Journal_07_09

Page 1

September 2007

A Journal for Community Association Leaders

echo-ca.org

Waterproof Decks:

Keep Up or Pay Up ALSO INSIDE THIS ISSUE:

• Stealth Reserves Uncovered • Effective Communications • HOA Transfer Fees

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

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Contents Effective Communications in CIDs on page 14

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Decks: Keep Up or Pay Up Waterproof decks are high on the list of defective building components named in lawsuits. Since SB-800 became law in 2003, manufacturers have added new stipulations to their warranties. Now associations must maintain their decks or suffer the consequences.

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Effective Communications in CIDs Reliable communications help motivate positive attitudes in a community. This article, the first of a twopart series on communications in homeowner associations, focuses on why effective communications are an important feature of a properly managed CID.

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Stealth Reserves Uncovered Members comment on the novel suggestion by attorney Tyler Berding to help associations fund reserves adequately in the article “Stealth Reserves” in the May 2007 ECHO Journal. Read them along with more discussion from the author.

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HOA Transfer Fees A common question asked by buyers is “Why are the transfer fee and document costs so high?” Two recent court cases in California uphold the concept that the fees charged are not limited by the statutory restrictions that apply to associations.

Departments 19 2007 Legislation at a Glimpse 24 Legal Affairs: Neighbor Disputes 28 Calendar of Events 29 Directory Updates 34 ECHO Bookstore 36 News from ECHO

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38 ECHO Volunteers 38 About ECHO 41 ECHO Marketplace 41 Advertiser Index

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

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

On the Cover Waterproof Decks Page 6 4

September 2007 | ECHO Journal

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.


ECHO Legislative Alert

Oppose AB 952 (Mullin) T

he Executive Council of Homeowners, on behalf of its more than 1,550 community association members and the more than 300,000 homeowners who live in ECHO-member associations, as well as on behalf of the millions of Californians who live in common interest developments (CIDs) throughout the state, asks you to contact your local California Senator and Assembly member to urge them to oppose AB 952 (Mullin). This bill will be voted on soon in the Senate and will return briefly to the Assembly. If AB 952 passes, it will go to the governor for signature. AB 952 prevents owners of property within CIDs that contain affordable housing (i.e., units and lots specially set aside and owned by persons with low and moderate income levels) from approving assessment increases or special assessments above current statutory limits unless the owners of the affordable units [also known as below market rate (BMR) units] separately approve such assessments. Without that separate consent, such assessment increases and special assessments could not be approved at all. Giving any separate class of owners the unchecked ability to vote down assessments gives those owners disproportionate power to prevent funding of major repairs when they are due. The inability to approve assessments that are needed to maintain property and protect all owners’ investments in their homes will foreseeably result in deteriorated housing and lost property assets for hundreds of thousands of owners. If a small group, voting in its own self-interest, can deny needed assessments, then home values and safety standards in these communities will decline. The only assessments that AB 952 leaves untouched are emergency assessments. Emergency assessments are available when property is so badly in need of repair that it threatens the personal safety of people. By this standard, housing will fail along with the very investment that affordable forsale housing was intended to promote. AB 952 encourages the failure of housing by preventing owners from collectively maintaining and repairing their homes without the concurrent consent of a subset of owners. A statewide funding problem in CIDs that is already serious would become a disaster.

A key goal of city and county support and subsidies for affordable for-sale housing is to provide homeownership opportunities to less-advantaged persons, to welcome them into communities, and integrate them invisibly into CIDs. AB 952 will insist on the classification of owners, based on information that many managers and boards may not have. This information must necessarily be explored for election purposes under AB 952. As social policy, AB 952 goes in the wrong direction. It seeks to help less-fortunate owners financially but does so in a way that destroys harmony and promotes division and poor maintenance of homes. CIDs simply cannot function in a class-veto system. Owners who share a common interest in property have to be able to maintain it collectively. ECHO strongly supports the concept of affordable housing and the integration of persons of a wide range of incomes into CIDs. However, affordability involves more than just the entry purchase price of a home. Affordability also refers to the long-range ability to pay the cost of ownership in maintaining a home, particularly where buildings are attached and ownership is legally shared. ECHO believes a better answer lies in continuing subsidies from cities and counties so that affordable homeownership remains a viable, sustained goal. If this bill is not re-thought, AB 952 will inevitably sink the whole concept. AB 952 is detrimental to the health of community associations. ECHO urges you to contact your legislators and ask them to vote “NO.” Contacting Your Legislator Please help ECHO stop AB 952 from becoming law. Write to your district legislators and ask them to oppose AB 952. Legislators listen to their constituents, and with enough help, we can defeat this bill. Just visit the California state legislature web site: www.legislature.ca.gov/port-zipsearch.html, enter your zip code and click “search.” Remember to send your letter to the legislator’s district office, as it is more likely to be read in time. Influencing legislation on behalf of California CID owners is one of ECHO’s primary goals. We would greatly appreciate your help in gauging the effectiveness of our call to action by sending us a copy of your letter. Simply paste it into an email to Tyler Coffin: tcoffin@echo-ca.org. Thank you! ECHO Journal | September 2007

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By Bill Leys

Waterproof Decks:

KeepUp or Pay Up W

aterproof decks are high on the list of the top ten building component items named in lawsuits as being defective despite the fact that they are not found in many associations. Windows and doors, roofs and foundations, all are found on every residence built; thus, it seems natural that they would be on this top ten list. Waterproof decks are built on perhaps 30–40% of new houses and around 50–60% of condominiums. Decks add an extra “room” to a property and clearly add value because residents want their own outdoor space and will pay more for a residence with a private deck. Several years ago, the California State Senate, in an effort to help reduce the number of lawsuits for actual or perceived defects in condominiums, passed a comprehensive law known as SB-800. The bill laid out the steps that associations must follow to notify builders to allow those builders an opportunity to make repairs or replace defective components, giving them tight

timelines that must be met, before an association can file a suit. One result has been a return of builders to the condominium market in California, allowing them to build with reduced fear of lawsuits. In my estimation and that of many other professionals, this bill has been a great success and has benefited everyone. New industries have evolved from this legislation—companies that write HOA maintenance manuals, third party inspectors and a slew of authors who have written books and articles about the bill’s mandates. Attorneys specializing in the writing of CC&Rs for associations have seen a demand from builders for precisely worded documents that eliminate the vague language commonly seen in older documents. Maintenance responsibilities—who is responsible for what, especially exclusive use areas—are far clearer than ever before. In the several years since SB-800 passed, manufacturers have adjusted to the new rules and

ECHO Journal | September 2007

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have written new stipulations into their warranties and maintenance instructions. This is especially true in the waterproof deck industry. As a consultant and contractor, I need to keep up with the ever-changing instructions for maintenance and warranty requirements. Thus, I am not surprised by these changes; manufacturers need to protect themselves. Warranties are now being written that restrict the limit for damages to the cost of the materials. Simply put, if a manufacturer’s product is defective and as a result of that defect fails and causes damage to your property (whatever the damage is—mold damage, substrate damage, termites or dry-rot or personal property damage), the most you can expect from the manufacturer will be a check for the cost of the materials sold on the job. A $100,000 deck coating job usually includes about 25 percent in material costs, limiting the manufacturer to only $25,000.00 in warranty costs in this instance. Mold remediation in a single unit can cost $15,000. Repairs to framing and substrate are also costly; so the $25,000 becomes a drop in a bucket. In addition, investigations into alleged defects will also cost many times that amount. I was amazed when I found one manufacturer’s maintenance and warranty requirements included “MANDATORY MAINTENANCE CARE PROCEDURES,” that explicitly outlined the owners’ responsibilities for this particular product. The procedures gave the requirements an owner must perform to maintain a limited coating system warranty with the manufacturer. Not surprisingly, it gives requirements for cleaning, repairs to damage and periodic replacement of the topcoat. Another requirement is inspections of the coating. OK, I thought to myself; that seems reasonable— decks should be checked occasionally. Continuing to reading down the instructions, I then came to the Inspections Section, where I got quite a jolt. I strongly agree (admittedly, it’s in my interests, but it is also in an association’s best interests) with their statement “Inspections provide a basis for proper maintenance to ensure the life expectancy of the …coating system.” Then came the whammy, quoted directly from this manufacturer’s Technical Bulletin: “Monthly documented physical inspections to determine: 1. If there are any areas of excessive wear or physical damage to the coating system. Continued on page 11 8

September 2007 | ECHO Journal


This deck didn’t look great one day and crack overnight! Years of neglect allowed this deck to fail.

An expensive repair probably started with a nail backing out of the plywood, allowing water to penetrate in.

The sun burned this urethane deck for several years. Reapplying sealer as directed would have prevented such damage.

Pots must be raised up to allow moisture to dry off. Continued exposure to water can damage decks over time.

Rubber mats are bad for decks.

A satellite dish screwed through a waterproof membrane compromises the waterproofing and voids any warranty. ECHO Journal | September 2007

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Waterproof Decks Continued from page 8

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Semi-annually documented physical inspections must include (but are not limited to): 2. …and the section went on to list the various items that must be checked.” The fine print in the footnotes for #1, the monthly inspections, requires a written inspection log indicating times and dates of inspections and identity of the employee performing the inspection. For #2, the semi-annual inspection (hold onto your chair!) requires “Photograph or videotape the deck coating system and provide copy to manufacturer within twenty days of inspection.” An association reading this requirement should probably feel as if Mike Tyson just delivered a full body shot to the abdomen! The requirements placed on the owner of this deck system, combined with the limited warranty, make it extremely unlikely that he or she will collect one dime from a manufacturer without spending quite a bit on attorney’s fees.

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Another requirement of deck coating manufacturers and many installers that will void your warranty is allowing the contiguous building materials to fail. That is, if the wood siding on the wall next to the deck fails and allows water intrusion, water can migrate under the deck coating into the framing and substrate. The deck will be slowly damaged by hidden water intrusion, and manufacturers will resist being held responsible for that situation. Maintenance and repairs to contiguous materials are essential to maintaining your deck warranty. The effect of these types of maintenance and warranty requirements is likely to be that few lawsuits will be filed against manufacturers. Installers will be (and need to be) held to higher standards for following installation instructions exactly and disclosing fully all their terms, warranties and maintenance agreements up front as part of their bid package. Third-party consultants and inspectors will see an increase in business as new associations are built and require inspections to maintain their warranties. Attorneys for manufacturers will get plenty of business writing tighter warranties and maintenance requirements, thus generating even more business for consultants and inspectors. ECHO Journal | September 2007

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Associations are now on notice that they must follow the rules (ever-changing) of the game, or they will find that they have little or no recourse against the manufacturer, installer or builder. It is, of course, cheaper to inspect and repair small problems before they become big problems. As a contractor, I have seen the costs of replacement and rebuilding for those associations that failed to maintain and inspect their decks rise dramatically. A small crack in a deck that might cost $500 or even $1,000 to get repaired properly, if left unrepaired for several years, ends up costing $5,000 to $10,000 to tear out the deck and rebuild framing damaged from water intrusion. Add in the angry resident, the overworked HOA manager and all the disruptions, and the costs of inspection and repairs become practically irrelevant. Builders need to consider their options carefully when it comes to selecting deck coatings. The cheapest bid should not be the primary factor in picking what will be put down. Careful review of all the terms in a manufacturer’s warranty and maintenance requirements need to be implemented into association documents, and specific disclosures should be made to the association during the transition when the association is turned over to the owners by a developer. By demanding higher quality, longer lasting materials, builders will reduce their exposure to liability. Installers need to develop standards and checklists before showing up at a job and

Contiguous building materials must not be in contact with the deck coating. 12

September 2007 | ECHO Journal


Contiguous building materials must be kept in a waterproof condition. The opening seen here allows water to enter into the structure.

slapping down materials. They need to become very familiar with the work done by other trades and review that work, recognizing and calling out deficiencies and notifying the builder to make repairs first. Woe to the contractor who shows up at a job and installs decking over unblocked plywood, negatively sloped framing or improperly nailed substrate. He or she will end up holding the bag for a failed deck. Associations will have to maintain their decks as specified or suffer the consequences. If the maintenance instructions say that the deck must be resealed every three years and the association fails to do so, the installer and manufacturer of that product will then be free from liability if the deck fails.

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An association must inspect its decks according to instructions, CC&Rs or warranty requirements, and it must maintain a log of deck inspections. The burden of proof for defects is now squarely on associations and failure to maintain will void their warranties.

Bill Leys is the principal at waterproofdeckcoatingadvice.com, an ECHO-member company that offers consulting and deck inspection services to HOAs. He is a former association manager, has written a number of articles about deck coatings and their care, and has spoken at seminars sponsored by several organizations. ECHO Journal | September 2007

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By Larry Mesplé

Effective Communications in CIDs Newsletters Are a Key Tool eliable communications properly presented help motivate positive attitudes in a community. These are attitudes that can result in both good governance and enhanced property values. This article, first of a two-part series on communications in common interest developments (CIDs), focuses on why effective communications are both a necessary and important feature of a well-governed and properly-managed CID.

adoption or a summary of the minutes of any meeting of the board, other than an executive session, are to be available to members within 30 days of the meeting.

Davis-Stirling Common Interest Development Act: Open Meeting Act

Distribution of minutes meets the letter of the law but may be cumbersome and not the best way of conveying information to the general membership. Other forms of communications may be more likely to get the average reader’s attention, including notices from management or letters from the association’s attorney. Making minutes and or other information available for reading at the management office or at a designated location that must be maintained for that purpose may be burdensome. A less expensive and more user-friendly way of meeting the requirements of the Open Meeting Act can be through regularly published and well presented newsletters. The association can use these

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Since the Davis-Stirling Common Interest Development Act was established in 1985 to collect in one place the statutes that govern the operations of all types of homeowner associations, it has been amended nearly 100 times. Of particular interest with respect to communications, Civil Code 1363.05, added to Davis-Stirling in 2005, calls for timely availability of board minutes and notification of upcoming board meetings to members of CIDs. This is called the Open Meeting Act. It provides that any matter discussed in executive session “shall be generally noted in the minutes of the immediately following meeting that is open to the entire membership.” Items from the minutes proposed for

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September 2007 | ECHO Journal

Thus, the Open Meeting Act provides that the full content of board meetings is intended to be available for all members to see and at least the essence, if not the details, of executive sessions or hearings must be revealed.

Continued on page 17


ECHO Journal | September 2007

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September 2007 | ECHO Journal


Effective Communication Continued from page 14

publications to highlight board and committee decisions in a more familiar, efficient, and readable way than by copying and mailing the minutes upon request or by sending them to everyone. While the full extent of the minutes may not be newsworthy, a summary of actions taken can be included in a newsletter as a regular feature or column of the publication. Davis-Stirling Act: Openness for Elections During the past two years, boards of CIDs have become familiar with the Act’s election procedures and campaign funding requirements. Changes in 2005 and 2006 have required managers and boards to deal with the mechanics of secret balloting for board positions and certain other voting. An association manager lugging an official looking ballot box into a meeting room is a now common feature of the annual meeting. In addition, the Act now requires a mandated “quiet” period prior to the election during which candidates cannot be mentioned, bylined, nor have their photographs shown in association communications without equal time to all candidates. This requirement for equal access also covers a Statement of Candidates distributed as part of a ballot package. Communicating with the Majority: Association Members of Goodwill In adhering to the “openness” requirements of Davis-Stirling’s Open Meeting Act, boards and association managers are doing more than opening up their book of minutes and implementing a more complicated and official-seeming voting process. By faithfully following procedures, improvement in communications should help elicit cooperation from the 90% of association members who are positive in outlook and want the best for their community. Complying with these provisions for openness should also reduce complaints from dissenting members or tenants who might otherwise assert that they have not been properly informed of board policies and decisions. Effective communications required by the Open Meeting Act may have another positive outcome for boards and association managers by encouraging and facilitating a more useful flow of information between members and the board. This puts the board and man-

agement in better position to capture the best ideas from the community. At the same time, and as alluded to above, effective communications can discourage disruptive ideas and initiatives that draw away time needed for the usual and necessary processes of running a CID. With Davis-Stirling: “Marked Increase in Member Participation,” but at Some Cost Douglas Christison, PCAM, CCAM of The Christison Company in Pleasanton reports a “marked increase in member participation” since enactment of the Open Meeting Act. He adds that the written secret ballot “has the potential to eliminate weaknesses of the proxy process.” However, Doug also notes that a number of small CIDs have been “significantly burdened by the additional costs incurred to comply with the new voting laws.” CID Governance: A New Level of Local Government? Some legislators and interest groups have stated that they would like homeowner associations treated as publicly traded corporations. Others would like to consider them a new level of government. Davis-Stirling has become an increasingly important element

of governance in California CIDs. CIDs are not yet government, although at times our neighbors and fellow members of our association may very well make us feel as though we are. On this point, Doug Christison observes that the development since 1985 of DavisStirling legislation “is following government code applications” and this indicates, he believes, that at least some California legislators may view a CID as, indeed, a current or potential level of government. Operating with this perspective, the Christison Company has been a national leader in advocating converting the founding governance plan for CIDs to the “Policy Governance” model of management. This model seeks to align CID governance with missions and processes similar to those of local government. Principles of Policy Governance include providing an effective means of putting into writing the results that an association’s leadership desires, eliminating ambiguity as to what the mission and purposes of a CID are, and requiring more accountability by boards because policy and action must be put into writing. Other advantageous aspects of Policy Governance include establishing for the ECHO Journal | September 2007

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benefit of the membership and management the results sought with board policies, creating checks and balances on boards that have retained authority but delegated accountability to others, and requiring CID leadership to be “forward focusing rather than dealing with the past.�

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We hear and observe particularly in California that ours is an excessively litigious society. CIDs face this risk similar to for-profit corporations, deep-pocketed individuals and insurance companies. How can good communications help minimize this risk of costly and time-consuming litigation?

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First, risk is minimized through clearly written communications and disclosures delivered to all CID residents including absentee owners and tenants. It’s not a surprise to boards and association managers that an important component of a community’s difficulties in enforcing its rules has to do with those rules never having been properly conveyed from absentee owners to tenants or never having been read or understood even by owners living onsite. Thus, effective communications require that tenants as well as all owners receive notice and disclosure of board policies and actions of CID policies and enforcement actions. A challenge is getting members and tenants to read the communications. This can be accomplished in form letters from management, availability of the minutes, and by word-of-mouth in the community. But it may be that this information can more effectively be presented in well written, thoroughly edited, and properly laid out newsletters. Personalized letters to individual members and/or tenants from the association manager or attorney calling attention to violations and possibly setting the date for a hearing on a violation of the rules will still be needed at times. Second, and as a corollary, written communications correcting misinformation may have just as important a role in stimulating good governance by communicating positive information about a community’s rules and regulations and expectations for acceptable community behavior. Woodland’s Ray Resler is one of the first persons who earned the Professional Community Association Manager (PCAM) designation. He was also supportive in the formation of ECHO and has been an active Continued on page 26

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September 2007 | ECHO Journal


2007 Legislation at a Glimpse As of August 17, 2007 Bill No.

Author

Subject

Status

Position

Summary

AB 567

Saldana

Common Interest Development Bureau

Hearing cancelled in Assm. House Committee; 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

Moved to Senate Inactive File by Author

Oppose

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. Approved courses may not be offered at a cost higher than $25 and association reimbursement may not exceed $25.

AB 691

Silva

Certified Common Interest Development Managers

Passed Support Assembly and Senate B&P Committee; In Senate

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

Passed Assembly. Awaiting floor vote in Senate.

In associations that contain below market rate (BMR) units, would prohibit the board of directors from imposing a special assessment, or an increase in the regular assessment of more than 20%, without majority approval of both the owners of market rate units and owners of BMR units.

SB 528

Aanestad

Topic Passed Support Restrictions in Senate. Board Meetings Awaiting floor vote in the Assembly.

Would require notices of board meetings to include an agenda for the meeting. Would prohibit the board of directors from considering any item at a meeting unless the item was placed on the agenda when the meeting was announced (emergency meetings are excluded). Permits unannounced discussion of certain topics similar to provisions of the Brown Act.

SB 127

Kuehl

CID Sale Disclosure Deadlines

Passed Support Senate. Awaiting floor vote in the Assembly.

This bill would impose disclosure deadlines for the seller of a unit in a common interest development. It would require that all disclosures be made no later than 20 calendar days after the execution of a purchase agreement or the opening of escrow, whichever is later. An association must continue to provide documents to the seller within 10 days. This bill affects both mobilehomes and CIDs.

AB 1173

Keene

Mandatory Submeter Installations

In Assembly

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.

Appropriations

Committee Suspense File

Oppose

Watch

For updates about these bills, please visit the ECHO web site regularly (echo-ca.org). The legislature reconvened on August 20, 2007, following summer recess. ECHO Journal | September 2007

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The May 2007 issue of the ECHO Journal included an article titled “Stealth Reserves” by attorney Tyler Berding. In the article, Mr. Berding introduced a novel suggestion to help associations fund the association’s reserves adequately, that of giving the owners some slack through payment deferral. ECHO received two letters about the article, which are printed herein, followed by a response from the author.

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September 2007 | ECHO Journal


Letters to the Editor

D E R E V StealthOReserves C N U From Mr. Stephen Hohs Dear Mr. Berding, We have corresponded in the past. I agree with your article assessment… that: 1. ALL (or if not the VAST MAJORITY) of condominium associations in the 20 to 30 year age range are totally unprepared for the rough times ahead. 2. ECHO’s basic thesis “Get an expert,” while nice in theory, does not work well in fact. Having been the victim of watching numerous projects throughout my Association with socalled “experts,” I (along with other board members) have learned the hard way that the board needs to almost become an on-site supervisor of the project. And, it is a prerequisite that some board members use some “common sense” to the extent of almost becoming an “expert” in construction management. Even with a construction manager “supervising” the job, surprisingly often the Association is paying for nonexistent supervision. The end result is that the Association quite likely is paying for unsupervised work at a contract that alleges supervision. 3. There are NOT enough Association members that are willing to be competent board mem-

bers. It probably takes at least two, probably three years, before one can competently say that “he knows what he is doing.” “Knowing what you are doing” consists of more than showing up to a board meeting. 4. Most board members are unwilling to give out bad news. The few board members that I trust are the ones that are willing to take an unpopular stand; i.e., raise HOA dues. While my dues of $260 per month funds the reserves, I would feel more comfortable with higher dues. It gets more and more difficult (particularly now new owners probably having negative equity willing to abandon the property) to find the financial resources to do repair work. 5. The vast majority of the deferred maintenance is avoidable. The best long-range solution is to start managing the condo HOA like a commercial property. Have a handyman go building by building taking care of little stuff before they become big problems. 6. Owners worry too much about minor issues; i.e., parking instead of major issues; i.e., dry rot repair. I had one annual meeting with owners complaining about non-existent parking issues, leading to my response of “If we DO NOT take care of the dry rot in the next

ECHO Journal | September 2007

21


couple of years then we could be looking at MAJOR BILLS.” No easy solution exists. It would be nice if one could mandate mandatory funding for adequate reserves. The obvious problem is one could get into a long winded issue of what constitutes “adequate reserves.” Unfortunately, the vast majority of associations appear to take the attitude “Not my problem about issues five year hence.” Mine is one of the few and it is often to get the consensus of “It is the Association responsibility to leave for the next purchaser an Association adequately maintained without needing special assessments.” Stephen M. Hohs Mr. Hohs is a resident of a condominium association in Napa. He has been involved with activities in that association for the past 30 years, including 10 years as a board member and three as board president. From Gayle L. Cagianut, CPA Dear Mr. Berding: With all due respect to your industry knowledge and the creativity that you called upon to come up with the idea in your article 22

September 2007 | ECHO Journal

of assessing homeowners for additional reserve funding monies to be paid at the time of escrow closing (when a home sells), I see nothing but disaster for such a plan. Here are a few of my concerns: 1. What about the numerous homes that have no equity and are just barely hanging on without going into foreclosure? I would think that this would be another great reason to walk away from the home. I realize that if the special assessment were levied all at once, the same thing could occur; however, if the board works out a reasonable payment plan, they might get payments as long as the homeowners choose to stay in the home. 2. Would a lien be filed immediately on the home to ensure that the assessment is advance of any additional mortgages that might come along? Would the assessment need to be repaid if the owner refinanced? 3. How would a reserve preparer even begin to do its cash flow planning? How would they be able to ascertain when the funds would be available to the association? At a minimum, there would need to be a sun-

set date when the monies would be due and payable. 4. As Robert Nordlund states, reserve studies are an “art and a science.” So, what if the projections are wrong and the monies are needed sooner rather than later? Do you special assess again, give credit to those people that have already paid, and assess just the ones who have not paid? 5. You mention that interest should be charged on this “loan.” Do you realize that management company accounting departments are already dealing with assessments, late charges, other fees, special assessments (for everything from specific items to bank loans) and now they will have to compute interest on a receivable that is not collectible for years to come? 6. For collection purposes, the computerized accounting system would have to be sophisticated enough not to apply payments to this “assessment” and not to send foreclosure notices on this past due amount. Or, are you suggesting that this be kept “off the books”? If so, what is the chance that the management company will remember to collect the money in


escrow if it is not part of the A/R balance at the end of the year? 7. When associations change management companies, we find difficulties in transferring the knowledge of what is due and payable on special assessments that secure bank loans. The transition is rarely smooth and we find unit owner payoff balances incorrectly carried over from one management company to another. I can imagine that this scenario would result in the same type of issues. Anyway, these are a few of my very quick thoughts. I hope that you come out in the next Journal and say “just kidding!” I do not think that this is a good business decision nor do I think that the current industry is ready for the accounting nightmare that this could cause. However, I think the homeowners would vote for this and not consider the ramifications of their decision. Gayle L. Cagianut, CPA Ms. Cagianut is a well-known CPA with an extensive accounting practice for homeowner associations. Her firm has offices in Ventura and the Seattle and Spokane regions of Washington state. The Author Replies Hello, Gayle. No, I actually wasn’t kidding. First and foremost, please understand that I do know and appreciate the vulnerabilities of most community associations that you describe and the danger that anything that gives someone an excuse to forestall the inevitable might be abused. On the other hand, after 33 years of watching associations march deeper into the quagmire of deferred maintenance, mostly by default, I’m pretty well convinced that without some radical new ideas a lot of housing is destined to deteriorate to the point of zero value. There are several reasons for this. The present system of assessing for future repairs is almost entirely subjective and voluntary. Boards are only required to include components that have a demonstrated useful life of less than 30 years. The decision to include a component in reserves in the first place (less than 30-year life,) and then accurately assess both its projected life and the eventual cost of repair is, and here I would paraphrase Robert Nordland, “art and not even close to science.” I have seen plenty of examples of reserve budgets so far off the mark as to be mostly irrelevant. So right off Continued on page 30 ECHO Journal | September 2007

23


Legal By Adrian Adams, Esq.

Neighbor Disputes

Nuisance. Owners have a general right to peacefully enjoy their property. Because associations have the power to impose fines and suspend privileges, boards have a duty to intervene under the nuisance provisions of their CC&Rs to stop owners from disturbing the peace.

ship. If an owner poses a threat to other members, the board may have a duty under these provisions to protect the membership from such threats. Landlord Tenant Relationship. Under landlordtenant law, landlords must protect members against foreseeable harm and provide for quiet enjoyment by curbing a tenant’s disruptive conduct. California’s Supreme Court has already compared associations to landlords and owners to tenants. That analogy will likely carry over to a board’s duty to protect members from an abusive, harassing or threatening owner. Fair Housing Act. Duties may also be imposed by federal law. In a Washington D.C. case, a female owner was harassed by her neighbor who allegedly shouted racial epithets and made sexual comments to her. The woman asked her condominium association to take action to stop the harassment. The association wrote letters to the neighbor but took no further action. The woman sued the association, alleging violation of the Fair Housing Act because it failed to take action against her neighbor. When the federal district judge ruled that the association could be held liable for its inaction, the association settled the case by paying the owner $550,000 and buying her condo. Reeves & The Fair Housing Council of Greater Washington, Inc. v. Carrollsburg Condominium Owners Assoc. (D.D.C. 9602495) Recommendation. Boards should hold hearings with feuding neighbors and make it clear that any disruptive behavior such as loud stereos, banging on the walls, shouting matches in the common areas, etc., will result in fines and suspension of privileges (as provided for in the governing documents). If the board determines that an owner is a threat to other residents, the board may have a duty to take further action, such as seeking a restraining order. When faced with these kinds of situations, boards should always seek legal counsel.

Health and Safety. In addition to nuisance restrictions, most documents contain general statements that the association’s purpose is to provide for the health, safety and welfare of the member-

Adrian Adams is a principal in the law firm of Adams & Kessler LLP. This article is reprinted from the DavisStirling.com Newsletter.

T

here was a time when boards were advised to stay out of neighbor-to-neighbor disputes. Unfortunately, the legislature and the courts have increasingly pushed associations into the role of resolving disputes internally. This seems to extend even to claims of harassment, threats, and physical altercations. There are four lines of reasoning for the board’s duty to intervene:

24

September 2007 | ECHO Journal


Protect

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Central Coast Fall Seminar Seminar Agenda

ECHO 2007 Central Coast Fall Seminar

8:00 8:45 9:00 9:45 10:30 10:50 11:35 12:20 12:50 1:00

September 22, 2007 Seacliff Inn, Aptos Ticket Price: $35

Registration and Sponsor Tables Welcome and Introductions Encouraging Member Participation Reducing Association Liability Break Fortifying Your CC&Rs Managing Member Discipline Questions and Answers Drawings for Sponsor Prizes Adjourn

Yes, reserve _____ spaces for the ECHO Central Coast Fall Seminar. 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


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Continued from page 18

consultant on community association issues for the past 20 years. Ray observes: “I have found that feeding the rumor mill or the grapevine is an effective way to ‘get the word out.’ While it may be efficient, it is also far from accurate. Good news travels slowly and bad news travels very fast, and with speed comes distortions, friction, and resultant heat. Heat that transmits to boards and association managers, and unless countered or headed off with expertise, can become a firestorm of misinformation that can get transmitted to a legislator who can do nothing but create a law.” Third, in disclosing information homeowners and tenants alike need to have to live amicably in the densely spaced housing of most associations, written vehicles of communication that are read and not just discarded upon receipt lay down markers that encourage cooperation and member satisfaction and can discourage dissidence. This may lead to reduced expense for Errors and Omissions insurance, fewer hearings, and fewer small claims or superior court actions.


All of these benefits save the board time and the association expense for legal and management expertise. To be read and not set aside, the communications tool must be a welcoming publication and easily readable. And for now at least, it is most likely a hardcopy document delivered to all owners and tenants. (As a postscript, some associations are making advances in communicating with their members via Web sites and email. Beth Grimm’s article in the June 2007 issue of the ECHO Journal notes that Web sites “…can be a blessing and a curse” and warns that posting bylaws, rules, minutes, and social events or town hall meetings can lead to problems unless entry to the site is “protected.” She particularly warns about including a chat room in an association website. Beyond Beth’s comments, little to date has come to the writer’s attention regarding the effectiveness of communicating in this medium.) A Community Building Tool Santa Rosa-based association manager Steve Lieurance, CMCA, CCAM, owner of Management 4 HOAs also has background and training in journalism.

“Stronger participation and communications can lead to a more saleable community. A good newsletter is one of the better tools to help increase the participation of members and tenants alike. Any increased participation helps create more sense of ‘community.’ Credible newsletters can reach out to those owners and residents who don’t currently

To be read and not set aside, the communications tool must be welcoming and easily readable. take time to participate. Effective communications can also facilitate people making a difference in their own community.” Conclusion Davis-Stirling calls for CIDs to provide more open communications and open elec-

toral processes. How can boards and association managers implement the requirements for good governance, encourage the 90 percent of the membership that is cooperative and positive in outlook, and minimize the risk of the “difficult” or “dissident 10 percenters?” The association newsletter can be an inexpensive yet effective tool for meeting these objectives and in conveying information to members and tenants of CIDs. Properly and timely written, thoroughly edited, well laid out, and reliably delivered newsletters will get more readership and be more effective in meeting the board’s communications objectives than simply opening the minutes for review. In a future issue of the Journal, the writer will discuss some of the elements that make for a readable newsletter.

Larry Mesplé is president of the Sonoma Greens Condominium Association. He works at Management 4 HOAs as newsletter editor for more than 30 homeowner associations in Marin and Sonoma counties. Previously he worked in real estate development for three decades. ECHO Journal | September 2007

27


Calendar of Events

Participate in Resource Panels Thursday, September 6 North Bay Resource Panel 9:30 a.m. Contempo Marin Clubhouse 400 Yosemite Rd., San Rafael

Wednesday, September 19 Wine Country Resource Panel 11:45 a.m. Lanahan & Reilley 600 Bicentennial Way, Suite 300, Santa Rosa

Friday, October 5 East Bay Resource Panel 9:30 a.m. Angius & Terry 1990 N. California Blvd., Suite 950, Walnut Creek

Saturday, October 27 Peninsula Fall Seminar 8:00 a.m. to 1:00 p.m. Hyatt Regency SF Airport 1333 Bayshore Hwy Burlingame, CA 94010

Thursday, September 20 San Francisco Luncheon 11:45 a.m. St. Francis Yacht Club San Francisco

Wednesday, October 10 Legal Resource Panel 6:00 p.m. Call Mark Wleklinski 925-691-1191

Thursday, November 1 North Bay Resource Panel 9:30 a.m. Contempo Marin Clubhouse 400 Yosemite Rd., San Rafael

Monday, September 10 Accountants Resource Panel 6:00 p.m. Francesco’s Restaurant, Oakland

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

Tuesday, September 11 Central Coast Resource Panel 12:00 Noon Pasatiempo Inn, Santa Cruz

Wednesday, October 3 Maintenance Resource Panel 12:00 Noon ECHO Office 1602 The Alameda, Ste. 101, San Jose

Wednesday, October 17 Wine Country Resource Panel 11:45 a.m. Lanahan & Reilley 600 Bicentennial Way Suite 300, Santa Rosa

Friday, November 2 East Bay Resource Panel 9:30 a.m. Angius & Terry 1990 N. California Blvd., Suite 950, Walnut Creek

Friday, September 7 East Bay Resource Panel 9:30 a.m. Angius & Terry 1990 N. California Blvd., Suite 950, Walnut Creek

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

Friday, October 19 ECHO Annual Meeting 10:00 a.m. ECHO Office 1602 The Alameda, Ste. 101, San Jose

Regularly Scheduled Resource Panel Meetings Resource Panel Maintenance North Bay East Bay Accountants Central Coast South Bay Wine Country Legal 28

September 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 Quarterly

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 listings in the 2005 ECHO Directory of Businesses and Professionals.

Additions Michele C. Day, CPA 11843 Newbridge Way Dublin, CA 94568 Contact: Michele C. Day Tel: 925-336-0888 Fax: 925-829-1239 Email: michele_day@comcast.net CPA offering tax return preparation and financial consulting services to homeowner associations. Farmers Insurance 21985 Redwood Rd. Castro Valley, CA 94546 Contact: Nancy Duperroir Tel: 510-728-1480 Fax: 510-538-6664 Email: nduperroir@farmersagent.com Property and casualty insurance agency.

Changes CF Management P.O. Box 151 San Jose, CA 95103-0151 Tel. & Fax remain the same The Management Alternative 1120 13th Street, Suite C Modesto, CA 95354 Tel & Fax remain the same Continued on page 39 ECHO Journal | September 2007

29


Letters to Editor Continued from page 23

the bat we are deep into speculation as to how much an association should be putting into the bank. Therefore, even the funding that a board does choose to adopt may be inadequate. Second, and more important, even if a board does obtain accurate predictions of necessary funding, it is rare that they will summon up the resolve to meet those obligations by imposing periodic increases in regular assessments or by imposing allowable special assessments even to just keep pace with inflation. Our statistics show that average

funding is roughly half of the required amount, which means that there will be nowhere near enough money to do major repairs at the appropriate time. That results from a combination of inflationary increases in the repair costs coupled with growing shortfalls in prior funding goals. Boards are reluctant to approach the members for significant contributions until the need is of crisis proportions and then it is usually too late and too much. Members, on the other hand, even when a board has campaigned aggressively to raise the necessary funding, will more often than not refuse to accept the board’s or management’s recommendation if it means paying a substantial additional assessment. The consequences of

these demonstrations of human nature are gradually diminishing reserves, leading many projects to the point of failure. So against this background we search for other ways to accomplish what’s needed— funding sufficient to maintain a community association for the rest of its perpetual life. I say ”perpetual” because the code only discusses individual building components that have less than 30 years to live. There is no “service life” assigned to an entire project, hence no legislative consideration whatsoever that a community association might become obsolete. As a result, there is absolutely no practical exit strategy under

Continued on page 33 30

September 2007 | ECHO Journal


Legal By Beth A. Grimm, Esq.

HOA Transfer Fees What Charges Are Legal, Proper and Acceptable?

A

common question from purchasers of property in homeowner associations and the realtors who sell them is: “Why are the transfer fee and document costs so high? All you have to do is send over the association documents and they can’t cost that much to copy.” There have been two cases in the past two years in California, one of which is very recent, providing binding authority that upholds the concept that, although there are some restrictions on homeowner association spending and charges for assessments and other costs, the fees that are charged by a management company for transfer of title and the administrative work performed to assist an association in honoring its obligations under Civil Code Section 1368 are not limited by those statutory restrictions. What does this mean? It means that management companies may include in the costs that are charged to the association a profit margin and that buyers and sellers (whoever has to pay the transfer fee) must pay when these costs are charged to them. The two cases on this issue are: 2007 Berryman v. Merit Property Management Inc. 2005 Brown v. Professional Community Management, Inc. The ability to include a profit margin applies to all services that are provided to the association, and all vendors are so entitled. The judges in the cases made it clear that neither the laws nor the case decisions said the vendors that serve associations are required to operate as nonprofits (even though most associations are nonprofit organizations) with regard to fees charged to associations for services that are provided, including services related to transferring title records and rights from one owner to another. They also opined that the market place and competition would provide a sufficient mechanism to keep these costs effectively under control.

What is a commonly accepted “transfer” fee? I have spoken to a number of professionals and vendors under contract to provide services for associations and have come up with numbers that seem to be fairly common—around $100 for a set of documents and $225 to $250 for the work related to transfer of title and all that entails. Of course, if there are keys, key cards, vehicle registrations and a host of paperwork outside the usual, or a master/sub-association relationship, or litigation requiring extra disclosures, these fees can be higher. The Berryman case confirmed that these ranges are in the ballpark. The Merit Property Management Company was charging $100 for documents and $225 each for the transfer of title work in two associations, a master and a sub-association; the Berrymans’ property was located in both associations. The court did not condemn these amounts nor question the reasonableness of them, and the author believes that has some significance. The standard for self-managed associations is likely to be less because a profit margin would not be allowed according to these cases. In other words, associations are more limited in charges that can be made than vendors who have a right to expect a profit. Although these cases proved successful for the management companies that were required to defend claims of unreasonable behavior, don’t believe this is the end of such inquiry. For the past several years and currently, the California legislature is reviewing legislation dealing with proposed limitations on transfer fees of various types.

Beth Grimm is a community association attorney in California. She is a member of the East Bay Resource Panel and the Legal Resource Panel and is author of various publications and books about condominium living and the law and a frequent contributor to the ECHO Journal. You can take advantage of free information on her website at www.californiacondoguru.com. ECHO Journal | September 2007

31


Major Repairs at Your Association ECHO 2007 Peninsula Fall Seminar October 27, 2007 Hyatt Regency, Burlingame Seminar Agenda 8:00 Registration and Sponsor Tables 8:45 Welcome & Introductions 9:00 Identifying the Need for Repairs: Reserve Studies and Special Investigations 9:30 Funding the Project: Special Assessments and Loans 10:00 Starting the Process: Bidding and Contract Issues 10:30 Break 10:50 Construction Issues—Inter-Disciplinary Panel: Communications, Payment Control, Mechanics Liens, Change Orders, Phasing, Supervision, Relocation 11:50 Construction Issues: The Contractor’s Perspective 12:20 Questions and Answers 12:50 Drawings for Sponsor Prizes 1:00 Adjourn Yes, reserve _____ spaces for the ECHO Peninsula Fall Seminar. Amount enclosed: $__________ (attach additional names) Name:

Ticket Price: $35 Tickets sold in advance

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


Letters to Editor Continued from page 30

California law. This will eventually leave some owners with no options. Yes, it would be great if the owners could be convinced to approve a monthly assessment that would get the job done, but we are wasting our breath if we think that is going to happen other than sporadically. We can either ignore the inevitable, wait for the legislature, or look for options. As you know, I choose the latter course because the Legislature cannot be relied upon to tighten funding requirements at all, and frankly, the deferral option is not as offbeat as it may seem. We have entire communities for which that is a major source of funding. Retirement communities, where a fixed income is the norm, realized a long time ago that raising significant funds through monthly assessments wasn’t going to cut it and have allowed the owners to “endow” the association with funds payable when the unit is sold. Yes, the demographics of that particular group make funding a little more predictable, but it does serve to provide cash flow at a rate that over the years has fairly well addressed the needs of the association. No, I haven’t even begun to work out the details, and perhaps I am remiss for putting the cart before the horse; but I see my job as one of stimulating thought and raising awareness, and clearly, we have done that. But let me address, as best I can, the concerns stated in your letter. I will respond to the paragraphs by number. No equity. The option of deferring all or part of a special assessment to some later date would not be without regard to the owner’s ability to secure that obligation with home equity, any more than a lending institution would lend without security. But as you point out, special assessments are levied all the time without regard to security; so if we actually got some security in return for a deferral for a defined period of time, why aren’t we better off ? Especially if it can be made to fit our cash flow requirements and is the difference between passing the assessment or not passing it? Liens. There would be no deferral unless the owner agreed to give the association the necessary security in the form of a lien on the property, the same as any lender would Continued on page 37 ECHO Journal | September 2007

33


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

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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.

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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.


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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

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

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News from ECHO tenant law, landlords must protect members against foreseeable harm and provide for quiet enjoyment by curbing a tenant’s disruptive conduct. California’s Supreme Court has already compared associations to landlords and owners to tenants. That analogy will likely carry over to a board’s duty to protect members from an abusive, harassing or threatening owner.

Neighbor Disputes There was a time when boards were advised to stay out of neighbor to neighbor disputes. Unfortunately, the legislature and the courts have increasingly pushed associations into the role of resolving disputes internally. This seems to extend even to claims of harassment, threats, and physical altercations. There are four lines of reasoning for the board’s duty to intervene: Nuisance. Owners have a general right to peacefully enjoy their property. Because associations have the power to impose fines and suspend privileges, boards have a duty to intervene under the nuisance provisions of their CC&Rs to stop owners from disturbing the peace. Health and Safety. Most documents contain general statements that the association’s purpose is to provide for the health, safety and welfare of the membership. If an owner poses a threat to other members, the board may have a duty under these provisions to protect the membership from such threats. Landlord Tenant Relationship. Under landlord36

September 2007 | ECHO Journal

Fair Housing Act. Duties may also be imposed by federal law. In a Washington D.C. case, a female owner who was harassed by her neighbor asked her condominium association to take action to stop the harassment. The association wrote letters to the neighbor but took no further action, and the woman sued, alleging violation of the Fair Housing Act because the board failed to take action. When the federal district judge ruled that the association could be held liable for its inaction, the association settled the case by paying the owner $550,000 and buying her condo. Boards should hold hearings with feuding neighbors and make it clear that any disruptive behavior such as loud stereos, banging on the walls, shouting matches in the common areas, etc., will result in fines and suspension of privileges. If the board determines that an owner is a threat to other residents, the board may have a duty to take further action, such as seeking a restraining order. When faced with these kinds of situations, boards should always seek legal counsel. (This article reprinted from the Davis-Stirling.com Newsletter.)

Effective Communications in CIDs Reliable communications help motivate positive attitudes in a community that can result in both good governance and enhanced property values. The Davis-Stirling Act calls for associations to provide more open communications and open electoral processes. How can boards and association managers implement the requirements for good governance, encourage the 90% of the membership that is cooperative and positive in outlook, and minimize the risk of the “difficult” or “dissident 10 percenters”? The association newsletter can be an inexpensive yet effective tool for meeting these objectives and in conveying information to members and tenants of CIDs. Properly and timely written, thoroughly edited, well laid out, and reliably delivered newsletters will get more readership and be more effective in meeting the board’s communications objectives than simply opening the minutes for review.

2007 Annual Meeting of Members The 2007 Annual Meeting of Members will be held Friday, October 19, 2007, beginning at 10:00 a.m., at the ECHO Office, Suite 101, 1602 The Alameda, San Jose. The only business on the agenda is the election of four persons to serve three-year terms on the Board of Directors. The official Notice of Meeting, along with an agenda, a proxy form, a postage prepaid return envelope and directions to the meeting, will be mailed to all association presidents in September.

Upcoming ECHO Programs Thursday, September 20 San Francisco Luncheon 11:45 a.m. to 2:00 p.m. HOA Case Law & Court Decisions Mark J. Wleklinski, Esq. Saint Francis Yacht Club San Francisco Saturday, September 22 Central Coast Fall Seminar 8:00 a.m. to 1:00 p.m. Seacliff Inn, Aptos Saturday, October 27 Peninsula Fall Seminar 8:00 a.m. to 1:00 p.m. Hyatt Regency, Burlingame


Letters to Editor Continued from page 33

require. Yes, a refinance or a sale would trigger payment. Cash Flow Predictions. Yes, there would have to be some outside payoff date if the home did not sell first—just like any loan. Cash Flow “Surprises.” Unknown how we would deal with this and there isn’t a lot of experience with it since it doesn’t happen very often that a special assessment is approved and then another is needed soon after. I suspect, however, that there would have to be, going in, some discussion with the members about the number of “deferrals” that could be accommodated; and that if too many owners indicated that they would approve, but elect to defer, it may be that the assessment could not be approved unless more agreed to pay currently. Interest. I’m not as concerned as you are about this and have used outside companies to service loans; and if management or the association’s accountant could not do it, that could be done with this. Collections. Again, a mechanical detail that would have to be worked out, but not a deal killer. Management changes. Perhaps the answer to your concerns in paragraphs 5, 6 and 7 is simply to assign servicing of deferrals to an outside agent equipped to service loans and which would transcend any management changes, or, as another option, simply to sell the group of deferred assessments to a lender for cash and let them deal with collection, accounting, etc. Nevertheless, I don’t mean to minimize the concerns of an accountant for accounting problems when that is not what I do. But right now, I’m focused on the concept and not the mechanics as you can see; and so far I haven’t heard any arguments compelling enough to snuff out further exploration of the idea. Thanks for the stimulating reply and the opportunity to flesh out this proposal. Let’s keep in touch. Tyler Berding

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 | September 2007

37


Honor Roll

About

ECHO Honors Volunteers 2007 Volunteer of the Year Jeffrey Barnett 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, 415-846-7579 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

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. 38

September 2007 | ECHO Journal

2007 Annual Seminar Speakers Adrian Adams, Esq. John Allanson Dan Angius, Esq. Frank Arms Jeffrey Barnett, Esq. Tyler Berding, Esq. Sandra Bonato, Esq. Timothy Cline Karen Conlon, CCAM Burt Dean Bill Erlanger, CPA Tom Fier, Esq. John Gachina Michael Gartzke, CPA John Garvic, Esq. Beth Grimm, Esq. Geri Kennedy, CCAM Karl Lofthouse Kerry Mazzoni Hermann Novak Dan Rottinghaus, Esq. Steven Weil, Esq.

SF Luncheon Speakers John Allanson Tyler P. 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. Beth Grimm, 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 April 2007 Jeffrey Barnett, Esq. Sandra L. Gottlieb, Esq. Hermann Novak Richard Tippett May 2007 Julie Adamen Tyler P. Berding, Esq. Graham Oliver Dick Tippett June 2007 Adrian Adams, Esq. Tyler P. Berding, Esq. Tom Douma Beth A. Grimm, Esq. David L. Hughes July 2007 Joelyn Carr-Fingerle, CPA Robert L. Castle, CPA Jeffrey A. Goldberg, Esq. Thomas Hill Robert Rosenberg, CCAM August 2007 ArLyne Diamond, Ph.D. Patti Jo Lewis, PCAM Marilyn Lincoln Graham Oliver Garth M. Stanton

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.


Directory Updates Continued from page 29

P. W. Stephens, Inc. 4047 Clipper Ct. Fremont, CA 94538 Tel. & Fax remain the same REMI 1509 Seabright Ave., Ste. A Santa Cruz, CA 95062 Tel. & Fax remain the same Terra Vista Property Management 700 Cass St., Ste. 118 Monterey, CA 93940 Tel. & Fax remain the same From: Acordia of California Insurance Services, Inc. To: Wells Fargo of California Insurance Services, Inc. Email: dorothy_mccorkindale@wellsfargois.com

Tel. & Fax remain the same

Visit ECHO online at

www.echo-ca.org for the most current news and information on homeowner associations

ECHO Journal | September 2007

39


ECHO Directors

2007 Annual Meeting of Members to Convene on October 19

T

John Garvic

David Levy

Karl Lofthouse

Wanden Treanor 40

September 2007 | ECHO Journal

he 2007 Annual Meeting of Members will be held Friday, October 19, 2007, beginning at 10:00 a.m., at the ECHO Office, Suite 101, 1602 The Alameda, San Jose. The only business on the agenda is the election of four persons to serve three-year terms on the Board of Directors. The official Notice of Meeting, along with an agenda, a proxy form, a postage prepaid return envelope and directions to the meeting, will be mailed to all association presidents in September. Association presidents are urgently requested to sign and return a proxy to the ECHO Office as soon as it is received. We need your proxy to ensure a quorum for the meeting; we must receive a large number of proxies to convene the meeting. The Nominating Committee, chaired by board member Jerry Bowles, has nominated the following four candidates, who have been endorsed by the ECHO Board of Directors, for board positions: John Garvic—incumbent, Attorney, CID resident owner (3-year term) David Levy—incumbent, Accountant, CID resident owner (3-year term) Karl Lofthouse—incumbent, Banker, CID resident owner (3-year term) Wanden Treanor—incumbent, Attorney (3 year term) Board members Diane Rossi, Bob Hood and David Hughes also served on this year’s nominating committee. Brief biographies of the four nominees for terms ending in 2010 are below: John D. Garvic, Esq., began the practice of law in 1973 after receiving his law degree from George Washington University in 1972. As a member of both the California and Virginia bars, he initially served as a deputy district of attorney for San Mateo County. In 1977, he entered private practice in the field of homeowner association law. He currently resides in a large planned development in San Mateo. His 30 years of private practice have focused on representing homeowner associations in day-to-day counsel and litigation activities involving issues in all facets of HOA law. Garvic has been a member of ECHO since 1976, joined its board of directors in 1978 and has served several terms as

board president. He is current chair of the ECHO Legislative Committee and a member of the Legal Resource Panel. David H. Levy, CPA, is a partner at an accounting firm in San Francisco and represents several hundred association clients. He has been a member of the ECHO board of directors since 1998 and has served as board treasurer for 4 years. He holds BS and MBA degrees in business administration. From 1975 to 1986, when he started his own firm, he was an accountant and manager at several Bay Area accounting firms. In addition he currently serves as the president of his own homeowners association. He has been active in ECHO and CAI. He is experienced in organizing, marketing and conducting large and small education seminars for board members and association managers. Karl Lofthouse is a senior vice president at First Bank. He was honored as ECHO’s Volunteer of the Year in 1999. He was the founding chair of the ECHO San Francisco Panel. Karl attended Wichita State University, majoring in Business. He has served as a board member and board president of the Keys HOA, an 800 unit condominium association in Walnut Creek, where he resides. He has also been a speaker on banking topics at numerous ECHO events, has contributed articles for the ECHO Journal, and most recently has authored a banking guidebook for board members. Wanden P. Treanor, Esq., is an attorney providing comprehensive legal services to common interest developments for 22 years. Ms. Treanor has also served as a court appointed Receiver for CIDs requiring such services. During the past ten years, she has been a member of the ECHO North Bay Resource Panel, the ECHO Legislative Committee and a frequent speaker at ECHO seminars. Her principal office is in Marin County. In addition to being a member of numerous boards of community organizations, she is a past president of the Marin County Bar Association and the Marin County Women Lawyers. She also serves as an elected member and president of the Board of Trustees of the College of Marin.


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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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 | September 2007

41



San Francisco Luncheon Thursday, September 20 11:45 a.m. to 2:00 p.m.

St. Francis Yacht Club

Recent CID Case Law and Court Actions Speaker:

Mark J. Wleklinski, Esq. Chair, ECHO Legal Resource Panel 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



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