Journal_07_05

May 2007

A Journal for Community Association Leaders

echo-ca.org

Hats Off to Associations

ALSO INSIDE THIS ISSUE:

• Stealth Reserves • Top Traits of Great Boards • Reserve Fund Fallacies

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.

2007 ECHO Annual Seminar on page 16

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Stealth Reserves Shortfalls in association reserve funding are increasing annually as many associations are painfully learning. Cutting the owners some slack through payment deferral could help a board realize the benefits of its substantial unused assessment authority and encourage it to fund the association’s reserves adequately.

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Top Traits of Great Boards of Directors

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

Reserve Fund Fallacies

Departments 26 Calendar of Events 28 Facilities: Why Have Architectural Control?

30 Ask the Maintenance Panel 31 2007 Legislation at a Glimpse 32 ECHO Bookstore 34 News from ECHO 38 ECHO Volunteers 38 About ECHO 41 ECHO Marketplace 41 Advertiser Index

On the Cover Can you afford not to attend?

2007 ECHO Annual Seminar Page 16

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May 2007 | ECHO Journal

Executive Council of Homeowners, Inc.

2007 Annual Seminar Begins June 1

27 Directory Updates

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

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

Learn about some widely-held fallacies that cause many directors to think that all matters related to reserve funds are complicated.

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Copyright 2007 Executive Council of Homeowners, Inc. All rights reserved.

Reproduction, except by written permission of ECHO, is prohibited.

Great boards of directors develop, maintain and value their credibility and their integrity. Read a description of the traits that differentiate a great board of directors from just an OK board.

The ECHO Annual Seminar and Trade Show is fewer than four weeks away. Send in your reservation now for California’s largest CID conference.

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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.

Board of Directors and Officers President David Hughes Vice President Karl Lofthouse 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.

CommonSense

By Tyler P. Berding

Stealth Reserves Tapping Unused Assessment Authority

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e have written many times in this space about the consequences of underfunding the long-term maintenance and repair accounts of common interest developments. The latest survey done by Berding & Weil and The Levy Company, published in the November 2006 ECHO Journal, confirms that reserves required for long-term repair obligations are shrinking industry-wide, and that the average community association reserves are only 53% funded. The result of this is that vital repairs—roof replacement, painting, repair of siding and trim, and similar work—may be either deferred or done in a substandard manner, all because of lack of necessary funding.

The Genesis of a Financial Crisis Community associations in this situation may not realize that they have a problem. The average person can look at a roof all day and not see anything wrong with it; so a plan to re-roof by a particular deadline may not seem critical—until the roof starts to leak. And if some knowledgeable expert is not available to explain the situation or to encourage necessary repairs, it is easy for the board to ignore the problem as long as there are no owner complaints. Delaying necessary repairs means that the cost to do them will be higher when they are done, deepening the funding quagmire. Once a problem has a repair price tag that exceeds the available cash in reserves, the board may not be able to solve the problem easily.

Borrowing to do necessary work is prevalent in the association industry and can be an excellent solution as part of a well-thought out funding plan as long as repayment of the borrowed funds is part of the plan and does not deprive the association of

contributions it must make for future reserve expenses. If the plan is that the loan for a new roof is to be repaid using contributions to the future reroofing reserve, for example, your association is probably already, or soon will be, in financial trouble.

Owner Resistance and Home Equity All of this usually stems from failing to reserve sufficient cash on a regular basis to pay for future repair projects. And the reason most associations fail to do this is because raising the amount of the owner’s monthly assessments is guaranteed to draw criticism from members who often do not understand the economics of the situation. What they see is their monthly statement, and the check they write for perhaps three or four hundred dollars every month, which will now go up. While they are generally aware that a portion of those assessments are intended for long-term projects, they are not as well informed as the board on these matters and someone will surely object if the board raises assessments appreciably. Hence, boards are often deterred from doing this and assessments stay the same.

Sometimes, the plan is that if major repairs should be needed, the board will propose a special assessment. But unless that special assessment is small (generally no more than 5% of the prior year’s budgeted gross expenses), a majority of the owners will have to vote to approve it. And if that means the owners must approve special assessments that are more than nominal, say several Continued on page 22 ECHO Journal | May 2007

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May 2007 | ECHO Journal

By Julie Adamen

Top Traits of Great Boards of Directors

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ver the past 20 years, I have worked with many, many boards of directors: As a manager, as a consultant and as a member of the board. And as we all—managers and board members alike—know, some boards are just better than others at administrating their community and effectively achieving their goals and objectives (their agenda) with grace, dignity, professionalism and humor. These boards are a pleasure with which to work or on which to serve.

So, what differentiates a great board from just an OK board? Great boards develop, maintain and value their credibility and their integrity.

And they continually display, individually and as a group, the following traits: Great Boards Focus on Macro-Issues It’s the Big Picture that counts for boards.

Boards should be spending their time continually reviewing and refining the “Big Picture” (Vision Statement) for the community. To do that effectively, the board must have a Mission Statement and then set clear policy for all aspects of community administration—and stand back and observe if that policy is being carried out through management and on down to the vendors and the community at large. For example, the board may set a policy of “continual esthetically pleasing landscape conditions within budgeted figures.” This is a broad statement that

gives management direction and authority to carry out that policy administratively and financially. The board who adopts this type of stance does not worry itself with the exact number of flats of flowers, or their color, nor how they are planted. Esthetically pleasing? Within budget?

That is what a macro-focused board thinks about.

Most board members come into their “jobs” by accident or through coercion by an existing board member, and they really have no idea what they got themselves into. The great board brings the new board members up to speed through corporate memory, helping them recognize what Vision Statement, Mission Statement and Policy has been set in place. This gives the new board member a foothold on established process so they may embrace the Big Picture rather than minutia.

Great Boards Hold Productive Meetings Great boards always read relevant materials before the meeting. Great boards come to meetings having read the agenda and board packet beforehand, ready to make decisions based on solid information. These board members are not wasting their time or that of other board members or staff. They know being prepared develops the community’s trust in them as leaders and gives them the ability to make decisions on the community’s behalf in a timely manner. These

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prepared board members have their questions on the packet information answered by staff, vendors or each other before the meeting so that the business of the community can be conducted with expedience, efficiency and thus productively.

Great boards focus on matters at hand and don’t enable philosophers or pontificators.

Unfortunately, many people become board members because they need to feed their ego. The ego-driven, though often well intentioned, are usually the pontificators and philosophers who drag meetings out into space for hour after unproductive hour, com-

pletely unaware of the eye-rolling and underthe-table-kicking going on around them.

Great boards don’t enable this destructive behavior by suffering in a silent torpor while that ego-driven “Starship Steve” board member goes off to explore strange new worlds, holding everyone hostage. Great board members assist the Chair in keeping control of the pontificator/philosopher by calling for a “point of order” when he starts moving into the Crab Nebula.

Great boards don’t wander off the agenda by bringing up new business that isn’t on that agenda. They stay focused on the matters at

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hand, carefully considering the information and moving forward as they are trusted to do by the membership. Focus, enforced through adopted parliamentary procedures, brings clarity of thought and purpose and the result is credibility in the eyes of the membership.

Great Boards Protect Against Liabilities …By keep rogue board members in check.

Great boards don’t allow a single board member to put the community in jeopardy by making racial, ethnic or sexual comments at a meeting. Too many times I have heard board members say something they would never think to say in a “regular” business situation, without anyone, including the Chair, calling them on this improper and risky behavior. Failing to reign in these types of situations can be a serious liability for the board and the community. …By using insured vendors and subcontractors. Great boards never, ever, use their unlicensed or uninsured brother-in-law who once did a drywall project in his house to remodel the clubhouse. Great boards know they have a duty and responsibility to the community not only to utilize someone who knows their stuff, but also to make sure they are protecting the community from liability by utilizing only licensed and insured contractors. …And they don’t deny the existence of liabilities. See no evil? Hear no evil? Great boards never wear blinders when it comes to the existence of liabilities. They don’t turn their backs or look the other way, hoping that the liability will go away. Great boards have set a policy on dealing with potential and evident liabilities, and they deal with them quickly and surely. Great boards don’t wander off into the weeds when examining their liabilities, either. They obtain information and direction from insurance, legal and management experts to guide them on this path. Great boards understand, and never shy away from, risk management.

Great Boards, Acting as Fiduciaries, Base Decisions on Logic and Reason Fiduciary—A person who occupies a position of special trust and confidence (for example, in handling or supervising the affairs or funds of another).1 Great boards know and understand they are making decisions as fiduciaries for the community, not as buddies, friends or neigh-

1 Source: www.wikipedia.com

bors. To make decisions as fiduciaries, boards must base their decision on logic and reason, not on emotion or fear, giving the board and the community credibility and integrity for the long term as they occupy that place of special trust and confidence.

Great boards never allow themselves to be bullied into making a decision. A board of directors for a community association is a deliberative body that makes decisions based on solid input. That solid input should include, but not be limited to, their own experience, facts, data, standard of care and standard of the industry, precedents set before them, and expert opinion. Using these information gathering tools, great boards make informed decisions that are best for the community, even when those decisions may be unpopular with certain community members.

Great Boards Acknowledge Staff and Volunteers Publicly, privately, in the newsletter and on the website. Great boards continually acknowledge all contributors to the administration of the community, board members, committee members, management staff, what have you. “Spin the halo,” as one of my old board members used to say. This crucial aspect of leadership is often overlooked by boards because they simply don’t realize that this positive form of communication to the membership about one of their own fosters a positive and successful image of the community administration. And people want to be a part of things that are positive and successful.

This means new volunteers for the board and its committees and an easier job for paid staff.

Great boards know they can’t do it alone.

They know they need more folks who will volunteer; so they create an atmosphere that fosters volunteerism. One of the ways to create that atmosphere is to publicly and regularly sing the praises of those volunteers and staff. Why? Because even great boards don’t want to be board members forever.

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Great Boards Know They Get What They Pay For Great boards suffer no illusions. They know that if they receive three bids for a particular service (this assumes an appropriate Request for Proposal was sent out) and one of the three bids is substantially lower than the two, it is reasonable and logical to assume Continued on page 11 ECHO Journal | May 2007

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Top Traits of Great Boards Continued from page 9

that there is something to question within that bid. Maybe the contractor read the RFP wrong. Or, maybe s/he simply low-balled the bid because they think they can get the job that way. But great boards are seldom fooled by this tactic. They know that if they want a Mercedes, they don’t get it for the price of a Focus. Reliable, quality and insured services cost money. …And know that if they do accept the low bid, there is a cost to managing that low bid.

Sometimes even great boards accept the lowest bid. How can they still be a great board, you ask. Because accepting the lowest of qualified bidders can be a legitimate strategy when the board acknowledges there will be a cost to managing that low bid—be it in their own time, staff time or having to have another contractor come in and finish the job or clean up the mess. This can actually work— the board can get the job done and save money overall. I don’t personally recommend it, but it has legitimacy as a business decision under certain conditions.

Great Boards Speak with One Voice They stick together. Picture yourself as a parent. Your child comes to you wanting something. You say no. Surreptitiously, the child goes to your spouse to ask the same question. The spouse says “Sure, why not?”

Mission accomplished: The child has divided and conquered the authority in the family and will either get what s/he wants or create tremendous disharmony between the parents who have failed to discuss beforehand and understand the value of a united front. The same is very, very true as it applies to boards of directors and the membership they serve.

Boards are like a family: Disparate personalities thrown together by an act of God (or a freak of nature), trying to accomplish something, maintain sanity and still speak to each other in a civil tone. This is normal. But what sets great boards apart is that they know there will be disagreements, they know they don’t each think alike. Yet, once the votes are cast, they move forward together—speaking with one voice to the membership. This is crucial for any board, but particularly those who have seriously disgruntled folks in their midst. Any chink in the armor of the board Continued on page 12 ECHO Journal | May 2007

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Top Traits of Great Boards Continued from page 11

will be exploited by those with agendas that are not within the current board’s policies, goals and objectives. Great boards stick together and show a united front to their members, creating credibility and integrity.

Great Board Members Release Personal Agenda and Move on for the Betterment of the Community The agenda vacuum. Many board members are elected on a narrow, and many times emotional, platform—“Lower dues by 20%!”

“Fire the management company!” ad nauseam. After the election, that board member often finds out the platform, or agenda, on which they ran is based upon misinformation. A great board member realizes quickly things were not as s/he thought, releases his/her personal agenda and moves on to become a functioning and contributing member of the board. The board is now able to move forward as a group to the issues facing the community. This ability to release agendas when presented with new, credible, 12

May 2007 | ECHO Journal

logical information that supports issues contrary to the former agenda is a key element of a potentially great board member. To present the new board member with this information, great boards do the following: Great boards bring new board members with contrary agendas into the process—fast and furious. Despite the fact that the new board member may be a total turn-off to the

Great boards stick together and show a united front to members rest of the board and staff due to their contrary agenda, the only potential remedy is for the great board and staff to immerse this person in the process as soon as possible: An office or project with much responsibility. If that person is open-minded, nothing fills the agenda vacuum, focuses the new board member’s energy faster or gives him or her a look at what it’s really like to be a board member,

than to be given a position of importance and responsibility. It allows them to save face, become a part of something larger and to release their personal agenda and move forward.

Great Boards are Proactive about Information Just like any corporate trustee, great boards know they cannot operate in an information vacuum. They do not hunker down in the Cone of Silence until their term is over. Great boards seek out information on all aspects of community administration and maintenance as it applies to their community. Sometimes, it’s information they don’t want to hear, such as learning that the most recent legislation calls for all boards to hold their meetings on Tuesdays when the moon is full and for all members to receive written (engraved) invitations to attend. But great board members listen anyway because they know as a board member it is part of their duty to always gather information. Sometimes they learn valuable information on ways to run their meetings, paint the decks or collect dues in a more efficient manner.

Whether by reading websites and industry publications or by attending workshops and forums and networking with other board members, great boards know they do their jobs best by being informed, and they strive to stay that way.

Great boards Communicate Regularly and Positively with Their Residents Great boards don’t portray themselves or their community as the “NO police.” We all know that much of the job as a board member entails having to tell members “No,” as the board is trusted with enforcing the CC&Rs for the continuity of the community.

“No parking in that spot,” “No leaving pool towels on the balcony,” “No dogs without a leash.” Great boards know there are ways to

say no, but in a positive fashion. For example: “No walking dogs in the park from 8 am to 12 noon,” can be couched as “Dog walkers are encouraged to take their pets to the park from 12 noon to 6 pm for sunshine and fresh air seven days a week.” Or, “No parking on Snowy Palms Dr. during Easter Break,” can be turned in to “Owners are encouraged to park their vehicles on Warm Alaska Dr. during the Easter Break so as to create less congestion for all residents entering the community.”

The importance of regular (monthly or bimonthly), upbeat, professional-looking newsletters, updated websites and other forms of communication is never lost on great boards. These forms of communication create a sense of openness and allow for the

outflow of positive communication about the community. They also create board credibility, and they do so by fostering a positive attitude while still giving the membership needed information and reminders. Because people want to be a part of something successful, upbeat and positive, a community with this image is one that fosters volunteerism.

Great Boards have a Sense of Humor We can be a very negative industry. I believe that is born from an overall lack of appropriate communication on matters at hand, very poor advocacy and communication skills on the part of individuals, and Continued on page 14 ECHO Journal | May 2007

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Top Traits of Great Boards Continued from page 13

virtually no consequences for obstructionists.

Add ego, frustration, plain bad manners and certain psychological disorders, and you have all the ingredients for a negative experience for well-intentioned volunteers. Where’s the humor in that?

Great boards see the all the problems and challenges as something with which to be dealt with a healthy sense of reality and a big dose of humor. Why? Great boards know three things: 1. It’s not IBM, it’s an HOA. 2. The smaller the stakes, the more petty the politics.

3. It’s not personal.

Great boards have a sense of humor because they maintain perspective, giving much of what we do a very humorous aspect.

Great Boards Value Integrity and Credibility Above All Else Integrity and credibility is what we all look for and respect in friends, family, school, church, work, business and what we want to 14

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see in board members and in any board as a whole—boards that don’t get mired in minutia, that are consistent in their decisions, assist new members in adjusting to their roles and create a polite atmosphere in which to volunteer and to be serious but not take themselves or the situations at hand too seriously, demonstrate they are mature and responsible in their actions. These board members are credible. They have integrity.

And they are the best of the best. They are what make great boards.

Is Your Board Great?

It is my experience that most board members serve as part of their civic duty, and all they really want is to know how to meet that end with intelligence and grace and be appreciated for the difficult job they perform as volunteers. All boards are potentially great boards. By determining which of the top traits can be incorporated into your board, you can achieve outstanding service for the community and a satisfying experience for each board member. Taking your board from good to great takes true vision, and the will to serve yourselves and the community at the highest level.

Julie Adamen is president of Adamen Inc., a consulting and placement firm specializing in the community management industry. She can be reached via email at julie@adamen-inc.com or through her website, www.adamen-inc.com.

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Top Ten Reasons to Attend the ECHO Annual Seminar and Trade Show

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• Practical ideas for handling community association leadership issues effectively. • Timesaving tips that will help make your leadership experience more worthwhile.

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• The latest update from the State Legislature and Law Revision Commission. • Examine and Purchase the latest publications on association governance. • Checklists and other important reference information in the 300 page Seminar Program Book. • Exchanges on common concerns by networking with 1000 HOA leaders. • Information about ECHO programs and services that support association leaders.

ECHO Journal | May 2007

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2007Annual Seminar Begins June 1 T

he 35th ECHO Annual Seminar is just around the corner—fewer than four weeks away. Many exciting presentations and outstanding speakers are lined up for this year’s seminar.

Community association board members and professional members have been ordering seminar tickets for the past month, but plenty of space remains. Send in your reservation now for California’s largest CID conference.

The 2007 Seminar and Trade Show will be an all-new, high-paced event, with most activities packed into a Saturday schedule. This year the event will use the main front lobby of the Santa Clara Convention Center for registration and the adjacent exhibition space. Morning and afternoon educational sessions, the full program book with handouts from all speakers, continental breakfast and an afternoon ice cream social are all included in the Seminar ticket price.

Annual Seminar Plan and Special Events On-site registration begins at 1:00 p.m. on Friday, June 1, for those who are attending the CACM course on Friday afternoon. Set-up of exhibits for Saturday’s Trade Show is also scheduled for Friday afternoon, from 3:00 p.m. to 6:00 p.m. Many of the exhibitors plan to celebrate the “Hats Off to Associations” theme of the seminar in their booths.

Association managers may register for the completely revised CACM course, Assessment Collection and Bankruptcy. This course will give you a better understanding of the assessment collection process and the remedies that may be used to compel payment and assessments. In order to provide collection tools that can be used right away, the complexities of bankruptcy law will be explained, as will judicial and non-judicial

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May 2007 | ECHO Journal

foreclosure and requirements of the Federal Fair Debt Collection Practices Act. Registrants will earn three hours of continuing education credit.

The class will be presented on Friday afternoon, June 1, 2007.

The Friday Night Reception to honor exhibitors is open to all members and guests for a $35 fee. Light refreshments will be featured and cash bars will be available. A lively music group will provide entertainment for the reception. The ECHO Volunteer of the Year for 2007 will be announced and there will be a few other special presentations. The party will recognize our loyal exhibitors and sponsors for their major contributions to the Annual Seminar.

Registration on Saturday will open at 7:30 a.m. and the Trade Show and refreshments will open at 8:00 a.m.; educational sessions will start at 9:00 a.m. and continue to 4:30 p.m. To give attendees maximum flexibility to allocate their time, the optional Saturday buffet luncheon adjacent to the Trade Show is again available for $35 to those who make advance reservations.

Educational Program HOA University, ECHO’s training course for new directors, will be repeated this year in its condensed one-day version. The basic responsibilities and duties of homeowner association board members will be explained by a full range of experts. This series of sessions is a “must” for all new or potential board members and also will provide an excellent review for any board members. Those who attend this entire track will receive a special certificate, recognizing their participation and completion of the program.

The 2007 Seminar also includes full-day tracks addressing legal and legislative, association

finances and management, and building maintenance concerns. As usual there will be a presentation and status report on the legislative bills affecting common interest developments that that are now moving through the California Legislature. ECHO Legislative Committee members will be present to provide these updates on current status of legislation affecting CIDs. This year we are offering a special seminar on the subject of dealing with difficult people that will be presented by Attorney David Feingold. The full program of educational presentations can be found on page 37 of this issue.

Scholarship Program A limited number of scholarships to cover the cost of Annual Seminar tickets will be available again this year, thanks to the generosity of a number of member businesses and professionals.

These scholarships will generally be offered to board members or owners who are first-time attendees at the Annual Seminar and who are residents of smaller, poorly funded associations or associations with other sorts of serious operational problems. Preference will be given to representatives of ECHO member associations, but membership is not mandatory. Recipients are not required to members of their association board.

Anyone who wishes to be considered for a scholarship should apply, preferably in writing, to Oliver Burford, ECHO’s Executive Director, at the ECHO Office.

Summary Don’t delay making reservations for current and future board members, committee members and association members at your association.

The 2007 Seminar is the place to get all the upto-date information about operating your association efficiently and legally; every ECHO member association should participate. Complete the form on page 37 and send your orders to ECHO. For the first time tickets may be ordered via a secure link on the ECHO website at www.echo-ca.org.

ECHO Journal | May 2007

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May 2007 | ECHO Journal

By Graham Oliver

Reserve Fund Fallacies L

ife is rather divided up between beliefs that are real and those that are false, mistaken, fanciful or fallacious. It would be nice, perhaps, to have a world where everyone agreed on everything. But we don’t. And one area where this is as common as anywhere else is in the somewhat prosaic (but important) area of reserve funds.

The Reserve Plan Let’s start with the widely-held belief that matters related to reserve funds are complicated. Hard to understand. The reality is, they’re not. The notion of creating a reserve fund plan is actually straightforward.

Let’s look at the facts. Creating a reserve plan is a straight line, step-by-step endeavor.

You start with something, add a bit more to it, do something else, and so on, and voila! …you’ve got one. Don’t believe me? All right, let’s go through it bit by bit.

First step. Inspect the property. With a good list of the property components for your association, you look at each element and determine two things. When is it likely to need replacing or repairing, and how much will it cost? At the same time you ask, after repairing it, how long will it be before it needs to be repaired again. You make up a table with the plan’s years across the top (let’s say 30 years, the span required in California), and the components down the side. After you have entered the dollar costs into the little squares for one element you go on to the next. Not complicated at all. Then you add up the columns and get the total dollars for each year. The Estimated Annual Expenditures line is now complete. It’s phrases like “Estimated Annual Expenditures” that give people the jitters.

Ah, you say, but where do we get all those estimates? Easy. The inspection and the spreadsheet creation must be done by someone who’s knowledgeable, experienced and trustworthy. They’re called Reserve Specialists or Reserve Planners and there are many around to choose from. Most by far, but not all, are knowledgeable, experienced and trustworthy; so when you’re looking for one, take your time, check with other people and pick a well regarded one.

Estimating Rates Two more things must go into the plan.

One of them is “rates.” There are two rates, an estimated future interest rate and an estimated future inflation rate. In our opinion much too much time is spent agonizing over these rates. They’re essentially unpredictable; so save yourself time and use today’s rates; that is, unless the pundits agree that we’re going through a period of unusually high or low interest and inflation rates, in which case you’d want to pare them down or nudge them up. Remember that the Davis-Stirling Act restricts assumed interest rates to no more than 2% above the discount rate published by the Federal Reserve Bank of San Francisco.

The point is that, in the case of interest income, the interest dollars you’ll calculate are so much smaller than the figures for expenditures that being “off” on your interest rate will be of little significance compared with being “off” on your expenditures estimates. In the case of inflation, since you prepare your plan in today’s dollars anyway, the usefulness of having an inflated-dollars version of your plan is sometimes questioned.

However, most reserve study best practices

recommend inclusion of inflation and people insist on it; so, you’ve got to have one.

Owners’ Contributions (This section does not address the problem of a mistaken belief or fallacy. It’s simply included to ensure that all the elements of the reserve plan are covered).

The final input into the plan is your funding dollars. Those are the contributions to the fund that owners will be expected to make. Arriving at the funding dollars isn’t complicated either. You have an Opening Balance at the beginning of the first future year of the plan. You input funding dollars for each future year. These dollars, for your first go-round, will be similar to your current contributions. When you plug them in, you’ll end up with balances for the whole span of the plan. The Opening Balance for Year 1 will have the funding dollars (plus the interest on your invested balances) added to it, and the estimated expenditures deducted from it, year after year.

We used the phrase “your first go-round” above. This is because when you see the projected balances across the page you’ll see that the balances in some years, or bunches of years, look too low, in which case you’ll have to boost the funding numbers (prior to and perhaps during those years) to get them up to where they should be. Or they could be too high, and you’ll make the opposite adjustment. These are called “put-and-take” or “what-if” exercises. They’re more timeconsuming than difficult.

Well, we’ve come up with only a few fairly digestible paragraphs that we think may be convincing enough to put down the belief (mistaken, fallacious) that the creation of ECHO Journal | May 2007

19

reserve fund plans is mysterious, difficult and unlearnable.

Rounded Numbers What about other fallacies? One of them is that long figures are somehow more respectable than short figures. People seem to believe accurate “looking” numbers. If you tell them there are 34,567,972,342,615 stars in the sky, they’ll trust you. But if you put up a sign that says “Wet Paint,” they won’t! We see reserve fund plans all the time that provide annual balances of $132,709, $245,393, $63,932 and so on (sometimes even $132,709.12, $245,393.46, $63,932.19). We’d simply show them as annual balances of $133, $245, and $64, with one note somewhere saying “all figures expressed in thousands of dollars.” The information you have with the shorter figures is quite sufficient to arrive at the same conclusions and to make the same kind of decisions as with the longer numbers. In addition, the page they’re on is more readable, the amounts can be comprehended more quickly, and look at the ink you’ve saved!

In the same vein, let’s mention a related reality. We’re talking about a plan here. The future that a plan portrays hasn’t happened yet. And when it does happen, it will not turn out to be the same as the future that was predicted. Getting wound up in decimal points does nothing for the health of your property’s reserve balances, and it sure doesn’t do your personal health much good either.

If this sounds “casual,” it’s not. Spend your energy making sure all components have been examined. Make sure that for the really costly items you obtain the best estimates available. Question your reserve planner on the sources of his or her figures. Isn’t there a book called “Don’t Sweat the Small Stuff”?

Regular Updating Now, for one last belief for today, and our thinking on its reality. You may have a schedule whereby your reserve specialist comes back every three years, for example, to revisit the plan by doing a diligent visual update.

Where I live, and in California, the law mandates exactly that kind of schedule. But there’s a widely-held belief that the insurance provided by that triennial review will fully protect you from running into reserve fund difficulties. That’s why the Davis-Stirling Act requires the study to be reviewed and adjusted annually.

The reality is that during the three-year gap, the property has been doing repairs and 20

May 2007 | ECHO Journal

making replacements. And those expenditures have not been made for the same costs or at the same times as they were predicted.

That’s why we feel very strongly about continual, on-going updates to your plan amounts.

Replace the estimated dollars with the real dollars as they come in, and look at the effects on your near-term and long-term reserve balances. By doing this, you’ll “catch” potential shortfalls, and you’ll catch them in time to take corrective action. They say it takes a supertanker 10 miles to come to a stop after they spot a flotilla of icebergs ahead. That’s why they have someone up on the mast to spot them in plenty of time. Do you see the connection?

One more reality—a quick one. What about the idea that doing all this is terribly time-consuming and therefore impossibly costly? Untrue. For one thing, the major repairs and replacements that are paid for out of reserves average to be fewer that 10 per year. With a computer spreadsheet, you can update your expenditures, say, once per quarter, and keep totally on top of your balances very quickly and very easily.

Summary To summarize quickly, we’re of the opinion that there’s plenty about reserve funds that people believe that is just not true.

We’ve covered a few, namely: • Reserve fund planning is complicated and beyond the scope of ordinary mortals to comprehend. False.

• Reserve plans have to look like accounting statements with all the numbers shown to their last dollar or, even, their last cent.

Mistaken.

• Deciding on the inflation rates and interest rates to use in the plan should be a major, time-consuming part of the process. Fallacious.

• Once a plan is established, it’s all right to stick it the drawer, forget it and start over all again in 3, 4, or 5 years to make a new one. More than untrue. Dangerous is the word we’d use.

Graham Oliver is an author and a contributor to reserve fund evolution. He is a past president of his association board. He also is the co-author of a book “Reserve Fund Essentials” from which some of the above ideas were taken. The book may be obtained though ECHO or by visiting his website at oliver-group.com/rfund.

ECHO Journal | May 2007

21

CommonSense Continued from page 5

thousand dollars each, obtaining approval is uncertain. Projecting member approval of a special assessment as the primary method of funding a critical repair project is a risky business plan.

So given this double whammy—owner resistance to increasing monthly assessments and similar, if not greater, resistance to approving a substantial special assessment— many boards take an easier out and borrow the money. But, as stated above, it is illadvised to repay the loan using cash that would otherwise be used for future reserve contributions. Also, a bank loan may require that the members approve a special assessment to secure the loan, which might still be difficult to achieve even though the payments are spread out over time.

But an association may have more cash resources than it realizes. Consider the following alternative.

ECHO eNewsletter Debuts ECHO has launched its first ever eNewsletter. More than 1000 members, all those for whom we have an email address, received the first mailing, and the response has been enthusiastic.

One long-time professional member wrote “Excellent information... I am thrilled that I can now get the latest updates monthly and keep myself as well informed as possible...”

A homeowner at a member association said, “I love it!... The newsletter is well constructed, and has timely information…

I’m adding you to my list of websites to check regularly and often.”

An association board member told us, “This is a terrific idea!”

ECHO’s intent is to provide up-to-theminute information about common inter-

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May 2007 | ECHO Journal

est development news, industry changes, events and legislation to all those interested in California community association affairs. The eNewsletter has links to some of the useful tools on the ECHO website—Upcoming Events, 2007 Legislation at a Glimpse and links to important common interest development statutes. Here is a useful and convenient way to stay connected to the CID world, both at home and in Sacramento.

The ECHO eNewsletter is not limited to members. If you want to introduce ECHO to a friend or neighbor, this is a great way to spread the word. To receive the eNewsletter regularly, send your request in an email to tcoffin@echo-ca.org. Sign up for the newsletter will soon be available on ECHO’s website.

Resistance to increasing assessments limits the board’s ability to fund reserves adequately Monthly Payments vs. Deferral California real estate increases in value over time. Regardless of the cycles that influence the immediate prices of some homes in some areas, over time that fact has been reaffirmed year after year. If you can bridge short-term down cycles by holding the property for several years, there is almost no gamble on the outcome—your equity will increase. And often it increases in part because it is located in a well-maintained community. Most owners realize this and believe that regular investment in keeping the property in good condition will yield dividends at sale time. They just don’t want to have to increase their monthly payments to do it.

Many board members believe that if they assess an owner’s separate interest the assessment must be collected in the short term.

There is nothing in the law that requires that—but it is a popular belief. Associations also do not want to jeopardize their income stream with lax enforcement of their assess-

ment rights. In addition, the board must insure cash flow to pay for regular operating expenses—water, garbage, landscape maintenance, management, just to name a few. But reserves are a different story—reserves are used for projects that are often planned years in advance. And, except for emergencies, they can be funded on longer cycles, much longer than the monthly cycles used for operating expenses. The cash flow accounting method basically recognizes this and allocates the cash contributed by owners to coincide with the timing of various projects. But even this method does not deal with the question of when payments must be made by individual owners and assumes that they will be made monthly like all regular assessments.

Because reserve contributions are tied to the operating budget, and because operating expenses usually must take priority when funds are limited, natural owner resistance to increasing the amount of monthly assessments drastically limits the board’s ability to fund reserves adequately. However, if collection of the reserve contribution were handled separately and owners were provided an alternate, less painful means of funding reserves, it could prove to be a boon to community associations. As we said, owners usually recognize the connection between a wellfunded reserve account and property values; they just don’t like, and many cannot afford, to make higher monthly payments.

Tapping the Unused Assessment Authority One answer might be for an association to defer collection of part of that portion of the annual assessment that represents the reserve contribution to a later date—specifically to the date of sale of the unit, and collect it from escrow when owners have more cash available to them. Most owners would be less inclined to resist higher reserve contributions if they could pay it out of equity instead of from monthly cash flow. For one thing, equity is, in a sense, “found” money that accumulates due to the gradual rise in property values and the reduction in mortgage balances. It is not specifically earmarked or needed for anything other than perhaps the down payment on another home or emergency expenses. Also, even with many years of deferral, the accumulated total of assessments owed would not represent a very high Continued on page 25 ECHO Journal | May 2007

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May 2007 | ECHO Journal

CommonSense Continued from page 23

percentage of the owner’s total equity; so the payment “pain” would be minimal.

This source of funding could reasonably be labeled “unused assessment authority” since common interest developments in California have the statutory right to increase monthly assessments up to 20% over the prior year’s assessment but, for the reasons stated above, rarely do it. If an association had an annual assessment of, say, $4800 per unit, the board could, without a vote of the members, increase that assessment to $5760 the following year—an increase of $960 per unit. Now a board would not likely impose assessment increases of that magnitude on a regular basis, but it illustrates the point—that boards of directors of community associations have sufficient statutory authority, right now, to make meaningful contributions to reserves if they chose to exercise it. And there is nothing that requires that increase to be spread across the entire budget pro rata; it could all go to reserves, so long as provisions were made for operational emergencies. If the present reserve contribution were, say 20% of the total annual assessment, a 20% increase in assessments would double the annual contributions to reserves! It wouldn’t take too many increases in reserve funding like that to make up most routine shortfalls.

But assessing and collecting are clearly two different things, and that’s why a policy that permitted an owner to defer payment of some or all of the reserve portion of their annual assessment until they sold the unit might be a powerful incentive to boards to increase the amount of those contributions and for owners to be right with it, thereby avoiding a potentially disastrous deferral of needed repairs. Various studies have placed average turnover of homes in California at right around seven years. With condominiums, that time is likely much shorter. But even a seven-year cycle of turnover could provide a reserve cash flow sufficient to fund long-term repair and maintenance, if the projects were well planned and the amount of deferral permitted was synchronized with the plan and the expected turnover rate for that association.

Of course, the CC&Rs would have to be reviewed for any constraining language, and Continued on page 35 ECHO Journal | May 2007

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Calendar of Events

Plan Ahead for ECHO Seminars Thursday, May 3 North Bay Resource Panel 9:30 a.m.

Contempo Marin Clubhouse 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

Monday, May 14 Accountants Resource Panel 6:00 p.m.

Francesco’s Restaurant, Oakland Wednesday, May 16 Wine Country Resource Panel 11:45 a.m.

Lanahan & Reilley 600 Bicentennial Way Suite 300, Santa Rosa

Tuesday, May 8 Central Coast Resource Panel 12:00 Noon Pasatiempo Inn, Santa Cruz

Thursday, May 17 San Francisco Luncheon 11:45 a.m.

St. Francis Yacht Club San Francisco

Wednesday, May 9 South Bay Resource Panel 12:00 Noon Il Fornaio 302 South Market St., San Jose

Friday & Saturday June 1 & 2, 2007 ECHO Annual Seminar Santa Clara Convention Center Santa Clara

Saturday, May 12 Marin County Spring Seminar 8:00 a.m. to 1:00 p.m.

Embassy Suites 101 McInnis Parkway, San Rafael

Wednesday, June 6 Maintenance Resource Panel 12:00 Noon ECHO Office 1602 The Alameda, Suite 101, San Jose

Wednesday, June 20 Wine Country Resource Panel 11:45 a.m.

Lanahan & Reilley 600 Bicentennial Way Suite 300, Santa Rosa Thursday, July 5 North Bay Resource Panel 9:30 a.m.

Contempo Marin Clubhouse 400 Yosemite Rd., San Rafael Friday July 6 East Bay Resource Panel 9:30 a.m.

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

Wednesday, July 11 South Bay Resource Panel 12:00 Noon Il Fornaio 302 Market St., San Jose Wednesday, July 18 Wine Country Resource Panel 11:45 a.m.

Lanahan & Reilley 600 Bicentennial Way Suite 300, Santa Rosa Thursday, July 19 San Francisco Luncheon 11:45 a.m.

St. Francis Yacht Club San Francisco

Monday, July 9 Accountants Resource Panel 6:00 p.m.

Francesco’s Restaurant, Oakland

Thursday, September 20 San Francisco Luncheon 11:45 a.m.

St. Francis Yacht Club San Francisco

Tuesday, July 10 Central Coast Resource Panel 12:00 Noon Pasatiempo Inn, Santa Cruz

Saturday, September 22 Central Coast Fall Seminar 8:00 to 1:00 p.m.

Seacliff Inn, Aptos

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

May 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 Construction Performance Technology 1361 S. Winchester Blvd., Ste. 103 San Jose, CA 95128 Contact: Terrence G. Osuga Tel: 408-874-0370 Fax: 408-874-0373 www.cpt4cm.com Email: tosuga@cpt4cm.com

GGCI, Inc. 16566 Toledo St. San Leandro, CA 94578 Contact: Tom Ranftl Tel: 925-899-0935 Fax: 510-317-5883 Email: wpaczocha@ggciinc.com GGCI, Inc. is a California licensed general contractor that has offered dedicated and superior residential and commercial building reconstruction and repair services in the Bay Area for more than 20 years.

Landscape Management Services 2598-C Wyandotte St Mountain View, CA 94043 Contact: Zachary Smith Tel: 650-428-1801 Fax: 650-428-1802 www.landscapemanagement.com Email: zsmith@landscapemanagement.com

Continued on page 29 ECHO Journal | May 2007

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Association Affairs

By Oliver Burford

Why Have Architectural Control?

N

orth Beverly Park, a common interest development governed by the DavisStirling Common Interest Development Act, is a luxury community located in Beverly Hills. It encompasses more than 300 acres divided into 64 residential lots. The association is managed by the North Beverly Park Homeowners’ Association, whose Architectural Review Committee (ARC) has discretion to approve or disapprove proposed improvements visible from the lot boundaries.

In April 1999, Robert and Jeannette Bisno purchased a vacant lot in North Beverly Park and planned to build a residence. Disputes arose over the ARC’s disapproval of certain elements of the Bisnos’ construction plans.

In particular the association objected to the front gate design and a 17-foot sculpture in their front yard. In 2001, Mr. Bisno had observed the sculpture on display in the Place Vendome in Paris. He purchased it for $250,000, not thinking of the ARC. He was overcome by the beauty of the sculpture and did not imagine that the ARC would disapprove it. However, when the members of the ARC viewed the sculpture before it was installed, they disapproved it. The ARC’s opinion was that the sculpture was the most noticeable statuary in the community and its size was inappropriate for its placement—too large for the motor court and house, too close to the street. Further, the work was aesthetically out of character for the community, very different in style and theme from any other artistic work.

Ultimately the association filed suit against the Bisnos. Following a non-jury trial, the trial court granted a permanent injunction requiring the Bisnos to move the sculpture to a spot not visible from the street and to 28

May 2007 | ECHO Journal

remove the gates. The Bisnos appealed and the Court of Appeal affirmed the trial court and ruled that the association was entitled to its costs on appeal.

Finally, in February 2007, the same Court of Appeal ruled that the Bisnos, who had claimed that the judge who ruled against them following their original bench trial was mentally incompetent (and who later retired after the Commission on Judicial Performance questioned his fitness), are not entitled to a new trial or to seek discovery of the judge’s medical records.

This sculpture, created by Belgian sculptor Olivier Strebell, is entitled, “A Bras Ouverts” (translated, “With Open Arms”). At more than 5 tons and 17 feet in height, it is a large, abstract depiction of a nude woman. The subject is posed on her back, lying on a pointed rock, arms dangling toward the ground, legs raised above the body.

Business/Professional Updates Continued from page 27

The Restoration CleanUp Co., Inc. 198 Harbor Ct. Pittsburg, CA 94565 Contact: Dean Miller Tel: 800-500-4310 Fax: 925-473-2275 www.thecleanupco.com email: dmiller@thecleanupco.com

Richard Joseph & Company 6 Harding Drive Novato, CA 94947 Contact: Thomas Cooper Tel: 415-596-1744 Fax: 415-892-4605 www.rjcompany.com Email: tcooper@rjcompany.com

Changes Metro Hardscape, Inc. 1821 Almaden Rd., Unit B San Jose, CA 95125 Tel: 408-265-8883 Fax: 408-265-8296 Law Offices of Edward Nemetz 310 Lennon Lane Walnut Creek, CA 94598 Tel: 925-933-2826 Fax: 925-933-2849 Pipe Pros, Inc. 1009 Shary Circle, Suite D Concord, CA 94518 Tel. & Fax remain the same

ECHO Journal | May 2007

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Ask the Maintenance Panel

What to Do When Presented with Large Variances in Bids Each month we address a specific maintenance concern that every association faces. Our panel of experts is here to help answer questions you might have.

We hope that you will find this informative and please—Ask the Panel!

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May 2007 | ECHO Journal

uestion: We asked for bids from roofing contractors to re-roof our complex and got seven bids back. The bidders are offering us four different roof systems. The highest bid is more than three times the lowest bid. Three bids are fairly close in amount; the rest are all different. What should we do? nswer: Our answer this month comes from Dick Tippett of ERTECH, Inc. The fact that you received seven bids means that roofing contractors are actively seeking work.

Some, naturally, are more hungry for work than others. Your lowest bidder may have made a mistake in figuring his bid; your highest bidder may also have made one.

You didn’t say who your bidders are, or whether or not you pre-qualified them before you ask them to bid. This makes it difficult to judge the quality and accuracy of the low bid.

You did say that the bidders offered you four different roof systems. This indicates that you probably didn’t specify the kind of roof that you wanted them to bid on supplying. Different roof systems have different prices, based on the life expectancy of the roof and the amount of labor that the system takes to install.

A good rule of thumb to follow in a situation like this is to “throw out” or ignore both the highest and lowest bids. Focus on the three bids that are fairly close in amount. The fact that the three bidders are close to each other in amount probably indicates that they are offering roof systems that are similar in value. If the systems are similar in value, the closeness of the bids also can indicate that each of the three bidders sees roughly the same amount of work required and the same degree of difficulty to do the job.

The board should do two things:

Q A

Investigate the roof systems being offered by the three bidders. What is the warranty? Where have the contractors installed the same roofs? How are those roofs performing? Has the roof system been in use for longer than five years? Is the appearance satisfactory?

Investigate the three roofing contractors. Have they been in business for at least five years? Do they have a line of credit with their suppliers? Do they have at least $1 million of general liability insurance that includes coverage for work on condominiums? Do their references check out? Can they offer extended roof manufacturers’ guarantees? Can they meet your scheduling requirements? Will they protect your lawns and landscaping?

One or more of the three contractors will provide satisfactory answers to all of the questions. You can then choose one of those contractors to do your work, with reasonable certainty that the work will be professionally done.

Be sure to have your attorney draw up the contract between your association and the contractor.

Hold back 10% of each payment until the work is completed. Be certain to get lien releases from the contractor’s subcontractors and suppliers each time you pay him, to be certain he is paying his bills. Get final unconditional lien releases from all of them before you release the retained money.

Good Luck!

Please use this information as a guide. It is recommended that you seek advice from your professional association manager or affiliated service provider. Should you have a question for the ECHO Maintenance Panel, please contact ECHO via email at info@echo-ca.org, or fax the panel at 408-297-3517.

2007 Legislation at a Glimpse Bill No.

Author

Subject

Status

Position

Summary

AB 567

Saldana

Common Interest Development Bureau

Amended April 10; Hearing cancelled in Assm. House Comm.; Two year bill

Oppose Unless Amended

This bill would, until January 1, 2013, establish in the Department of Consumer Affairs the Common Interest Development Bureau. The Bureau would, among other things, provide board member education and training resources, investigate and impose fines for Davis-Stirling Act violations, and compel associations to disclose those violations.

SB 948

Harman

Mandatory Board Member Training

Amended May 1; Hearing in Senate Appro.

Comm. on May 14

Watch

As of January 1, 2009, would require every member of the board of directors of an association to complete at least one course during his or her first full term of office, and at least one course every three calendar years after becoming a member of the board, relating to decisional and statutory law regarding common interest developments.

AB 691

Silva

Certified Common Interest Development Managers

Amended May 1; Hearing in Assm. Bus. & Prof. Comm. on May 8

Support

Existing law requires a person to meet certain requirements in order to be called a “certified common interest development manager” and imposes other requirements with regard to common interest development managers. Under existing law, the provisions regulating certified common interest development managers become inoperative and are repealed on January 1, 2008. This bill would extend the operation of these provisions to January 1, 2012. The bill would modify the requirements in order to be called a “certified common interest development manager.” The bill would also revise various definitions.

AB 952

Mullin

BMR Owner Assessment Restrictions

Amended Oppose April 17; In Assm. Bank & Finance Committee

SB 528

Aanestad

Topic Amended Restrictions in April 26; Board Meetings On Senate Floor

Oppose

Would prohibit the board of directors from considering any subject matter at a meeting unless the subject matter was placed on the agenda when the meeting was announced (emergency meetings are excluded). The bill would also make technical changes.

SB 127

Kuehl

CID Sale Disclosure Deadlines

Amended May 1; On Senate Floor

Support if Amended

Would require, in the case of a sale of real property, or a sale or a lease with an option to purchase of a mobilehome or manufactured home involving an agent, that the required disclosures be made as soon as practicable before transfer of title but no later than 10 calendar days after the execution of the purchase agreement. The bill would require, in the case of a sale of a separate interest in a common interest development, that the necessary disclosures be made as soon as practicable before transfer of title but no later than 10 calendar days after the execution of the purchase agreement to purchase title to the separate interest or execution of a real property sales contract.

AB 1173

Keene

Mandatory Submeter Installations

Amended April 24; In Assm.

Appro.

Committee

Watch

This bill, with a certain exception, would require every water purveyor who furnishes water service to any person residing in a multiunit residential structure for which a construction permit has been issued on or after January 1, 2008, to require the installation of submeters as a condition of new water service to that person. The bill would authorize the owner or operator of a multiunit residential structure without water submeters to charge tenants separately for water service as determined by a prescribed allocation formula.

Would prohibit the board of directors from imposing a special assessment, including an emergency assessment, or an increase in the regular assessment of more than 3% on units that are required by law to be provided to low- or moderate-income purchasers without a vote of the owners of those units in accordance with specified procedural requirements.

For updates about these bills, please visit the ECHO web site regularly (echo-ca.org).

ECHO Journal | May 2007

31

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.

Dispute Resolution in homeowner associations $20.00 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 Executive Council of Homeowners 1602 The Alameda, Suite 101, San Jose, CA 95126 Phone: 408-297-3246 Fax: 408-297-3517

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.

TITLE

QUANTITY

SUBTOTAL CALIFORNIA SALES TAX (Add 8.25%) 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

2007 Annual Seminar Begins June 1 The 35th ECHO Annual Seminar is fewer than four weeks away. Many exciting presentations and outstanding speakers are lined up for this year’s seminar. Community association board members and professional members have been ordering seminar tickets for the past month, but plenty of space remains. Send in your reservation now for California’s largest CID conference.

HOA University, ECHO’s training course for new directors, will be repeated this year in its condensed one-day version. The basic responsibilities and duties of homeowner association board members will be explained by a full range of experts. This series of sessions is a “must” for all new or potential board members and also will provide an excellent review for any board members.

Those who attend this entire track will receive a special certificate, recognizing their participation and completion of the program.

The 2007 Seminar also includes full-day tracks addressing legal and legislative, association financial and management, 34

May 2007 | ECHO Journal

and building maintenance concerns. As usual there will be a presentation and status report on the legislative bills affecting common interest developments that that are now moving through the California Legislature. ECHO Legislative Committee members will be present to provide this update on current status of legislation affecting CIDs. This year a special seminar on the subject of dealing with difficult people will be presented by Attorney David Feingold. The full program of educational presentations and a registration form can be found on page 37 of this issue.

The 2007 Seminar and Trade Show will be an all-new, highpaced event, with most activities packed into a Saturday schedule.

Morning and afternoon educational sessions, a full program book with handouts from all speakers, continental breakfast and an afternoon ice cream social are all included in the Seminar ticket price.

the response has been enthusiastic. One long-time member wrote “Excellent information... I am thrilled that I can now get the latest updates monthly and keep myself as well informed as possible...”

ECHO’s intent is to provide up-to-the-minute information about common interest development news, industry changes, events and legislation to all those interested in California community association affairs. The e Newsletter has links to some of the useful tools on the ECHO website—Upcoming Events, 2007 Legislation at a Glimpse and links to important common interest development statutes.

Here is a useful and convenient way to stay connected to the CID world, both at home and in Sacramento.

The ECHO e Newsletter is not limited to members. If you want to introduce ECHO to a friend or neighbor, this is a great way to spread the word. To receive the e Newsletter regularly, send your request in an email to tcoffin@echo-ca.org. Sign up for the newsletter will soon be available on ECHO’s website.

Top Traits of Great Boards of Directors • Great boards focus on macroissues.

• Great boards hold productive meetings.

• Great boards protect against liabilities.

• Great boards, acting as fiduciaries, base decisions on logic and reason.

• Great boards acknowledge staff and volunteers.

• Great boards know they get what they pay for.

• Great boards speak with one voice.

• Great board members release personal agendas and move on for the betterment of the community.

• Great boards are proactive about information.

• Great boards have a sense of humor.

• Great boards value integrity and credibility above all else.

The article is provided by Julie Adamen who can be reached via email at julie@adamen-inc.com or through her website, www.adamen-inc.com.

Important Upcoming Events Saturday, May 12 Marin County Spring Seminar 8:00 a.m. to 1:00 p.m.

Embassy Suites, San Rafael

ECHO eNewsletter Debuts ECHO has launched its first ever e Newsletter. More than 1000 members, all those for whom we have an email address, received the first mailing, and

Thursday, May 17 San Francisco Luncheon 11:45 a.m.

St. Francis Yacht Club San Francisco Friday & Saturday June 1 and 2, 2007 35th ECHO Annual Seminar Santa Clara Convention Center Santa Clara

CommonSense Continued from page 25

steps would have to be taken to obtain adequate security for the deferred amounts in the form of an assessment lien that stays current with the amounts owed. The board would also have to reserve the option of ending the deferral if emergencies arose or if a unit remained unsold for too long, and that option would have to be carefully explained to the members.

Deferral is a collection tool that assists boards in collecting more funds The association’s accountant must review any plan to defer collection of assessments to be sure that planned deferrals do not interfere with the board’s ability to conduct the business of the association properly. Also, legal counsel should be called upon to fashion an agreement or amendment to the governing documents that specifies the conditions and obligations attached to any deferment and prepare a deferral agreement, which each owner would acknowledge.

Deferred obligations would have to remain secured by appropriate liens on the owner’s interest, and associations would have to be diligent about putting payment demands into escrow; but those procedures do not represent anything very different from what is now done in collecting regular assessments, and all of this could be accomplished most probably without any change in existing law.

Deferral Mandates Increases in Assessments We are not suggesting deferring collection of a portion of the monthly assessment if it is presently at a level that already does not adequately cover the reserve contribution. Only if the board were willing to use its untapped assessment authority to increase the association’s contribution to reserves does deferring collection make any sense. Using deferral when collections are already inadequate would just make matters worse. A decision to defer must be accompanied by a well-

Continued on page 39 ECHO Journal | May 2007

35

2007 ECHO Annual Seminar

Hats Off to

Associations Saturday, June 2, 2007 8:00 a.m.–4:30 p.m.

Santa Clara Convention Center Santa Clara, California 125 Booths in Trade Show, Hundreds of Prizes, New CACM Course, Buffet Luncheon, Ice Cream Social and much more!

Join the Friday Night Gala!

Annual Seminar Reception Friday, June 1, 5:00–7:30 p.m.

Food, Music, Socializing, Prizes Cost: $35—See Registration Form

The 2007 CACM Course Assessment Collection and Bankruptcy Friday, June 1, 2007 Course Fee: $109 You will leave with a better understanding of the assessment collection process and the remedies that may be used to compel payment and assessments. In order to give you collection tools you can use right away, the complexities of bankruptcy law will be explained, as will judicial and non-judicial foreclosure and requirements of the Federal Fair Debt Collection Practices Act. (3 hours CEU credit) For reservations, call the ECHO Office.

Special Hotel Rates Don’t miss out on the special room rate of $114 single or double at the Hyatt Regency adjacent to the Santa Clara Convention Center. Reserve your hotel room now.

Call the Hyatt Regency at 800-233-1234 and mention the Executive Council of Homeowners. The special rate is available until May 18.

Special Bonus Program Room GA-1 10:50 to 12:00 noon

Dealing with Difficult People David Feingold

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

HOA UNIVERSITY Rooms 209 and 210

ADMINISTRATION Karen Conlon

LEGAL Tom Fier

FINANCIAL

INSURANCE Tim Cline

LEGAL Rooms 203 and 204

Legislative Update John Garvic Kerry Mazzoni

Amending Governing Documents Steve Weil

New Voting Law Redux Sandra Bonato

Management of Member Discipline Adrian Adams

MANAGEMENT & FINANCIAL Ballroom H

Establishing a Good Banking Relationship Geri Kennedy Karl Lofthouse

Association Finances Status Michael Gartzke Tyler Berding

Update on Earthquake Insurance John Allanson Beth Grimm

New Towing Requirements Burt Dean

MAINTENANCE Ballroom G

Updating Landscapes at Your Association John Gachina

Making Major Contracts Jeff Barnett Frank Arms

Handling Defects in Recent Construction Dan Angius Dan Rottinghaus

The Art of Communication Hermann Novak

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

Bill Erlanger

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 (members) $75 ___________ $___________ Seminar Only (non-members) $90 ___________ $___________ 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

Honor Roll

About

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

ECHO Resource Panels Accountant Panel William Erlanger, CPA, 415-981-9350 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

North Counties Winter Seminar Speakers William Gillis, Esq. Geri Kennedy, CCAM Karl Lofthouse Steven Saarman Steven Weil, Esq. 38

May 2007 | ECHO Journal

San Francisco Seminar Speakers Beth Grimm, Esq. Stephanie Hayes, Esq. Geri Kennedy, CCAM Karl Lofthouse Steven Saarman

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. Ronald Block, PhD. 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 Larry Russell, Esq. Steve Saarman Nathaniel Sterling, Esq. Glenn Youngling, Esq.

Recent ECHO Journal Contributing Authors 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. March 2007 Jeffrey A. Barnett, Esq. Tyler Berding, Esq. Robert Booty Michael Gartzke, CPA April 2007 Jeffrey Barnett, Esq. Sandra L. Gottlieb, Esq. Hermann Novak Richard Tippett

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.

CommonSense Continued from page 35

researched plan that takes into account the association’s true future reserve needs, along with the political will to raise monthly assessments sufficiently to meet those needs.

Deferral is just a collection tool that could assist boards in collecting more funds than monthly collection presently allows, since collection would coincide with a bigger income stream. Deferral as outlined here is in essence a loan by the board to an owner, secured by that owner’s equity. Like any loan the deferred amount should bear interest to at least keep up with inflation. The consideration for the board’s willingness to defer, however, has to be a greater contribution to the reserve account to justify extending this option to owners.

The shortfall in reserve funding is increasing annually and it has made itself known already in many associations that cannot afford to make essential repairs. Cutting the owners some slack through payment deferral could help a board realize the benefits of its substantial unused assessment authority and encourage it to fund the association’s reserves adequately.

The author thanks Jim Devereaux and Steve Weil of Berding & Weil for several suggestions and helpful editing.

Tyler Berding is a founding partner of Berding & Weil, a construction defect and homeowner association law firm and a former member and the immediate past president of the ECHO board of directors.

ECHO Journal | May 2007

39

San Francisco Luncheon Thursday, May 17 St. Francis Yacht Club

Policies for People, Pets and Parking Problems Speaker: Beth A. Grimm, Esq. 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

Your Ad Can Be Here You read this, didn't you? Thousands of officers and directors of homeowner association boards will also read your ad each month in the ECHO Marketplace. Your ad can be here for as little as $60 per month.

Marketplace Ads must run a minimum of six consecutive issues.

To place your ad in the ECHO Marketplace and for more information about other advertising opportunities, please call 408-297-3246 or visit the ECHO web site at echo-ca.org/media_kit.php Reserve Studies and Mold Sampling Foundation and Drainage Analysis

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ECHO Journal | May 2007

41

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•

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Serving Northern California since 1993

Face

Learn to

CID Challenges

at the ECHO

Marin Spring Seminar

Saturday, May 12, 2007 Embassy Suites, 101 McInnis Parkway, San Rafael

Hot Topics for 2007 8:00 8:45 9:00 9:40 10:20 10:40 11:20 12:00 12:30 12:50 1:00

Seminar Agenda Registration and Continental Breakfast Welcome Diane Kay, Stephany Charles, North Bay Panel Chairs Oliver Burford, Moderator Statutes 2007: Elections and Beyond Glenn Youngling, Esq. What you thought you knew!

Major Construction: Handling the Big Stuff Ken Kosloff What you want to know!

Break Pandora’s Box: aka People, Pets and Parking Dave Feingold, Esq. What you need to know!

Controversy: ADR, Litigation and Frustration Wanden Treanor, Esq. What you wish you knew!

Hot Topics: Pet Peeves from the Legal Panel Dave Feingold, Esq., Wanden Treanor, Esq. Glenn Youngling, Esq. Questions and Answers All Speakers Award Prizes Adjourn Yes, reserve _____ spaces for the ECHO Marin Spring Seminar.

Amount enclosed: $__________ (attach additional names) Name:

Hot Topics for 2007

HOA or Firm:

This year you will face some of these issues. Get informed!

City:

Address: State:

Zip:

Phone: Visa/Mastercard No.

Exp. Date:

Signature:

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