Journal_07_03

March 2007

A Journal for Community Association Leaders

echo-ca.org

Protecting Your Trees

ALSO INSIDE THIS ISSUE:

• HOA Financial Analysis Part 2 • 2006 Case Law Update • Electrician Certification

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

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Contents

The ECHO Journal is published monthly by the Executive Council of 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 person should be sought.

Protecting Trees on page 6

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Can You Sleep on a Stormy Night?

Every winter dozens of storms affect the trees on homeowner association property. This article points out positive things that can be done with trees to help them get through the winter. By Robert Booty

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HOA Financial Analysis—Part 2 Summaries of financial information for the past 10 years from homeowner association financial statements for 21 associations reviewed by the author conducted for a 10-year period. By Michael J. Gartzke, CPA

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2006 Case Law Update

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 2007 Executive Council of Homeowners, Inc. 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.

Executive Council of Homeowners, Inc. 1602 The Alameda, Suite 101 San Jose, CA 95126 408-297-3246 Fax: 408-297-3517 www.echo-ca.org info@echo-ca.org

Annual summary of case law and legislative developments, which distills these activities for the 2006 calendar year. In Part 1, important new case law developments are covered. By Jeffrey A. Barnett, Esq.

Office Hours: Monday–Friday 9:00 a.m. to 5:00 p.m.

New State Certification of Electricians

Vice President Karl Lofthouse

Residential electricians who work for a C-10 electrical contractor are required to be certified by the state of California effective January 1, 2007. Electricians not certified are now working illegally.

Departments 26 Calendar of Events 27 Directory Updates 32 ECHO Bookstore 34 News from ECHO 38 ECHO Volunteer Honor Roll 38 About ECHO 41 ECHO Marketplace 41 Advertiser Index

On the Cover Can you sleep on stormy nights?

Protecting Your Trees Page 6

Board of Directors and Officers President David Hughes

Treasurer David Levy Secretary Dorothy Kopczynski Directors Paul Atkins John Garvic Robert Rosenberg Richard Tippett Steven Weil

Jerry L. Bowles Robert Hood Diane Rossi Wanden Treanor

Executive Director Oliver Burford Communications Coordinator Tyler Coffin Legislative Consultant Government Strategies, Inc. Design and Production George O’Hanlon ECHO Mission Statement The mission of ECHO is to advance the concept, interests and needs of homeowner associations through education and related services to board members, homeowner members, government officials and the professionals in the industry.

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March 2007 | ECHO Journal

On the Web

By Tyler Coffin

New ECHO Web Site Launched

A

fter more than a year in the making, ECHO has launched its completely revised web site.

In addition to a great new look, the web site debuts a host of interactive tools and informational features. The new site will support our commitment to maintaining the most informed groups of board members and CID professionals in California as we strive to keep a finger on the business and legislative pulse of the common interest development community in California.

New Services The web site offers several valuable resources to board members and management professionals by providing regular updates on legislation and legislative activities, and giving the latest CID related news, including activities of the California Law Revision Commission. And it continues to provide links to the Davis-Stirling Act and other areas of the civil and corporation codes relevant to CIDs. The online ECHO store now offers a fully secure ecommerce paying option, which will allow visitors to join ECHO or subscribe to the ECHO Journal, purchase publications, and to register and pay for ECHO seminars and luncheons. The store also offers visitors a way to comment on the periodicals, books and DVDs available. If you have a recommendation or comment on anything available in the store, you can share your opinion with other users of the site.

The calendar of events has been improved so that readers can see upcoming ECHO functions, their topics and speakers, and sign up and pay online.

Resources for ECHO Members For members of ECHO, additions to the site are now under construction that will offer a few additional tools. There will be an online version of one of our most popular publications, the ECHO Directory of Businesses and Professionals.

Registered members will be able to search the Directory at any time for maintenance contractors, builders, tax professionals and management firms.

The online Directory will be maintained through-

out the year; so members can always access the latest information on continuing and new member businesses and professionals.

An index of past articles will also be a part of the web site. A portion of that library will be available to members. Members will also be able to browse past editions. Because the Journal is a tremendous resource for boards and managers, we hope to expand its usefulness by bringing its wealth of information to members’ fingertips.

Please take a moment to visit and bookmark the ECHO web site. Since we are always looking for ways to improve service for our members, we invite you to send us any comments or suggestions for improvements. We have worked hard to develop this exciting new service, and we believe that you will find it to be an invaluable resource.

The new ECHO web site (echo-ca.org) was unveiled in February.

Pictured above is the home page.

ECHO Journal | March 2007

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By Robert Booty

Can You Sleep on a Stormy Night?

What you can do to protect your trees during winter months

O

nce there was a farmer, who hired a new hired hand. When the farmer first sat down with him to inquire about his skills, he asked, “Just what do you do?” The reply was, “Well, I can sleep on a stormy night.” The farmer thought this was a strange response, but he showed him around the farm and his sleeping accommodations. As time passed, a fierce winter storm awoke the farmer from a deep sleep, momentarily disorientated. He quickly dressed to check his animals. As he entered the barn he was delighted to see that his pigs were in their pen, the chickens were on their roost, and the cows and horses were all put away and safe. The next day the farmer approached his newly hired man and said, “You knew that this storm was coming, didn’t you?” He got this reply: “No, but I told you that I could sleep on a stormy night.”

Every winter season there are dozens of storms that affect our trees. And sometimes, even when our best efforts are utilized to protect our trees, we are saddened when the forces of nature have their way with them. When you think about mature trees, you realize that they provide so many positive things for a community, including higher property values and improving that special character to a neighborhood.

It’s not too surprising that a survey by Arbor National Mortgage, Inc. in 1993 revealed that “Eighty-four percent of real estate agents feel that a house on a lot with trees can be as much as 20% more salable than a house on a lot without trees. In addition, 62% of the respondents said

that the existence of healthy shade trees strongly influences a potential buyer’s impression of a block or neighborhood; 60% thought healthy shade trees have a big effect on a potential buyer’s first impression of a property; and 56% felt healthy shade trees are a strong factor in a home’s salability.”

Most people are drawn to communities with mature trees because of the benefits and

“It looks like a war zone!” cried one homeowner, as she awoke after the year’s first winter storm.

ECHO Journal | March 2007

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ambiance that they provide. However, when trees fail, they can be destructive and deadly.

One attorney who works with tree litigation cases made this statement about trees: “Trees can be managed, but they cannot be controlled. To live near trees is to accept some degree of risk. The only way to eliminate all risk associated with trees is to eliminate all trees.”

It seems that we have always had an ongoing love-hate relationship with trees. We love to surround ourselves in their beauty. We admire their strength and stature, and we are in awe that some have survived for so many

years. On the other hand, we dread the day of their failure.

Can anything be done to minimize tree failure during storms?

A few positive things can be done with trees to help them get through the winter months. Start by having your trees inspected by someone who has documented knowledge and experience. This will help you feel more comfortable by understanding that such experts know what they are looking for and talking about. They will provide an unbiased evaluation of what needs to be accomplished.

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You should have such inspections done well before the winter season arrives.

Then trees should be properly pruned using the principles of tree care developed and standardized by the International Society of Arboriculture. Many of the reasons trees fail result simply from the way they were pruned. Some of the most widespread pruning techniques, such as topping and lion’s tailing, actually damage trees and create problems because they change the tree’s natural structural integrity. Trees that have been topped become hazardous as they replace their canopies. Generally the new growth is weakly attached to the tree and is subject to failure, especially as the branches become larger. The failure usually happens during windstorms.

Lion’s tailing is a pruning technique that is so widespread it is now at epidemic proportions. Lion’s tailing occurs when all the living foliage is removed from the center of a tree.

The limbs of the tree look like a lion’s tail after pruning; the limbs will appear long and slender with a “puff” of foliage at the end.

This creates an uneven weight distribution in the tree canopy. And when limb failure occurs, it is usually because all of the canopy weight has been moved to the end of the branches. Trees will often fall apart under their own weight even without a windstorm.

Protection of your trees begins with inspection by qualified individuals The role that a certified arborist plays in tree protection is vital to every property owner with mature trees. The ongoing training and education they receive on an annual basis keeps them up to date with the most recent understanding of how trees respond in different situations. This includes preparing trees for adverse weather conditions.

These individuals are different from persons who are simply licensed by the state of California as a tree contractor or landscaper.

Why? California does not provide or require any specific educational testing of one’s knowledge regarding tree care by individuals wishing to be a contractor, before they take the state test. Nor does the state require any ongoing education on the part of the individual to retain his or her license. Certified arborists, however, must do this to keep their certifications active.

Can anything be done to prevent tree failure?

No, arborists cannot detect every condition that could possibly lead to the structural failure of a tree. Trees are living organisms,

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and they can fail in ways we do not fully understand. Adverse conditions are often hidden within a tree’s structure or below ground. Arborists cannot guarantee that a tree will be healthy or safe under all circumstances or for a specified period of time.

Likewise, results of other remedial treatments, e.g. medicines, cannot be guaranteed.

How can trees be pruned so they can withstand winter storms?

We need to understand that, when a gust of wind pushes against a tree and it cannot pass through the canopy easily, the chances of tree or limb failure increase. In order to minimize this problem, a tree needs to be properly thinned. The thinning process should be focused on the outer canopy of the tree. In effect this opens up what might be described as windows in the tree. This procedure will allow the wind to pass through the tree canopy with less resistance, minimizing damage to the tree. The thinning should involve no more than 25% of the living foliage with the interior foliage left intact.

Tree inspection is vital to identify structural failures before winter arrives Trees lean for one of two reasons: 1. Phototropism (how’s that for a $10 word?)—This is the bending of a plant ECHO Journal | March 2007

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Visible outward signs of hidden internal decay

Problems caused by trees infected by Armillaria root disease

(tree) toward the direction of more intense light (sunlight). A tree becomes top heavy as it becomes larger and then, because of its size or wet condition, root failure is likely to occur.

2. Root failure—Usually during prolonged wet conditions the tree experiences loss of anchorage. It is in the process of falling, but it’s just not on the ground yet. This is sometimes more common with trees planted in lawn areas. Root disease is like a ticking time bomb because its activity is for the most part unseen, underground, and involves the part of the tree that keeps it in an upright position, the roots.

Armillaria mella or oak root fungus is one of the most common root problems affecting trees; and it’s something a trained arborist can usually identify. Armillaria decomposes the tree’s roots so that it may suddenly fall over on a clear windless day or wait to go down in a storm.

Sometimes there are outward signs of structural problems, such as conks at the base of a tree or a cavity eaten away by decay, that are noticeable to a trained arborist. Conks are the fruiting bodies of decay-causing fungi that are hidden out of sight within the trunk of a tree. The presence of mushrooms indicates there is dead organic material.

Evidence of any of these should alert us to a potential problem and appropriate action taken.

There are times when decay in trees is very difficult to identify, because there may be no visible or outward signs of its presence. This problem often makes its presence known during a storm. The degree and variety of training among certified arborists vary. Some have specialties that they focused on in their careers in arboriculture, such as forensic investigations. Using specialized tools, such arborists are able to provide a valuable ser10

March 2007 | ECHO Journal

Ganoderma conks at the base of an Acacia tree

Sulfur fungus on a Eucalyptus tree

vice by identifying decay in trees that may not have shown any visible signs of having a problem.

One of the most widely used devices to identify hidden decay is called the resistograph. With this tool the arborist uses a special drill with a long small wire bit that is drilled into an area chosen by the technician

to explore for decay. As the bit is drilled into the tree, it measures and records the resistance the drill encounters as it passes from solid wood into softer wood that has been compromised by decay. After a series of such inspections an arborist is able to provide his recommendations concerning how advanced the decay is and how to proceed.

they may not want to hear. However, experts have an obligation to be forthright, not just say something people want to hear. Similarly, board members and managers have a responsibility to listen to an accurate assessment of a problem and then act to remediate it.

One of the most recent and promising tools for decay detection is called TreeRadar.

This appears to be the most advanced method to measure wood decay because it is totally non-invasive to the tree. One concern people have had with traditional methods of decay investigation is that holes are drilled into a tree that they are trying to save.

TreeRadar safely uses radar to provide a virtual image of the interior of a tree trunk, much the same as if one were to visit a doctor and receive an X-ray or MRI to evaluate his or her own health.

As you are reading this article, your thoughts might be drawn to the beautiful trees that grace your property. You may notice that your mind wanders to some questions: “What about our trees? Have we utilized qualified individuals? Is our budget sufficient to care for our real needs or have our trees become a liability? Is our community relativity safe or are there real concerns involving some of our trees?”

In spite of all of our advanced technology and expanded knowledge of trees, they do continue to fail at times. Society has accepted the risk of living among trees and, hopefully, the responsibility to care for them. When maintenance has been deferred or improperly performed, problems arise. We live in a time when the knowledge to care for mature trees properly is readily available. So why is it that we continue to see disasters such as the one shown at the start of this discussion?

Sometimes an arborist’s recommendations are ignored, and this can be a problem. It’s often not easy to tell clients something that

How you answer these questions will determine how well you sleep on a stormy night.

TreeRadar is the most advanced method for determining tree health

Robert Booty is the principal consultant for Arborist OnSite.™ He is an ISA Certified Arborist and a member of the American Society of Consulting Arborists. He is a member of the ECHO Maintenance Resource Panel.

ECHO Journal | March 2007

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Editor’s Note: Part I of this article that looked at one-year cost comparisons from 60 associations appeared in the February issue of the Journal.

Homeowner Association Financial Analysis Part 2—Ten-Year Data Comparisons

By Michael J. Gartzke, CPA

I

recently analyzed a large amount of association financial data from my HOA clients going back to the early 1990s. For associations that I review financial statements for, I collect a fair amount of historical data on assessments, expense costs by category, cash balances, etc. I was curious as to how much assessments have increased during this period, how expenses have changed and whether associations had more or less cash on hand ten years later. I also wanted to contrast the percentage increases with the Consumer Price Index (CPI) changes published by the Bureau of Labor Statistics. Various professionals in the community association industry have frequently asserted that inflation data for homeowner associations far exceed CPI inflation data. However, there have

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March 2007 | ECHO Journal

been few, if any, quantitative analyses to support such an assertion.

An analysis was conducted for 21 associations containing 1,899 dwelling units. The associations range in size from 28 to 360 units with the median (half larger and half smaller) association having 56 units. Twenty of these associations are in south Santa Barbara County while one is in the northern part of the county. All associations in the survey were my clients in 1995 and remain so today. Client associations that had less than $75,000 in gross revenues are not included in the sample because the same detailed information for them is not retained.

The hypothesis I wanted to examine was whether association assessments mirrored the published inflation rate. With increases in utilities

Fig. 2 Reserve Assessments 1995–2005

Fig. 1 Assessment Increase 1995–2005

and insurance costs, for example, as well as the aging of the associations’ property, I suspected that association costs outpaced standard CPI inflation rates and wanted to compile statistical data to support or refute that contention and analyze specific areas of expense and income.

Consumer Price Index The Bureau of Labor Statistics publishes many different types of indices. For this analysis, I selected the “Urban Wages Earners and Clerical Workers” index for Los AngelesRiverside-Orange Counties, California. The index uses 1984 as the base year to equal 100.

To calculate a rate of inflation, I take the current period factor and divide it by the prior period factor. For example, the factor for December 2005 was 196.5 while for December 2004, the factor was 188.5. The inflation rate for 2005 was 4.24% (196.5 divided by 188.5 = 1.0424). The factor for December 1995 was 149.4. Making the same computation for the ten-year period from 1995-2005, the rate of inflation was 31.53%.

(196.5 divided by 149.4) I have analyzed the data two ways. On a total basis, I have combined the income and expenses for all the associations into a grand total. Larger associations contribute more to the totals than smaller associations. I have computed averages for the total amounts. To establish median amounts per association, each association has an equal weighting as all other associations. In a sample of 21, the 11th ranked association is the median, since 14

March 2007 | ECHO Journal

10 will have higher amounts and 10 will have lower amounts.

Analysis Results Total Assessments: In 1995, the average monthly assessment was $192.53. In 2005, the average monthly assessment was $283.03, an increase of $90.50 per month or 47%. These 21 associations collected over $2 million more (from 4.38 to 6.45 million dollars) in monthly assessments in 2005 than in 1995.

The median assessment jumped 57%; half the associations had an assessment increase of more than 57% while half had an assessment increase of less than 57% during the 10-year period. Out of the 21 associations in the sample, only one had an assessment increase of the 10-year period of an amount less than the 31.53% increase in the Consumer Price Index. The other 20 had monthly assessment increases greater than the Consumer Price Index. The highest monthly assessment increase was 94.6% from 10 years ago, three times the rate of inflation.

The changes are charted in Figure 1. (Note: In all of the figures, the median change is graphed as association 22, and the CPI change is shown as Association 23.)

Operating Fund Assessments: Over the 10year period, the median operating assessment increased by 62.2%, nearly twice the change in the CPI. The percentage of the operating assessment compared to the total assessment (operating + reserve) increased from 78.9% to 80.2% during the period.

Reserve Fund Assessments: Over the same 10-year period, the median reserve fund

Fig. 3 Change in Cash Balances 1995–2005 Per Unit

assessment increased by 61.4%. Five associations funded less to reserves in 2005 than they did in 1995. Conversely, eight associations had reserve assessments at least double what they funded ten years earlier. One association is funding its reserves at a rate over five times the amount that they funded in 1995. Figure 2 shows the percent change in the amount of the total assessment dedicated to reserve funding from 1995-2005.

Cash: In 1995, these 21 associations had combined cash and cash investments of $4.06 million. At the end of 2005, these balances had increased to $6.52 million. Changes in cash balances for each association are summarized in Figure 3.The median cash balance per member had increased by $1,626 or 46.1% over the 10-year period. Four of the 21 associations had lower cash and investment balances in 2005 than they did in 1995.

Three of those four associations recently completed major maintenance projects such as roofing while the fourth simply reduced its reserve funding.

Utility Expense: The median association paid 46.2% more for utilities in 2005 than it

Fig. 4 Utility Cost Changes 1995–2005

Fig. 5 Common Area Maintenance Cost Changes 1995–2005

did in 1995. Results are summarized in Figure 4. Three associations paid less for utilities than they did ten years ago. One of those associations had been paying the sewer charge as part of the assessment. Now, that charge is being handled through the unit owner’s property tax bill. The other two associations pay for common water use only and have apparently reduced their usage in the face of rising utility rates. Three associations had utility expense increases of 90–100% from ten years ago. Two of these associations are in Carpinteria where water rates have skyrocketed in the past two years. Overall, utility costs increased $18 per month per member during the ten-year period.

Common Area Maintenance: This category includes gardening, common area repairs not chargeable to the reserve fund, pool maintenance, elevator maintenance, etc.

These changes are plotted in Figure 5. The median association paid 46.4% more for common area maintenance than they did ten years ago. Common area costs for seven of the 21 associations increased by less than the change in the CPI index during the ten-year Continued on page 17

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ECHO Journal | March 2007

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March 2007 | ECHO Journal

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HOA Financials—Part II Continued from page 15

Fig. 6 Insurance Cost Changes 1995–2005

period. Two had increases of over 100%.

Overall, these associations paid $869,000 more for common area maintenance and services than they did ten years prior. These cost increases averaged $38 per month per member.

Insurance Costs: In 1995, the 21 associations collectively paid $435,090 for all their insurance policies. Ten years later, the total premiums were $1,142,274, an increase of 162.5% or $31 per member per month. This increase was 5 times the cost of living increase for the ten year period. Further, this computation does not include the latest round of premium increases that occurred in 2006. Association number 7 in Figure 6 added earthquake coverage after 1995 while association number 14 eliminated the coverage. The median increase in premiums of 147.5% over 10 year was a little less than the average. Indeed, 18 of the 21 associations saw their premiums increase by more than double during the ten-year period.

General and Administration Costs: These costs include management, bookkeeping, accounting, legal, other professional services, printing, postage, office supply, filing fees, licenses, income taxes, etc. Some of these expenses, such as legal, are subject to wide variation from one year to the next but a 10year sampling should effectively smooth out these variations. Some associations added management services during this period.

More associations are having a professional reserve study done than in 1995. Certainly, the laws have changed over the past 10 years Continued on page 37 ECHO Journal | March 2007

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2006 Statute and Case Law Update T

his summary of case law and legislative developments distills the legal developments in the 2006 calendar year. In Part I— Case Law, summaries are given of cases that are of importance to community associations.

The full text of the cases discussed in the article can be found at findlaw.com/cacases/. Part II—Statutory Law will follow in the April issue of the ECHO Journal.

Cebular v. Cooper Arms Homeowners Association, 142 Cal. App. 4th 1006 (2006); petition for review denied 2006 Cal Lexis 13569.

This case concerned a challenge by a homeowner to the method of allocation of 18

March 2007 | ECHO Journal

assessments in a condominium project. The assessments in the condominium project were allocated on the basis of assigned shares, which also determined the voting rights. The shares were assigned without reference to size or location of the unit. In fact, some larger units had fewer shares. The owner contended that the distribution of shares was inequitable, arbitrary and capricious and argued that the distribution of assessments should be reallocated on an equal basis because the members were entitled to share equally the common area of the subdivision. The owner further challenged the assessments as an unfair business practice

in violation of Business and Professions Code Section 17200 and as a violation of Corporations Code Section 7312.

The Court noted that when the project was converted from a stock cooperative to a condominium project, 75% of the owners agreed to maintain the method of allocation of assessments in the condominium declaration and bylaws that had prevailed under the original 1925 stock cooperative’s documents.

Apparently, the original shares were allocated based on the purchase price of the residences, without regard to the size of the living space or the actual maintenance,

Part 1—Case Law

By Jeffrey A. Barnett, Esq. repair and replacement obligations attributable to each unit.

The California Court of Appeal upheld the trial court’s ruling that the method of assessment for maintenance of common area facilities was valid. In doing so, the Court emphasized the principle that the covenants and restrictions in a declaration of a common interest development are enforceable equitable servitude, unless unreasonable.

This principle of deference to equitable servitude in common interest developments is required by California Civil Code Section 1354. It has been interpreted by the California Supreme Court in Nahrstedt v.

Lakeside Village Condominium Assn., 8 Cal 4th at 379-380, 382, 389, to mean that covenants, conditions or restrictions are enforceable unless the party challenging it establishes the equitable servitude to be “unreasonable” because it violates a fundamental public policy or imposes a burden on the use of the affected land that far outweighs any benefit.

The Court noted that neither the DavisStirling Act nor the California Code of Regulations requires equal assessments to be imposed in every case. In particular, no statute or regulation in California prohibits the allocation of assessments on an unequal

basis that is related to voting power in the governance of the community.

Rejecting the owner’s argument that the assessment allocation scheme was arbitrary, the Court found that there was a rational relationship between the greater voting rights of owners, which meant more control over the management and maintenance of the property, and the higher assessments that were directly tied to voting rights. The Court pointed out that under the governing documents, voting power was directly related to the power to amend the documents, including potentially the method for collecting assessments, the power to call special ECHO Journal | March 2007

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meetings, the election and removal of directors, and other important association election issues.

The Court further rejected the owners’ challenge that the assessment formula violated public policy that affects the public at large. In fact, the Court found that failure to uphold the allocation formula would disrupt the fundamental public policy of upholding the expectation of the other unit owners, 75% of whom had voted to continue the assessment allocation formula when the building converted to condominium ownership.

Plaintiff contended that the assessments scheme violated Civil Code Section 1366.1, which prohibits excessive assessments, as the members shared equally in the benefits of the common areas. He further argued that the assessments scheme violated his rights under Civil Code section 1368.1 because the assessment and voting rights unfairly and unreasonably restricted the marketability of his condominium. He further cited Civil Code Section 1357.110, which prohibits unreasonable rules. Each of these points was found to be unsupported based on the particular facts of the case.

Finally, the owner challenged the assessment scheme under Corporations Code Section 7312, which generally prohibits persons from holding different categories of membership in a nonprofit mutual benefit corporation, subject to certain specific exceptions. The Court found that the articles of incorporation of the association created one type of membership, and that the governing documents lawfully created different rights and conditions of membership as allowed by Corporations Code Section 5330.

The appellate court therefore upheld the judgment of the trial court and further awarded the homeowners association its attorney’s fees and costs on appeal.

Elnekave v. Via Dolce Homeowners Association, 142 Cal. App. 4th 1193 (2006) In this case, a court-approved settlement between homeowners and their homeowner association was set aside. Homeowners sued their neighbors and their association for mold damage from a water leak that required the owners to pay for expensive repairs. At a court-supervised mandatory settlement conference, an oral settlement was reached and Continued on page 22 20

March 2007 | ECHO Journal

North Counties Seminar Saturday, March 17, 8:00 a.m. to 1:00 p.m.

Rohnert Park Community Center, 5401 Snyder Lane, Rohnert Park Seminar Agenda 8:00 8:45 9:00 9:45 10:30 10:50 11:35 12:20 12:50

Registration, Continental Breakfast and Sponsor Tables Introductions New Voting Requirements Redux Sandra Bonato, Esq. Handling Major Construction Concerns Steven Saarman Break William Gillis, Esq. Dealing With Difficult Members Making Effective Banking Relationships Geri Kennedy, Karl Lofthouse Questions and Answers All Speakers Drawings for Sponsor Prizes

Yes, reserve _____ spaces for the ECHO North Counties Seminar.

Amount enclosed: $__________ (attach additional names) Name: HOA or Firm: Address:

CID Challenges in 2007

City:

State:

Zip:

Ticket Price: $35

Return with payment to: ECHO, 1602 The Alameda, Ste 101, San Jose, CA 95126 Orders will not be processed without payment in full. Fees for cancelled registrations will not be refunded. Telephone: 408-297-3246; Fax: 408-297-3517

Phone: Visa/Mastercard No.

Exp. Date:

Signature:

2006 Case Law Update Continued from page 20

Whether you’re a self-managed homeowner association or a property management company, U.S. Bank is here to help. Our team of dedicated specialists offers personalized service and a full range of financial solutions to meet your specific needs. We’re here to help you manage your cash, streamline processing and provide financing options for your renovations or major construction projects.

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March 2007 | ECHO Journal

Your HOA financial expert. That’s us For additional information, please contact: Ms. Christine Lucas Vice President HOA Division 866 375 8617

put on the record. Present at the hearing were one of the homeowners, a representative from the management company of the association, a representative from the homeowner association’s insurance company, and the attorneys for each of the parties. The management representative told the court she had the authority to settle for the homeowners association.

The oral agreement called for payment by the association’s insurer of $65,000 and payment by the neighbors of $60,000, a dismissal of the lawsuit, and mutual releases. Subsequently, the parties were unable to agree on a written settlement, primarily because the attorneys for the association and the homeowners could not agree on the scope of the release regarding enforcement of the CC&Rs for any problems with the repair work. The association opposed a motion by the homeowners to enforce the settlement for two reasons. The association wanted to reserve its right to enforce the CC&Rs based on two considerations: (1) a steam shower the homeowners added in place of their old shower, and (2) that the employee of the outside property management firm, despite her statement of authority, could not bind the association’s board of directors. The association was concerned that the homeowners had installed the steam shower without using a licensed contractor and without conforming to local building codes. The association wanted to preserve its rights against the owners related to this construction, but it did not oppose a release of the mold remediation repairs.

The appellate court found that the settlement agreement, although placed on the record in court, was unenforceable because the association was not represented by an officer or director. California case law requires the personal presence of the litigants in court to bind the party to an oral settlement to ensure that the settlement is the result of mature reflection and deliberate intent. The court agreed with the homeowner association that there was no evidence that the insurance carrier for the association had the right to settle without the association’s consent. The court found that the purported settlement prejudiced the association’s right, separate from payment by the insurer, because the settlement limited its ability to

enforce the CC&Rs for noncompliance.

Accordingly, the insurance carrier could not bind the association without its direct consent in court.

Farber v. Bay View Terrace Homeowners Association, 141 Cal. App. 4th 1007 (2006) The buyer of a condominium made a claim against the seller and the homeowner association because of damages from extensive roof leaks and the prospect of paying a $15,000 assessment by the association to make repairs. The seller contended that the association was solely responsible for the damages and sued the buyer and the association for a determination of her rights and duties under the CC&Rs as against the buyer and the association.

The buyer filed a cross-complaint against the seller, and the seller filed a cross-complaint against the association for indemnity and declaratory relief. The association filed procedural challenges against the seller’s complaint and cross-complaint on grounds that the seller lacked standing to enforce the CC&Rs. At the trial court level, the association prevailed and was awarded $24,517 in attorney’s fees.

The appellate court agreed with the trial court that the seller of a condominium does not have standing to enforce the CC&Rs. Regardless of the technical causes of action asserted by the seller, her claim was one to enforce the CC&Rs by seeking a determination that the association was responsible for repair of the roof. The court reviewed objections to the fees awarded in favor of the association and ruled against the seller on each point. Moreover, the Court awarded the association its costs on appeal, which would include additional attorney’s fees.

Peak Investments et al. v. South Peak Homeowners Association, 140 Cal. App. 4th 1363 (2006) This case concerns the interpretation of California Civil Code Section 1356. This statute permits the superior court to amend the CC&Rs upon a vote of a majority of the members when the declaration requires a supermajority vote. In this case, the amendment was championed by owners of one lot to reduce the setback requirements for their home. The CC&Rs controlled the maximum height of residences as well as front, side and rear lot setbacks. Through an apparent typoContinued on page 25 ECHO Journal | March 2007

23

24

March 2007 | ECHO Journal

2006 Case Law Update Continued from page 23

graphical error in a prior amendment, the front and rear setbacks for this owner’s lot were increased from 20 feet to 25 feet. The attorney who drafted the prior amendment prepared a correcting amendment, but the board declined to sign it. The homeowners then called a special meeting of the members to try to correct the error. The amendment required the vote of two thirds of the lot owners or 42 of the total 63 owners. At the meeting, 32 ballots were cast and 21 voted in favor of the amendment. The trial court approved the owner’s petition under Civil Code Section 1356, ruling that a majority of the quorum of the owners was sufficient to empower the court to reduce the CC&Rs amendment requirement.

This article distills important case law developments in 2006.

On appeal, the decision of the trial court was reversed. The appellate court interpreted Civil Code Section 1365 to require that more than 50% of all of the voters in the association approve the amendment as a minimum jurisdictional requirement for the court to override the supermajority amendment requirement. The court concluded that the California Legislature made a conscious decision to require that at least a bare majority of all the members would be necessary before the court could reduce the voting requirement.

Although the court found that the petition under Civil Code Section 1356 had to be denied, it specifically noted that the owners may have other remedies to achieve their objectives. It stated that nothing in the opinion would hamper the owner’s ongoing efforts to correct the “scrivener’s error.”

Jeffrey A. Barnett is an association attorney with legal offices in San Jose. He is a member of the Legal, Central Coast and South Bay Resource Panels, the ECHO Legislative Committee and a past member of ECHO’s board of directors. He also frequently speaks at various ECHO seminars and writes for the ECHO Journal.

ECHO Journal | March 2007

25

Calendar of Events

Plan Ahead for ECHO Seminars Thursday, March 1 North Bay Resource Panel 9:30 a.m.

Contempo Marin Clubhouse 400 Yosemite Rd., San Rafael Friday, March 2 East Bay Resource Panel 9:30 a.m.

Angius & Terry 1990 N. California Blvd., Suite 950, Walnut Creek Tuesday, March 13 Central Coast Resource Panel 12:00 Noon Pasatiempo Inn, Santa Cruz Wednesday, March 14 South Bay Resource Panel 12:00 Noon Il Fornaio 302 South Market St., San Jose Saturday, March 17 North Counties Seminar 8:00 a.m. to 1:00 p.m.

Community Center 5401 Snyder Ln., Rohnert Park

Wednesday, March 21 Wine Country Resource Panel 11:45 a.m.

Lanahan & Reilley 600 Bicentennial Way Suite 300, Santa Rosa

Wednesday, April 18 Wine Country Resource Panel 11:45 a.m.

Lanahan & Reilley 600 Bicentennial Way, Suite 300, Santa Rosa

Thursday, March 22 San Francisco Luncheon 11:45 a.m.

St. Francis Yacht Club San Francisco

Wednesday, April 18 Legal Resource Panel 6:30 p.m.

Scott’s, Jack London Square Oakland Contact ECHO Office

Saturday, March 31 San Francisco Spring Seminar 8:00 a.m. to 1:00 p.m.

Fort Mason Center San Francisco Wednesday, April 4 Maintenance Resource Panel 12:00 Noon ECHO Office 1602 The Alameda, Ste. 101, San Jose Friday, April 6 East Bay Resource Panel 9:30 a.m.

Angius & Terry 1990 N. California Blvd., Suite 950, Walnut Creek

Thursday, May 3 North Bay Resource Panel 9:30 a.m.

Contempo Marin Clubhouses 400 Yosemite Rd., San Rafael Friday, May 4 East Bay Resource Panel 9:30 a.m.

Angius & Terry 1990 N. California Blvd., Suite 950, Walnut Creek Tuesday, May 8 Central Coast Resource Panel 12:00 Noon Pasatiempo Inn, Santa Cruz

Wednesday, May 9 South Bay Resource Panel 12:00 Noon Il Fornaio 302 South Market St., San Jose Saturday, May 12 Marin County Spring Seminar 8:00 a.m. to 1:00 p.m.

Embassy Suites 101 McInnis Parkway, San Rafael Thursday, May 17 San Francisco Luncheon 11:45 a.m.

St. Francis Yacht Club San Francisco Friday & Saturday June 1 & 2, 2007 ECHO Annual Seminar Santa Clara Convention Center Santa Clara Thursday, July 19 San Francisco Luncheon 11:45 a.m.

St. Francis Yacht Club San Francisco

Regularly Scheduled Resource Panel Meetings Resource Panel Maintenance North Bay East Bay Accountants Central Coast South Bay Wine Country Legal 26

March 2007 | ECHO Journal

Meeting

Location

First Wednesday, Even Months First Thursday, Odd Months First Friday, Monthly Second Monday, Odd Months Second Tuesday, Odd Months Second Wednesday, Odd Months Third Wednesday, Monthly March, May, August, October

ECHO Office, San Jose Contempo Marin Clubhouse, San Rafael Angius & Terry, Walnut Creek Francesco’s Restaurant, Oakland Pasatiempo Inn, Santa Cruz Il Fornaio Restaurant, San Jose Lanahan & Reilley, Santa Rosa Varies

Directory

UPDATES Updates for the business and professional members listed in the 2005 ECHO Directory of Businesses and Professionals.

Additions Archer Norris, PLC 2033 North Main St., Ste. 800 Walnut Creek, CA 94596 Contact: Kimberly M. Amick Tel: 925-930-6600 Fax: 925-930-6620 Archer Norris provides legal services to clients in the business and insurance industries. We have the experience to help clients navigate the challenging environment of real estate, land use and construction law. Our attorneys provide assistance in handling complex issues in common interest development law, public agency, land use, title matters, property law and commercial leasing.

Auditek 28 Santa Maria Drive, # 101 Novato, CA 94947 Contact: Bob Lansburg Tel: 415-354-6140, ext. 50 Fax: 415-897-3634 www.auditek.net Email: bobl@auditek.net

Are your utility bills too high? Are you tired of paying more and more for your gas, electric, water and sewage costs? For 20 years, Auditek has been effectively reducing utility costs for property owners and management companies.

Continued on page 29 ECHO Journal | March 2007

27

Facilities

New State Certification Requirements for Electricians so legally by registering as an electrician trainee and attending an approved school.

The Contractors State License Board (CSLB) is urging all electricians who work for C-10 electrical contractors to sign up immediately to take a certification exam. Not complying with the law could subject the licensee to administrative action by the CSLB. It could potentially open these contractors and workers up to civil suits should there be problems with work done by an uncertified worker.

L

egislation was passed in 1999 requiring all electricians who work for a C-10 electrical contractor to be certified by the state of California.

Regulations were put in place in 2002. The deadline for residential electricians getting this certification was January 1, 2007. The deadline for general electricians and fire/life/safety electricians was on January 1, 2006. Electricians who are not certified by this time are working illegally.

Association directors and managers should now check to determine that any electrician with whom they contract is certified.

To work legally as an electrician since the January 1 deadline passed, a person must be one of the following: • Certified by having taken and passed the exam; • An apprentice in a state approved program; • An electrician trainee If a person wants to perform electrical work for a C-10 contractor and does not yet qualify to take the certification exam because of lack of work experience or related instruction, he or she can do

28

March 2007 | ECHO Journal

The Department of Industrial Relations’ Division of Apprenticeship Standards is responsible for the processing of applications for electrician certification and electrician trainee applications. There are now 138 approved schools throughout the state and testing dates are plentiful. Electricians who need to get into compliance and work legally as an electrician in California should be able to do so with little to no difficulty.

Also of note, two new electrician certification exams have been developed. They are the NonResidential Lighting and the Voice Data Video Technician exams. These exams will be available beginning March 2007. The deadline for this certification is December 31, 2007.

To learn more about electrician certification, apprenticeship or electrician trainees, readers can visit dir.ca.gov/DAS/ElectricalTrade.htm. To review certification statistics, get a list of electricians who have been certified, or do an electrician certification search, visit dir.ca.gov/das/ECU_Stats.htm.

The Contractors State License Board operates under the umbrella of the California Department of Consumer Affairs. The CSLB licenses and regulates California’s 304,000 contractors and investigates more than 20,000 complaints against contractors annually. In fiscal year 2005–6, the CSLB helped consumers get more than $36 million in restitution.

Business/Professional Updates Continued from page 27

Bozzuto & Associates Insurance Services One Almaden Blvd., # 810 San Jose, CA 95113 Contact: Jennifer Mullins Tel: 408-947-3016 Fax: 408-947-7130 Email: jenniferm@dbinsurance.com Risk management, loss control and insurance professionals for residential communities. We have a variety of specialized products to offer at very competitive prices.

Construction Services, Inc. 203 Rickenbacker Cir., Ste. B Livermore, CA 94550 Contact: Jim Lyons Tel: 925-456-0699 Fax: 925-456-0680 Email: csijiml@aol.com With over 20 years experience servicing HOAs, CSI provides the quality workmanship and customer service that everyone is entitled to. Services include: maintenance, waterproofing, decks, siding, structural repairs and playgrounds.

Sundance Construction, Inc. 926 N. 9th St. San Jose, CA 95112 Contact: Donald Sylvia Tel: 408-287-5295 Fax: 408-287-5297 Email: dsylvia@sundanceconstruction.net Sundance Construction is a full service general contracting firm with services that include framing, foundation, siding, stucco, painting, deck construction and coating, concrete, interior repairs, remodeling and restoration.

Continued on page 30 ECHO Journal | March 2007

29

Business/Professional Updates Continued from page 29

Changes From: PacCon To: Metro Hardscape, Inc. Address and fax remain the same Tel: 877-265-8883 www.sidewalkrepair.com

Ruben’s Custom Painting 7909 Walerga Rd # 106 Antelope, CA 95843 Contact: Dina Martynek Tel: 916-893-9474 Fax: 916-722-8892 Email: dinamartynek@yahoo.com 30

March 2007 | ECHO Journal

Reserve Fund Essentials Reserve Fund Essentials is a “must” for everyone associated with co-owned properties. Handling a property’s reserve fund is simply the single most important responsibility of all Boards of Directors.

This 94-page book looks at virtually every aspect of reserve fund management—and some of them are areas that often get little or no attention. The authors don’t pontificate or conjecture. They explain in a tell-it-like-it-is style just what you must do to keep your reserve fund healthy. Available now from ECHO (see page 32).

On sale now $18.00

Face

Learn to

CID Challenges at the Marin

Spring Seminar

Saturday, May 12, 2007 Embassy Suites, San Rafael The 2007 Marin Spring Seminar will feature four experts from San Rafael giving attendees presentations on the most important concerns they believe association boards and managers will be confronting this year, including a summary of bills affecting CIDs being considered by the California Legislature.

Seminar Speakers: David Feingold, Esq. Wanden Treanor, Esq.

Ken Kosloff Glenn Youngling, Esq.

Watch for the complete seminar agenda at the ECHO Website and in the April Journal.

Plan to attend this seminar along with other board members in the North Bay.

Yes, reserve _____ spaces for the ECHO Marin Spring Seminar.

Amount enclosed: $__________ (attach additional names) Name: HOA or Firm: Address:

CID Challenges in 2007

City:

State:

Zip:

Ticket Price: $35

Return with payment to: ECHO, 1602 The Alameda, Ste 101, San Jose, CA 95126 Orders will not be processed without payment in full. Fees for cancelled registrations will not be refunded. Telephone: 408-297-3246; Fax: 408-297-3517

Phone: Visa/Mastercard No.

Exp. Date:

Signature:

Books and DVDs from ECHO

Working With Your HOA $22.00 2005 ECHO Business & Professional Directory $10.00 This directory lists all business and professional members of ECHO as of September 2005. Current addresses, telephone and fax numbers, email addresses, and a short description are included. This directory is an invaluable tool for locating service providers that work with homeowner association.

Condominium Bluebook 2007 Edition $18.00 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.

Robert’s Rules of Order $7.50 Homeowners Associations— How-to Guide for Leadership $35.00* This well-known guide and reference is written for officers and directors of homeowner associations who want to learn how to manage and operate the affairs of their associations effectively.

Questions & Answers About Community Associations $18.00 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.

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.

This is a valuable guide to all aspects of community association living designed as a practical problem solving guide. Written by two long-time association residents, it uses easily readable language and provides an insightful overview of community living from the viewpoint of experienced owners.

The Uncertain Future of Community Associations $10.00 For 30 years, attorney Tyler Berding has had a unique vantage point in observing new, aging and “evolving” community associations confront the issues they face. The basic premise is: without clarity, wisdom and “tough love,” community associations are doomed to failure.

Home and Condo Defects— A Consumer Guide to Faulty $10.00 Construction

Finding the Key to Your Castle—Revised 2005 $12.50*

This guide is prepared by attorneys Tom Miller and Rachel Miller for anyone having problems with faulty construction on a home or condominium. It explains the various technical aspects of determining who is at fault and who to go after to rectify the situation.

An easy-to-read guide to cooperative living in common interest housing developments, this book covers key points relating to member rights, member responsibilities, association finances, and even to rentals.

Answers to many frequently-asked questions about CID operations are included.

Community Association Statute Book—2007 Edition $10.00 This booklet contains the 2007 version of the Davis-Stirling Common Interest Development Act, the Civil Code sections that apply to common interest developments, and selected provisions from the Civil, Corporations, Government and Vehicle Codes important to community associations.

California Building Performance Guidelines for Residential Construction $52.50* This easy-to-read manual is an excellent tool to understand a new home.

It contains chapters covering more than 300 conditions that have been sources of disputes between homeowners and builders, offers homeowner maintenance tips, and defines the standards to which a residence should be built.

CID Leadership Two-Disc DVD set

$30.00

Board—An orientation for new board members and a refresher for current members. Meetings—How to conduct effective meetings that stay focused and achieve results.

Reserves—How adequately-funded reserves prevent problems in associations. Insurance—Considers insurance to protect multi-million dollar community assets.

Alternate Dispute Resolution in Homeowners Associations Available late Spring 2007. This publication is being revised to reflect new requirements resulting from passage of SB 137.

Publications to answer your questions about common interest developments Publication Order Form

Board Member’s Guide for Contractor Interviews $20.00 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.

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

QUANTITY

SUBTOTAL (Tax included in prices)

SHIPPING COST:

*Add $3.00 per copy for mailing **Add $10.00 per set for mailing

SHIPPING AND HANDLING TOTAL AMOUNT

Board Member’s Guide for Management Interviews $10.00 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.

Yes! Place my order for the items above. q Check q Visa q Mastercard Credit Card Number Exp. Date

Signature

Name (please print) Association (or company) Address City Daytime Telephone

State

Zip

AMOUNT

News from ECHO

New ECHO Web Site Launched in February A year in the making, the completely revised web site has been launched. In addition to a great new look, the web site debuts a host of interactive tools and informational features. The new site will support our commitment to maintaining the most informed groups of board members and CID professionals in California.

The web site offers several invaluable resources to board members and management professionals. It offers a weekly update concerning activity in the California Legislature, as well as the latest CID-related news. All visitors who desire to receive these regular updates from ECHO may have them delivered to their personal email addresses.

The updates will contain the latest news, legislative developments and new additions to the bookstore. Make sure that your association board members get important news as soon as it comes out. As an adjunct to the web site, ECHO will soon have available a regular email newsletter available to any visitor who requests it.

34

March 2007 | ECHO Journal

The new ECHO online store offers a secure ecommerce purchasing option, allowing visitors to join ECHO, subscribe to the ECHO Journal, purchase publications, and register for ECHO seminars and luncheons.

Payment will be made directly on the web site.

The site continues to provide links to the Davis-Stirling Act and other areas of the civil, corporation and government codes relevant to CIDs. There will be links to 2007 legislative bills related to community associations.

Additional features now in development and soon to be available include an index to ECHO Journal articles, the Business and Professional Directory with immediate updates, and a capability to purchase article reprints online.

Take a moment to visit and bookmark the new web site.

Since we are always looking for ways to improve service for our members, we invite you to send us any comments or suggestions for improvements. We have worked hard to develop this exciting new service, and we believe that you will find it to be an invaluable resource.

State Certification of Electricians Now Required Legislation was passed in 1999 requiring all electricians who work for a C-10 electrical contractor to be certified by the state of California. Regulations were put in place in 2002. The deadline for residential electricians getting this certification was January 1, 2007. The deadline for general electricians and fire/ life/safety electricians was on January 1, 2006. Electricians who

are not certified by this time are working illegally. Association directors, managers and owners should now check to determine that any electrician with whom they contract is certified.

To work legally as an electrician since the January 1 deadline passed, a person must be one of the following: • Certified by having taken and passed the exam; • An apprentice in a state approved program; • An electrician trainee

knowledge and experience.

Then have the trees properly pruned using the principles of tree care developed and standardized by the International Society of Arboriculture. Many of the reasons trees fail result simply from the way they were pruned. Some of the most widespread pruning techniques, such as topping and lion’s tailing, actually damage trees and create problems because they change the tree’s natural structural integrity.

In spite of all of our advanced technology and expanded knowledge of trees, they do continue to fail at times. Society has accepted the risk of living among trees and, hopefully, the responsibility to care for them. When maintenance is deferred or improperly performed, problems arise. We live in a time when the knowledge to care for mature trees properly is readily available.

Upcoming Events

Protecting Trees from Winter Storms Most people are drawn to communities with mature trees because of the benefits and ambiance that they provide.

However, when trees fail, they can be destructive and deadly.

Every winter season there are dozens of storms that affect our trees. And sometimes, even when our best efforts are utilized to protect our trees, the forces of nature have their way with them.

A few positive things can be done with trees to help them get through the winter months. Start by having your trees inspected by someone who has documented

Saturday, March 17 North Counties Winter Seminar 8:00 a.m. to 1:00 p.m.

Community Center, Rohnert Park Thursday, March 22 San Francisco Luncheon 11:45 a.m.

St. Francis Yacht Club San Francisco Saturday, March 31 San Francisco Winter Seminar 8:00 a.m. to 1:00 p.m.

Fort Mason Center, San Francisco

ECHO Journal | March 2007

35

Face

Learn to

CID Challenges

at the San

Francisco Spring Seminar

Saturday, March 31, 2007 The Firehouse at Fort Mason Center, San Francisco Seminar Agenda 8:00 8:45 9:00 9:45 10:30 10:50 11:35 12:20 1:00 1:15

Registration and Continental Breakfast Welcome New Voting Rules Redux Dealing With Difficult Members Break Dealing with Major Construction in San Francisco Establishing Effective Banking Relationships Questions and Answers Award Prizes Adjourn

Oliver Burford, Moderator Sandra Bonato, Esq. Beth Grimm, Esq. Steven Saarman Geri Kennedy, Karl Lofthouse All Speakers

Yes, reserve _____ spaces for the ECHO San Francisco Spring Seminar.

Amount enclosed: $__________ (attach additional names) Name: HOA or Firm: Address:

CID Challenges in 2007

City:

State:

Zip:

Ticket Price: $35

Return with payment to: ECHO, 1602 The Alameda, Ste 101, San Jose, CA 95126 Orders will not be processed without payment in full. Fees for cancelled registrations will not be refunded. Telephone: 408-297-3246; Fax: 408-297-3517

Phone: Visa/Mastercard No.

Exp. Date:

Signature:

HOA Financials—Part II Continued from page 17

Fig. 7 General and Administration Cost 1995–2005

and thus have increased compliance costs. As Figure 7 shows, five associations had higher administrative costs in 1995 than they did in 2005. The median association had a 48.4% increase in administrative costs but this amounted to only $6.78 per member per month increase over the 10-year period out of the $90.50 median increase in assessments noted earlier.

Conclusion It costs money to own property in a homeowner association (or anywhere else, for that matter). This analysis confirms that association assessments have indeed increased at a rate greater than the CPI index. All major categories of costs (utilities, common area maintenance, insurance and administration) increased by an amount greater than the CPI. Some expenses, such as utilities, are subject to rate-setting by the government and the utility providers themselves who need to fund their own capital projects and increased costs. Maintenance costs are heavily influenced by the age of the components.

Remember, everything in this sample is 10 years older than it was. Maintenance costs are further influenced by wage increases, vendor costs and overhead, materials costs, etc.

Insurance costs are subject to the marketplace. The World Trade Center disaster, Hurricane Katrina and poor investment results all contributed to increased building costs, and the few available choices for associations seeking insurance have contributed to the major increases in premiums.

The final chart in Figure 8 summarizes the major assessment and expense categories

Continued on page 39

ECHO Journal | March 2007

37

Honor Roll

About

ECHO Honors Volunteers 2006 Volunteer of the Year Jerry L. Bowles

ECHO Resource Panels Accountant Panel Edward Riback, CPA, 510-865-5865 Central Coast Panel Darrel Louis, 831-212-0300 East Bay Panel Scott Burke, 408-536-0420 Legal Panel Mark Wleklinski, Esq., 925-691-1191 Maintenance Panel Mike Muilenburg, 408-996-3897 North Bay Panel Diane Kay, CCAM, 415-883-7827 Stephany Charles, CCAM 415-458-3537 San Francisco Panel Jeff Saarman, 415-749-2700 South Bay Panel Ann Philipp, 408-536-0420 Wine Country Panel Ron Hamann, 707-584-4788

Central Coast Winter Seminar Speakers Jeffrey Barnett, Esq. Ronald Block, PhD. Assemblyman John Laird Larry Russell, Esq. Richard Tippett 38

March 2007 | ECHO Journal

Maintenance Fall Seminar Speakers

Recent ECHO Journal Contributing Authors

Bob Booty Rick Hanson David Hughes Mike Muilenburg Brian Seifert Wayne Scott

November 2006 Tyler Berding, Esq. Sandra Bonato, Esq. Michael Gartzke, CPA Susan Green Ann Krilanovich David Levy, CPA

Legislative Committee Paul Atkins Jeffrey Barnett, Esq. Sandra Bonato, Esq. Jerry L. Bowles Joelyn Carr-Fingerle, CPA John Garvic, Esq., Chair Geri Kennedy, CCAM Wanden Treanor, Esq.

SF Luncheon Speakers John Allanson Tyler Berding, Esq. Doug Christison Karen Conlon, CCAM Rolf Crocker Ross Feinberg, Esq. David Feingold, Esq. Tom Fier, Esq. Kevin Frederick, Esq. John Garvic, Esq. Brian Hebert, Esq. Roy Helsing Julia Lave Johnston Garth Leone Nico March Steve Saarman Nathaniel Sterling, Esq. Glenn Youngling, Esq.

December 2006 Adrian Adams, Esq. Jeffrey Barnett, Esq. Tyler Berding, Esq. Gerald Bowden, Esq. Beth Grimm, Esq. Pete Sacco Glenn Youngling, Esq. January 2007 Tyler Berding, Esq. Michael Gartzke, CPA John Paul Hanna, Esq. Paul McLaughlin Lin M. Meyer, Esq. Larry F. Russell, Esq. Mark E. Terman, Esq. February 2007 Tyler Berding, Esq. Michael Gartzke, CPA Beth A. Grimm, Esq. Geri Kennedy, CCAM Gene Simpson Steven S. Weil, Esq.

ECHO

What is ECHO? ECHO (Executive Council of Homeowners) is a California non-profit corporation dedicated to assisting community associations. ECHO is an owners’ organization. Founded in San Jose in 1972 with a nucleus of five owner associations, ECHO membership is now 1,525 association members representing over 150,000 homes and 325 business and professional members.

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.

If your company wants to reach decision makers at over 1,525 homeowner associations, you can become an associate member and join 325 other firms serving this important membership.

What are the Benefits of ECHO Membership?

• Subscription to monthly magazine for every board member • Yearly copy of the Association Statute Book for every board member • Frequent educational seminars • Special prices for CID publications • Legislative advocacy in Sacramento

ECHO Membership Dues HOA Size 2 to 25 units 26 to 50 units 51 to 100 units 101 to 150 units 151 to 200 units 201 or more units Business/Professional

Rate $120 $165 $240 $315 $390 $495 $425

ECHO Journal Subscription Rates Members $50 Non-members/Homeowners $75 $125 Businesses & Professionals

How Do You Join ECHO? Over 1,800 members benefit each year from their membership in ECHO. Find out what they’ve known for years by joining ECHO today. To apply for membership, call ECHO at 408-297-3246 or visit the ECHO web site (echo-ca.org) to obtain an application form and for more information.

HOA Financials—Part II Continued from page 37

Fig. 8 Median Increases Summary 1995–2005

and compares the median increases for the 10-year period to the CPI change.

When I attend association meetings or read minutes as part of my review of the financial statements, I often think that some members believe that associations are looking for the first time to cut costs. My own association board was looking at cutting costs as early as 1982. In most cases, cost cutting leads to a lower level of services, thus negatively impacting residents. It can also lead to imprudent delays in maintenance, which will only cause increased costs later on. It is difficult to increase assessments to meet these costs. Pressure and negative comments from your members work against meeting these financial requirements head on.

Keep in mind that since 1995, most South Santa Barbara County property values have tripled. Many association members now have substantial equity in their properties. New owners have a more substantial investment to maintain as well.

Unless the economy enters a deflationary period, it is generally pure fantasy to think that association fees can remain the same or be reduced each year. Costs usually go up every year; association members in quality properties must learn to expect annual “CostOf-HOA-Living” increases.

Michael Gartzke, an ECHO member, is a Certified Public Accountant with a large homeowner association practice in the Santa Barbara area. He is also the coordinator of the South Bay Homeowners Group with a membership of about 120 associations.

ECHO Journal | March 2007

39

San Francisco Luncheon Thursday, March 22 St. Francis Yacht Club

Second Hand Smoke Speakers: Larry F. Russell, Esq. Ronald M. Block, PhD. Luncheon Price: $55 Advance Reservations Required for this Event

Yes, reserve _____ spaces for the ECHO San Francisco Luncheon.

Amount enclosed: $__________ (attach additional names) Name: HOA or Firm: Address: City:

State:

Zip:

Phone: Visa/Mastercard No.

Exp. Date:

Signature: Return with payment to: ECHO, 1602 The Alameda, Ste 101, San Jose, CA 95126 Orders will not be processed without payment in full. Fees for cancelled registrations will not be refunded. Telephone: 408-297-3246; Fax: 408-297-3517

ECHO Marketplace

Advertiser Index

The place to find business and professionals for your association Affirmative Management . . . . . . . . . .17 All Seasons Roofing . . . . . . . . . . . . . .15 Alpha Restoration & Waterproofing . .25

Reserve Studies and Mold Sampling Foundation and Drainage Analysis

SBI, LLC

Looking for Directors Interested in Networking in Napa

American Management Services . . . .20 Angius & Terry . . . . . . . . . . . . . . . . . . .3 Applied Reserve Analysis . . . . . . . . . .27 A.S.A.P. Collection Services . . . . . . . .29 Arborist Onsite . . . . . . . . . . . . . . . . . . .9

Emergency repairs? Underfunded reserves? Disgruntled homeowners?

Sleepless nights for Directors?

We are directors of a 34-unit “Self Managed” homeowners association located in the city of Napa, California who believe that networking with fellow directors of neighboring associations is a win–win situation. If you share the view that such networking can help solve problems, save time and money, and ultimately add value for your members, please call David at 707- 265-8609.

Association Reserves . . . . . . . . . . . . .39 Bayridge Group . . . . . . . . . . . . . . . . . .9 Berding & Weil . . . . . . . . . . . . . . . . . .44 Community Association Banc . . . . . . .27 Community Management Services . . .29 Compass Management Group . . . . . .15

800-710-3774 • www.sbiusa.net

You don’t know what the day will bring.

That’s why you need Russell & Mallett, LLP. We’re experts in all aspects of community association law, construction defect litigation and general corporate matters, including rewriting governing documents.

You’ll find us accessible, resourceful, affordable and very, very effective. Call us today at 925.947.4915 to see how our practical, expert advice can work for you.

Cool Pool Service . . . . . . . . . . . . . . . .39 Cornerstone Community Mgmnt . . . .20 Corum Painting . . . . . . . . . . . . . . . . . .2 Draeger Construction . . . . . . . . . . . .22 Ekim Painting . . . . . . . . . . . . . . . . . . .30 First Bank Association Bank Services . .16 Flores Painting . . . . . . . . . . . . . . . . . .35 GET Insurance . . . . . . . . . . . . . . . . . . .9 Greater Bay Bancorp . . . . . . . . . . . . .23 Helsing Group . . . . . . . . . . . . . . . . . . .9 M&C Association Services . . . . . . . . .16 M. L. Nielsen Construction . . . . . . . . .35 Management Cost Controls . . . . . . . .30 Nature First Tree Care . . . . . . . . . . . .37 Pelican Management Group . . . . . . .29 PML Management Corp. . . . . . . . . . .25 Pollard Unlimited . . . . . . . . . . . . . . . .35 Pratt & Associates . . . . . . . . . . . . . . .37 R. E. Broocker Co. . . . . . . . . . . . . . . .16 Rebello’s Towing Service . . . . . . . . . .24 REMI Company . . . . . . . . . . . . . . . . .39 Russell & Mallett LLP . . . . . . . . . . . . .41 Saarman Construction . . . . . . . . . . . .17 Statcomm . . . . . . . . . . . . . . . . . . . . .35 Steve Tingley Painting . . . . . . . . . . . .24 Steve’s Painting Services . . . . . . . . . . .27 Union Bank . . . . . . . . . . . . . . . . . . . .11 US Bank . . . . . . . . . . . . . . . . . . . . . . .22 Varsity Painting . . . . . . . . . . . . . . . . .42 W. E. Lyons Construction Co. . . . . . . . .8

Russell & Mallett, LLP 2900 Camino Diablo, Suite 200, Walnut Creek, CA 94596 • 925.947.4915 • Fax 925.947.4920

We believe you’re better served when you’re better informed. Call today for your free copy of the Russell & Mallett, LLP Law Library. Everything you need to know about community association law.

ECHO Journal | March 2007

41

Peace of Mind Painting.

Peace of mind Painting includes: •

A detailed, comprehensive bid outlining all job and product specifications

•

Color consultation with Dr. Color and Digital Color renderings of your project.

•

Communication throughout the project outlining weekly progress. We tailor every job to minimize the disruption to you and to maximize the benefit you receive from the Varsity Painting experience.

•

Our experienced craftsmen painters are uniformed, on time and are respectful of people and property.

•

A 5 year guarantee ( on 2 coat paint jobs ) that includes our Paintenance program. We come out annually and maintain the beauty of the project.

“I have used Varsity Painting now on 2 large projects in the Oakland area. For me, using Varsity means I don’t have to worry about anything. Our painting project had unique challenges that Varsity addressed. Their painters clearly make the difference.”

Tulio Mello, Property Supervisor, Fairmount West Development

Serving Northern California since 1993

2007 ECHO Annual Seminar

Educational Program Saturday Morning 9:00 to 10:10

Saturday Morning 10:50 to 12:00

Saturday Afternoon 1:30 to 2:40

Saturday Afternoon 3:20 to 4:30

Board Basics

Administration

Legal

Financial

Insurance

Legal

Amending Governing Documents

2007 Legislative Update

New Voting Law Redux

Handling Defects in Recent Construction

Management and Financial

Establishing a Good Banking Relationship

A Review of Association Financial Status

Effective Approaches to Dispute Resolution

Management of Member Discipline

Maintenance and Facilities

Landscape Updates at Community Associations

Making Major Contracts

Earthquake Insurance in 2007

New Requirements for Towing

June 2, 2007 Do not miss this great educational opportunity— reserve this date on your calendar.

R E GIS T R AT ION FOR M Yes! Please reserve my space at the 2007 ECHO Annual Seminar.

Name ___________________________________________________________________ Association/Organization ___________________________________________________ Address _________________________________________________________________ City __________________________________________ State _____ Zip____________ Daytime Phone ___________________________________________________________ Names of Additional Attendees: 1. _________________________________________ 2. ________________________________________ Please reserve tickets for: No. Amount Seminar Only $75 ___________ $___________ Seminar Buffet Lunch $35 ___________ $___________ Friday Reception $35 ___________ $___________ TOTAL $___________ VISA/MasterCard No. ______________________________________________________ Expiration Date ___________________________________________________________ Cardholder’s Signature_____________________________________________________

Reserve Now Tickets are non-refundable Order will not be processed without full payment Return with payment to: ECHO 1602 The Alameda, Ste. 101 San Jose, CA 95126 Tel: 408-297-3246 Fax: 408-297-3517

!SK US