there are bank debit card(s) on the account. That is the only way the board will know what all the transactions are in the bank account, both ins and outs. If the cardholder is using the associ-ation funds it will be shown, even if it is an out and shortly thereafter an in which the bookkeeper may properly record within the activity of one account 28 echo-ca.org

such that general ledger review would not catch it. The original bank statements must be reviewed by the board.

The Civil Code mandated budget-to-actual comparison should also show a budget discrepancy as the embezzlement unfolds. The defrauder has to make the cash balance; therefore the money has to be expensed somewhere. Association budgets are tight. Small differences can be noted and addressed. This comparison needs to be done quarterly so that any problems are promptly addressed and corrected. If the defrauder knows that the procedures are done frequently and thoroughly, there is much less temptation since they will know that they will be caught quickly.

Timely Reports The board should be getting the association financial statements and bank reconciliations within the month following the month end. If this is not happening, and it is a regular occurrence, the board needs to consider changing its financial arrangements so that they, the board members, can perform their fiduciary duties. “Within the following month” is not a hard and fast rule, but the reason for the delay needs to be very good—like a change in management, a natural disaster or the like. Sometimes at year-end it takes longer, but preliminary statements should be ready on the regular monthly schedule. In short, with proper vigilance the board can catch most frauds in short order if they are performing their duties. And by the board performing their duties, most defrauders will not be tempted to defraud the association because they do not want to get caught, and certainly not quickly!

The board must review the bank reconciliations for all accounts. This means the investments, certificates of deposit, treasury bills, savings accounts and so on in addition to the checking account(s).

You need to see that statements are sent at least quarterly, although US Treasury statements are only sent when there is activity—a purchase, maturity or renewal. These are your largest cash accounts and as such must be reviewed January 2014 | ECHO Journal

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quarterly. The Legislature recognized this when they mandated the quarterly review and required that at least two board members or an officer and board member must authorize reserve fund withdrawals. Some professionals believe this includes a transfer from one account to another even within the overall category of reserve funds, which is a good, conservative, cautious stance. Review the statements for the dollar amount (and the financial statement carrying value is the purchase cost plus investment/interest earnings, not the market value) and for the account title. The accounts should always be in the name of the association, not the manager or an owner or anyone else. If the account is not in the association’s name, then the association does not own it and someone else has control of it and can take it.

1875 words

Working with Your CPA Your CPA will look at your system of internal control during preparation of your annual review and, if you have an audit, will test those controls as well. But the CPA only comes in once a year. The board is required to review the statements at least quarterly. A lot of fraud can happen between CPA visits. If you suspect fraud from management or a fellow board member, call the CPA in to look at things early. Association CPAs want to be of service to their clients and dislike seeing anyone get away with fraud. But what a CPA cannot do is question the propriety of your management decisions. If you picked a bad contractor, and continued to pay the change orders for work not properly done but properly approved for payment, internal control is not the issue; but rather proper oversight is. And that issue is beyond the scope of this article.

Joelyn Carr-Fingerle is an accountant in Fremont, CA, with a large CID practice with Young, Craig + Co of Mountain View, CA. She is a current member and former chairperson of the Accountants Resource Panel, former chairperson and current member of the East Bay Resource Panel, and a former chairperson and member of the ECHO Board of Directors.

January 2014 | ECHO Journal

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The Essential Ingredient 32 echo-ca.org

Whom Do You Trust?

By Tyler P. Berding, JD, PhD

in Effective Management of Community Associations January 2014 | ECHO Journal

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hen there is war inside a community association, there are usually several sides—the owners, the board of directors, management, and sometimes, lawyers.

Each brings their unique perspective to the dispute, and each may distrust the views, or worse, the motives of the other. That they should all be working together to manage a project that is inherently unmanageable is beside the point—when there is a lack of trust cooperation goes by the boards and issues that should be open to easy solutions instead become a battleground. Why are we wasting good ink to discuss disputes that are often inconsequential in the scheme of things? Because lack of trust can paralyze a community association just when economics require unprecedented cooperation.

Examples? Board members who are convinced (by themselves or others) that they must follow the dictates of a statute may pursue enforcement measures that are too rigid for the situation. Owners who lack an understanding of the history of an association, its economic condition, or the legal authority under which it operates may believe that rules can be ignored. Attorneys who lack sensitivity to the emotional side of a dispute among board members may try to resolve the issue with formality when flexibility and consideration of human nature is required. Owners with short-term interests may reject the needs of longer-term residents. Managers who lack the confidence to confront wayward board behavior with strong leadership may fear losing favor and perhaps the account.

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There are hundreds of other sources of friction within a community association, but all of the foregoing have one thing in common—a breakdown in trust among the principal players. This can happen in various ways. A clash of egos; lack of education or experience; a history of conflicts among individuals or between individuals and the board of directors; personal “vendettas;” and outsized expectations. In each case, the conflict often has its roots, not in the practical reality of the issues at hand, but rather in the unwillingness of one party to trust the motives of another. “Why” someone has taken a particular position often becomes more important than what is actually at stake. A suspicion of motives can distract the search for truth. So how do we instill trust?

Let’s look at each of the principal players.

1. The Board of Directors The board of directors of a typical community association is composed of volunteers. They have a big responsibility and it is no wonder that responsibility weighs heavily on them. Most of the directors we know are conscientious, self-sacrificing individuals who sincerely want “to do the right thing.” Many have business training that equips them with experience and knowledge vital to their management role. But associations are not exactly like businesses. There is a big political factor at play as well. Owners make demands, fail to obey the rules, or are simply apathetic. Any or all of this can frustrate a well-meaning board.

Sometimes it may be more convenient to simply hide behind the rules rather than try to deal with human nature. The advice of managers or attorneys will typically be to follow the statute or the governing documents because that’s the most logical (and lawful) thing to do. But the right path may not always be to just follow the rules. The right path may also require a human touch, flexibility, and a willingness to explore creative solutions that create relationships. And develop trust.

2. Owners Many owners have little inclination to understand the operations of their community association. They are busy people, with work and family concerns, and their homeowner’s association is way down the list. Apathy reigns supreme. That is, until something effects them personally. A proposed increase in assessments. Closing the pool in the winter. Enforcement of parking restrictions.

A roof leak. When their lives are negatively impacted owners are sometimes quick to assume that someone screwed up. Their lack of involvement in the day-to-day operations, their infrequent attendance at meetings, their failure to read bulletins or newsletters has isolated them from their board and management.

Isolation breeds mistrust.

3. Management Managers are rightfully cautious. Like board members, they have a big responsibility. They are paid to insure that the association is maintained properly, respects the governing documents, and makes sound business decisions. Directors may assume that a cautious manager lacks the willingness to manage aggressively. On the other hand, if the manager comes on too strong, the board may interpret that as recklessness, or worse, that the manager is usurping board authority. Any of these doubts will sew seeds of mistrust, and when we don’t trust someone, their motives become our primary focus rather than their performance.

4. Attorneys Lawyers are employed to give legal advice and in the case of a community association that usually means interpreting the governing documents or state law. Often the board members have different assumptions or wish a different outcome. It may be tempting to try and satisfy everyone, but posturing or wavering to make the client happy is a fool’s errand. A lawyer who has the courage

of his or her convictions is actually more likely to gain the client’s trust. Because of the political nature of a community association client, a lawyer can’t just know the law—he or she has to be trusted, by members and the board, to be effective.

Here are a few guidelines on gaining and maintaining trust in the management of community associations:

1. Lay your cards on the table No hidden motives. Be upfront with your reasons for taking a particular position.

Explain them logically with careful adherence to the facts. Glossing over the facts or altering them to suit your purpose will give others reasons not to trust you.

As a board member or manager, make sure you understand the facts and whatever professional advice you have been given and that your position squares with both. As an owner, be sure that you have all of the information you need to understand the dispute and the rules that govern it. Be clear with everyone as to why you are advocating your position.

2. Keep your emotions in check Stay rational. It’s hard to trust someone who lets his or her emotions control them. Board members are often targets of abuse or miss-statements by owners.

Owners may feel powerless when dealing with the association. Managers are often caught in the middle. Those situations are frustrating and can open the door to emotional rather than rational thoughts and actions, usually at precisely the time when calm deliberation is required.

3. Communicate well and often As stated above, be open. Regardless of whether you are a board member, a

manager, or an owner, open dialogue will dispel suspicion and engender greater trust. Attorneys must not be afraid to share the basis for their opinions with their clients. Regular reporting, including face to face meetings, will keep clients in the loop and keep them on your side.

4. Be willing to compromise Flexibility with enforcement of the rules; creativity when applying them; and always maintaining a sympathetic ear toward possible compromise will be your greatest allies in a world where rigidity and formality seem to be taking over.

This is especially true when the stakes are not high. Rule enforcement for the sake of enforcement alone will most certainly erode the members’ trust in the board and management. Likewise, frequent owner complaints about matters that have few real consequences are guaranteed to cost the member respect and trust in the eyes of the board of directors. Let the small things go.

5. Be as good as your word If you promise to do something, do it.

Directors who offer to investigate an issue to satisfy a member can do no worse in the trust department than failing or forgetting to follow through on the promise. Managers who, when asked to explain say, an invoice or an accounting and then ignore the request or (and this is much worse) provide an explanation

that is not based in fact, will lose the trust of the members quickly. An attorney who takes refuge in legalese or who tries to overwhelm his or her audience as a means of winning a debate will lose more than just the debate—whatever trust they had will evaporate and their future effectiveness will be compromised.

6. Don’t let suspicions distract you When we become suspicious, and we begin to doubt another’s motives, we lose our normal rational perspective because our suspicions distract us. A low ratio of emotion to rationality is critical to negotiating disputes. In fact, an open admission of your own motives may instill trust in the opposition because suspicion is exchanged for understanding. It may not resolve the dispute, but it can serve to open meaningful dialogue.

Trust garnered over a decade or more can be lost in a moment over some hasty comment, a transparent motive, a departure from the truth, or an emotional outburst.

Regaining that trust may take years, or it may never happen. Community associations rely on contracts and statutes for their authority, but their leaders need trust for legitimacy. The law dictates the rules but cannot dictate trust.

Tyler Berding, JD, PhD, is the founding principal of Berding | Weil, a law firm devoted to serving Common Interest Developments. He has served on ECHO’s board of directors, and is a frequent contributor to the ECHO Journal and speaker at ECHO events.

January 2014 | ECHO Journal

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Beyond Privatopia Non-Member Price:

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The rise of residential private governance may be the most extensive and dramatic privatization of public life in U.S. history.

In Beyond Privatopia, attorney and political science scholar Evan McKenzie explores emerging trends in private governments and competing schools of thought on how to operate them, from state oversight to laissez-faire libertarianism.

Condominium Bluebook $17.00 2013 Edition $25.00 Non-Member Price:

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Community Association Statute Book—2012 Edition $15.00 Member Price: Non-Member Price: $25.00

To make these a sustainable investment, new buyers, owners and board members need to understand “best practices basics” of how this form of housing works and have more realistic expectations of this form of “carefree, maintenance free” living.

Contains the current version of the Davis-Stirling Common Interest Development Act, the Civil Code sections that apply to common interest developments and selected provisions from other codes important to associations.

Robert’s Rules of Order $7.50 $12.50 Non-Member Price:

The Board’s Dilemma Non-Member Price:

A step-by-step guide to the rules for meetings of your association, the current and official manual adopted by most organizations to govern their meetings. This guide will provide many meeting procedures not covered by the association bylaws or other governing documents.

In this essay, attorney Tyler Berding confronts the growing financial problems for community associations. Mr. Berding addresses board members who are struggling to balance their duty to protect both individual owners and the corporation, and gives answers to associations trying to avoid a funding crisis.

2013 Community Association Treasurer’s Handbook Member Price: $29.00 Non-Member Price: $35.00

Reserve Fund Essentials Member Price: $18.00 Non-Member Price: $25.00

The Condo Owner’s Answer Book Non-Member Price:

This book is an easy to read, must-have guide for anyone who wants a clear, thorough explanation of reserve studies and their indispensable role in effective HOA planning. The author gives tips to help board members mold their reserve study into a useful financial tool.

An excellent guide to understanding the rights and responsibilities of condo ownership and operation of homeowner associations. The question-and-answer format responds to more than 125 commonly-asked questions in an easy to understand style. A great resource for newcomers and veteran owners.

This well-known compact guide for operation of common interest developments in California now includes a comprehensive index of the book and a chapter containing more than 200 frequently-asked questions about associations, along with succinct answers.

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Questions & Answers About Community Associations Member Price: $18.00 $25.00 Non-Member Price: For 12 years, Jan Hickenbottom answered homeowners’ questions in her Los Angeles Times column on community associations. Now collected in one volume, readers can find answers to almost any question about CIDs.

36 echo-ca.org

$10.00 $15.00

$15.00 $20.00

The Handbook is an in-depth guide to all aspects of association finances, including accounting methods, financial statements, reserves, audits, taxes, investments and much more. Not for the accounting novice, this is a tool for the treasurer or professional looking for specific information about association finances.

Board Member Handbook Member Price: $15.00 Non-Member Price: $25.00 This publication is the essential guidebook for HOA Board members, dealing with governance, finances, insurance and maintenance issues.

Revised and updated in June 2012.

Dispute Resolution in Homeowner Associations Member Price: $15.00 Non-Member Price: $25.00 This publication has been completely revised to reflect new requirements resulting from passage of SB 137.

Publications to answer your questions about common interest developments Order Online at store.echo-ca.org

Bookstore Order Form Board Member’s Guide for Contractor Interviews $15.00 Non-Member Price: $25.00

Executive Council of Homeowners 1602 The Alameda, Suite 101, San Jose, CA 95126 Phone: 408-297-3246 Fax: 408-297-3517

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This report is a guide for directors and managers to use for interviews with prospective service contractors. Questions to find out capabilities and willingness of contractors to provide the services being sought are included for most of the contractor skills that associations use.

SUBTOTAL CALIFORNIA SALES TAX (Add 8.625%) TOTAL AMOUNT

Board Member’s Guide for Management Interviews Member Price: $15.00 Non-Member Price: $25.00 This guide for use by boards for conducting complete and effective interviews with prospective managers takes the guesswork out of the interview process.

Over 80 questions covering every management duty and includes answer sheets matched to the questions.

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January August 2014 2013 | ECHO Journal

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ECHO event calendar

RESOURCE PANEL CALENDAR Thursday, January 9 North Bay Resource Panel 11:45 a.m.

Contempo Marin Clubhouse, 400 Yosemite Dr, San Rafael

Wednesday, January 15 Legal Resource Panel 6:30 p.m.

Scott’s Seafood, 2 Broadway Oakland

Wednesday, February 19 Wine Country Resource Panel 11:45 a.m.

Serv-Pro, 373 Blodgett St., Cotati

Monday, January 13 Accountants Resource Panel 6:00 p.m.

Scott’s Seafood, 2 Broadway Oakland

Wednesday, February 5 Maintenance Resource Panel 12:00 Noon ECHO Office, 1960 The Alameda, Suite 195, San Jose

Thursday, March 6 North Bay Resource Panel 11:45 a.m.

Contempo Marin Clubhouse, 400 Yosemite Dr, San Rafael

Tuesday, January 14 Central Coast Resource Panel 12:00 Noon Michael’s On Main, 2591 S Main St., Soquel

Wednesday, February 12 South Bay Resource Panel 12:00 Noon Buca Di Beppo 1875 S. Bascom Ave., Campbell

Tuesday, March 11 Central Coast Resource Panel 12:00 Noon Michael’s On Main, 2591 S Main St., Soquel

Wednesday, January 15 Wine Country Resource Panel 11:45 a.m.

Serv-Pro, 373 Blodgett St., Cotati

Friday, February 14 East Bay Resource Panel 12:00 Noon Massimo Restaurant, 1603 Locust St., Walnut Creek

Wednesday, March 19 Wine Country Resource Panel 11:45 a.m.

Serv-Pro, 373 Blodgett St., Cotati

REGULARLY SCHEDULED RESOURCE PANEL MEETINGS Panel

MEETING

location

Maintenance

First Wednesday, Even Months

ECHO Office, San Jose

North Bay

First Thursday, Odd Months

Contempo Marin Clubhouse, San Rafael

East Bay

Second Friday, Even Months

Massimo Restaurant, Walnut Creek

Accountants

Second Monday, Odd months

Scott’s Seafood Restaurant, Oakland

Central Coast

Second Tuesday, Odd months

Michael’s On Main, Soquel

South Bay

Second Wednesday, Even Months

Buca Di Beppo, Campbell

Wine Country

Third Wednesday, Monthly

Serv-Pro, Cotati

Legal

Quarterly

Varies

38 echo-ca.org

ECHO honor roll

ECHO HONORS VOLUNTEERS ECHO Resource Panels Accountant Panel Marco Lara, CPA 650-632-4211 Central Coast Panel John Allanson 831-685-0101 East Bay Panel Beth Grimm, Esq. 925-746-7177 Cindy Wall, PCAM, CCAM 925-830-4580 Legal Panel Mark Wleklinski, Esq. 925-280-1191 Maintenance Panel Brian Seifert 831-708-2916 North Bay Panel Diane Kay, CCAM 415-846-7579 Stephany Charles, CCAM 415-458-3537 South Bay Panel George Engurasoff 408-295-7767 Wine Country Panel Pam Marsh 415-686-9342

Regional Seminar Speakers Wine Country Carra Clampitt Bill Gillis, Esq. David Hughes Ken Kosloff Tom O’Neill Steve Weil, Esq. South Bay Derek Eckert Stephanie Hayes, Esq. Robert P. Hall Jr., Esq. Fresno Geri Kennedy David Levy, CPA Michael J. Hughes, Esq. Walnut Creek Stephanie Hayes, Esq. Lisa Esposito, CCAM Rob Rosenberg, CCAM Beth Grimm, Esq. Monterey John Allanson Diane Rossi, PCAM, CCAM Sandra Bonato, Esq. Sacramento Ian Brown, CCAM Bill Erlanger, CPA Don Haney, CPA Deon Stein, Esq.

Legislative Committee

ECHO San Jose Speakers September 24, 2013

Paul Atkins Jeffrey Barnett, Esq. Sandra Bonato, Esq. Jerry Bowles Oliver Burford Joelyn Carr-Fingerle, CPA Chet Fitzell, CCAM John Garvic, Esq., Chair Geri Kennedy, CCAM Wanden Treanor, Esq.

Board Essentials Tyler Coffin Lisa Esposito, CCAM Pat Falconio Brian Kidney Mike Muilenberg Rob Rosenberg, CCAM Brian Seifert Wanden Treanor, Esq. Hot Topics Anton Bayer Ian Brown, CCAM Don Danmeier Glenn Kenes Nico March Steve Saarman Steve Weil, Esq.

Legal Tyler Berding, JD, PhD John Garvic, Esq. Michael Hughes, Esq. Julia Hunting, JD, SE Kerry Mazzoni Alex Noland, Esq. Paul Windust, Esq. Recent Contributing Authors July 2013 Anton Bayer, CFP Beth Grimm, Esq. Dave Phelps, ASLA, ISA Judy O’Shaughnessy Michael Petite August 2013 Julie Adamen Stan Malos, JD, PhD Sharon Glenn Pratt, Esq. John R. Schneider September 2013 Kevin Canty, Esq. Beth Grimm, Esq. Judy O’Shaughnessy Diane Rossi, PCAM, CCAM Steve Saarman October 2013 Beth Grimm, Esq. Debra A. Warren, PCAM, CCAM Richard Tippett Sharon Glenn Pratt, Esq. Geri Kennedy November 2013 Tyler Berding, JD, PhD John R. Schneider James H. Ernst, CPA, MS-Tax Tom Fier, Esq. Burt Dean December 2013 Sandra M. Bonato, Esq. Katherine Naegele Derek Eckert Ann Rankin, Esq. Burt Dean

January 2014 | ECHO Journal

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40 echo-ca.org

advertiser index

about ECHO

American Management Services........40 www.amspcam.com

Mutual of Omaha Bank.......................40 www.mutualofomahabank.com

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Neighborhood Association Management.........................................23 www.neighborhoodam.com

A.S.A.P Collection Services.................23 www.asapcollect.com Association Reserves...........................40 www.reservestudy.com Benjamin Moore Paint & Company...29 www.benjaminmoore.com Berding|Weil .........................Back Cover www.berding-weil.com Collins Management............................29 www.collins-mgmt.com Community Association Management.........................................35 www.HOAsManagement.com Community Management Services.................................................26 www.CommunityManagement.com Compass Management........................31 www.gocompass.com Cornerstone Community Management.........................................28 www.cornerstonemgt.biz Ekim Painting.......................................28 www.ekimpainting.com Eugene Burger Management Co.........27 www.ebmc.com

PGS; Professional Gutter Service, Inc. ..........................................12 www.guttercleaning.com PML Management................................18 www.pmlmanagement.com R.E. Broocker Co...................................18 www.rebroockerco.com Rebello’s Towing..................................30 www.rebellos.net Saarman Construction.........................23 www.saarman.com Union Bank...........................................10 www.HOAbankers.com

WHAT IS ECHO? Serving Homeowners to Build Strong Community Associations The Educational Community for Homeowners (ECHO) is a nonprofit membership corporation dedicated to assisting California homeowner associations. ECHO provides help to homeowner associations on many fronts: finances, legal issues, insurance, maintenance and management. Members receive help through conferences, trade shows, seminars, online education, a monthly full-color magazine and discounted publications.

Who Should Join ECHO? If your association manages condominiums or a planned development, it can become a member of ECHO and receive all of the benefits designated for homeowner associations.

Benefits of Association Membership • Subscription to monthly magazine • Access to members-only online education • Updates to the Association Statute Book • Frequent educational seminars • Special prices for CID publications • Legislative advocacy in Sacramento

ECHO Membership Dues Association Membership HOA 2 to 25 units...........................$130 HOA 26 to 50 units.........................$180 HOA 51 to 100 units.......................$275 HOA 101 to 150 units.....................$375 HOA 151 to 200 units.....................$450 HOA 201 or more units..................$575 Professional Membership.................$499 Association Management Membership.......................................$499 Individual Membership.......................$75

How Do You Join ECHO? Over 1,700 members benefit each year from their membership in ECHO. Find out what they’ve known for years by joining ECHO today. To apply for the membership, sign up online at www. echo-ca.org.

For more information about membership and ECHO, call us at 408-297-3246 or visit the ECHO website.

January August 2013 2014 || ECHO ECHO Journal Journal

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The New ECHO Office

WE MOVED!!

New Office 1960 The Alameda, Suite 195 San Jose, CA 95126-2308

42 echo-ca.org

NEW

at echo-ca.org

We’re adding new information to our website every day. Log in to read the articles below. If you need help logging in, find it on our website or email ECHO at newaccount@echo-ca.org.

Articles You made it through budget season, and now the real work begins. Here are some articles to help you clean up old processes, and start thinking about working smarter: How to Improve Your Meeting Minutes

Every association keeps meeting minutes – it’s the law!

But great minutes are an art form: boards should avoid providing too little or too much information in their minutes, so how do you strike a balance?

Educational Topic: Board Meetings

Making Accommodations

Don’t be put off by a resident’s request for a modification.

California and Federal laws protect certain classes, and you have an obligation to respond to reasonable requests.

Learn about those obligations.

Educational Topic: Disabled

Approaching Governing Document Amendment

With the new Davis-Stirling Act finally in effect, many association may consider updating their governing documents. What is the best way to undertake this difficult process?

Educational Topic: Governing Documents

Is Your Corporate Status Suspended?

Be proactive about your corporate status! Don’t wait until you need to sign a contract before you try to fix this important problem. Learn all about corporate suspension and reinstatement.

Educational Topic: Corporations

Legislation 2013 Legislative Review

Review what happened in Sacramento during 2013, and bookmark this page for the latest information about current bills. The Legislature reconvenes on January 6th!

Find in: echo-ca.org/law

The Law Did you receive your 2014 Statute Book? We recently mailed the brand new, updated David-Stirling Act to all of our member association board members. Use the book together with our website to locate information quickly: use our search function to find specific terms, or log in and to jump back and forth between the new and old laws.

Find in: echo-ca.org/law

January 2014 | ECHO Journal

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