Journal_08_07

July 2008

A Journal for Community Association Leaders

echo-ca.org

Waiting for Godot ALSO INSIDE THIS ISSUE:

• History of an HO-6 Policy • Traditional Management Practices • Value of Homeowners Insurance

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Contents Waiting for Godot? on page 6

6

6

Waiting for Godot?

In the play Waiting for Godot by Samuel Beckett the characters wait for Godot, who never arrives. Association boards may feel like they are in that play, wondering whether governing document revisions should be deferred until we know what the Legislature is going to do about the Davis-Stirling Act.

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The History of an HO-6 Policy Every association resident should have adequate insurance coverage for damage to unit interior property in case of a disaster. Boards need to be informed about how the master policy addresses unit interior damage and reexamine the responsibility of the association and that of the unit owners.

14

20

Comparative Analysis of Traditional Management Practices This article compares the “traditional management practices” as defined by CAI to a management model referred to as “Policy Governance Model®.” The article uses accountability, leadership and productive relationships to compare different management models.

20

36

The Value of Homeowners Insurance To protect their investment, homeowners should update their insurance regularly. This article offers more information to help you assess your insurance coverage.

Departments 28 Calendar of Events 30 News from ECHO 31 Ask the Maintenance Experts 34 ECHO Bookstore

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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 2008 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 Lori Burger Robert Rosenberg Richard Tippett Steven Weil

Jerry L. Bowles John Garvic 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 Waiting for Godot?

Page 6 4

July 2008 | 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.

2008 Legislation at a Glimpse As of June 26, 2008 Bill No.

Author

Subject

Status

Position

Summary

AB 567

Saldana

Common Interest Development Bureau

Amended.

In Senate Judiciary

Support

Until January 1, 2014, would 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, and would be paid for by a biennial fee on associations.

Authority to enforce CID law has been removed.

AB 1892

Smyth

Solar Energy Equipment Restrictions

Enrolled.

Sent to Governor

Neutral

This bill would render void and unenforceable any restriction in the governing documents of an association that effectively prohibits or restricts the installation or use of a solar energy system.

AB 1921

Saldana

Statutory Revision of CID Law

Withdrawn for further study. To be introduced in 2009

Watch

This bill would renumber, consolidate, make minor changes to, and remove discrepancies in those sections of California law that govern common interest developments. If passed, the bill would replace the existing Davis-Stirling Act.

AB 2180

Lieu

Solar Equipment Approvals

Amended.

To Senate Consent Calendar

Support

This bill would compel associations to provide written approval or denial of an application to install a solar energy system. The approval or denial must be given within 60 days of the receipt of the application, or the application is deemed approved, unless the delay is the result of a reasonable request for additional information.

AB 2259

Mullin

Rental Restrictions

Amended.

To Senate Judiciary

Oppose

This bill would prevent common interest developments from imposing rental or lease restrictions upon an owner, unless that owner expressly consents to the impairment of that right.

AB 2806

Karnette

Board Member Education

Amended.

Senate Judiciary Hearing June 26

Support

Will require every member of the board serving at least 12 consecutive months, and each candidate for the board, to provide a statement indicating whether or not they have completed an educational course on the law of common interest developments. This information must be included in the ballot material for a board member election.

AB 2846

Feuer

Dispute Resolution Procedures

Amended.

Senate Second Reading

Support

This bill would permit homeowners who are involved in a dispute over assessments with their association to request alternative dispute resolution or to pay under protest and commence an action in small claims court, provided the amount of the dispute does not exceed the court’s jurisdiction.

SB 127

Kuehl

CID Sale Disclosure Deadlines

Amended.

Assembly Third Reading

Support

This bill would impose disclosure deadlines for the seller of a unit in a common interest development. Unless the parties agree otherwise in writing, 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. The bill affects both mobile home and CID owners.

SB 1511

Ducheny

Super Liens

Amended.

Assembly Third Reading

Support

Would allow an association to request that the mortgagee of a property provide the name and address of anyone who purchases that property at a foreclosure sale. The mortgagee or trustee must provide the information within 15 business days.

ECHO Journal | July 2008

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By Mary Filson, Esq.

Waiting for Godot?

Or Should Homeowner Associations Defer Updating Governing Documents to See What the Legislature is Going to Do About the Davis-Stirling Act? 6

July 2008 | ECHO Journal

W

aiting for Godot is a famous play by Samuel Beckett in which the characters wait for Godot, who never arrives. Homeowner association boards that are considering updating their governing documents may feel like they are living that scenario.

For years, there has been discussion about a major overhaul of the Davis-Stirling Act, and this session a major bill was introduced in the Assembly (AB 1921). This bill was passed by the

Assembly on May 27 by unanimous vote and sent to the Senate, where the author withdrew the bill for additional study with plans that it will be reintroduced in 2009 during the first year of the next two-year session. While many associations are proceeding with already-planned governing document update projects and many continue to seek proposals to undertake projects in their upcoming budget year, some boards are wondering whether governing document revisions

Scene from Waiting for Godot by Samuel Beckett performed at the Kathleen Mullady Memorial Theatre, Loyola University Chicago, September 2007. Scene and Lighting Design by Lee Keenan.

ECHO Journal | July 2008

7

should be deferred until we know what the Legislature is going to do about the DavisStirling Act. When Depends on Why The question seems to suggest that the reason for doing a governing document update project is solely to make old documents conform to changes that have been made in the Davis-Stirling Act over the years or, in the case of developments created before 1986, the enactment of Davis-Stirling itself. Actually, changes in the law are a reason but they are not the only reason or even necessarily the most important reason. The expression “updating our governing documents� really functions as a shorthand way to refer to a host of reasons why boards decide to undertake governing document rewrites.

In addition, when an association undertakes a document update project depends on why they are doing it.

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Changes in the law are a reason but they are not the only reason or even the most important reason to amend governing documents.

Why Governing Documents Need to Be Rewritten Apart from changes in the law, many existing governing documents suffer from deficiencies in the way the information is organized and presented and in the concepts and content that are presented. Having done complete rewrites and other amendments for hundreds of associations, and having reviewed in detail hundreds if not thousands of other sets of documents over the years, I do not believe that most problems with most governing documents are the result of the way the law is organized (or disorganized) or the fact that the law has changed. Instead, I believe that partially these deficiencies are an inherent result of the way real estate development is regulated and partially they are a result of a lack of understanding or respect for the important impact governing documents have on the ongoing successful operation of homeowner associations.

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July 2008 | ECHO Journal

Original developer documents are written to satisfy the requirements of the Department of Real Estate in connection with that agency’s regulation of real estate sales. The Department of Real Estate does not regulate homeowner associations as such and does not have expertise concerning their longterm operational challenges. Neither the DRE nor the developer has “walked the walk.” Consequently (and it should not be a surprise) original developer documents may not address issues that 10, 20 or 30 years down the line are important to associations.

In some cases, it also seems that developer documents written for a particular kind of project (e.g., a condominium with no private streets) are re-cycled for a different kind of project (e.g., a planned development with attached “townhouse” style of architecture and private streets); and necessary modifications are not made accurately or at the most logical places in the documents or may be overlooked. When that subsequent document is itself recycled for yet another project with other variations, more changes are grafted in and, again, not always effectively or in the most logical place.

I have also seen my share of original or previously rewritten documents that appear to have been written (or cut and pasted from other documents) by amateurs, as well as some that seem to be the work of attorneys not particularly knowledgeable in the operational needs of homeowner associations or not gifted in the art of drafting complex documents. You would not go to a tree surgeon or brain surgeon for your hip replacement surgery. Similarly, a member who is an estate planning lawyer or the litigator who did such a great job on your construction defect case is not necessarily the best choice to rewrite your governing documents and having that litigator’s first year associate take a whack at it... well, even less so.

Whatever the historic source of the particular deficiency may be, the point is that many of the problems with the form and content of governing documents that need to be rewritten are not caused by, and are not the result of, changes in the law.

“Non-Law” Problems with Form and Content Some common problems with organization and presentation that make governing documents a candidate for a rewrite are listed below: Continued on page 11

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July 2008 | ECHO Journal

Waiting for Godot?

Continued from page 9

• A lack of logical organization (This can result in fragmented documents in which provisions concerning a particular topic are scattered throughout, in Section 4.10, Section 5.12(a), Section 8.6(d)(ii), and Section 11.2 of the CC&Rs and Section 3.9 of the Bylaws.)

• Unpredictable division of a particular topic between documents [Some of the pertinent provisions concerning, for instance, election of directors are (properly) placed in the bylaws but the nomination procedures for no apparent reason are in the CC&Rs.] • Partial or complete redundancy between the documents [Lengthy provisions that logically should be in the bylaws (e.g., board meetings) are repeated in full in the CC&Rs. Or vice versa: e.g., assessment provisions that logically should be in the CC&Rs are repeated in the bylaws. This can lead to conflicts when one document is amended but the identical provision in the other document is overlooked.]

• Internal inconsistencies in the same document or between documents (My personal favorite was a set of documents where the CC&Rs contained two inconsistent provisions on a particular topic and the bylaws contained yet a third different provision; the topic was one that properly should have been addressed in the bylaws; and the “conflict” provisions in the documents said that in case of a conflict the CC&Rs controlled.)

• Impenetrable format [Lists without headings that go from item (a) to item (t) so you have to flip back 4 pages to find the beginning of the sentence and another 3 or 4 pages to find out you are in Article III, Section 4.]

Some typical problems with concepts and content follow: • Poor definitions (e.g., “Common Area means everything except the Units. Units mean everything except the Common Area.” I paraphrase, but only slightly.)

• Lack of provisions to deal with foreseeable problems (For instance non-resident owners who do not respond to issues concerning their tenants, or a complete lack of “damage and destruction” provisions.)

• Vague maintenance provisions (sometimes due to a combination of poor definitions and failure to address a foreseeable issue)

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or provisions that do not address maintenance responsibilities as they have evolved during the life of the development. (This can result in inconsistent handling of a maintenance issue by the association and resentment by some members.)

• Fundamental lack of understanding by the drafter concerning the nature of the community (For instance, condominium terminology mashed together with planned development concepts.)

The Cost of Non-Law Problems These kinds of non-law problems in the organization and the content of governing documents can result in the need for an association to spend thousands of dollars on legal opinions to sort out confusing and contradictory provisions in its documents (the resolution of which does not necessarily depend on provisions of the Davis-Stirling Act). Or, worse, they can give rise to lawsuits by members and to consternation in the community, which can range from the insidious (member mistrust of the board or manager) all the way to member outrage (resulting in recall elections and renegade unauthorized meetings) 12

July 2008 | ECHO Journal

and requiring costly intervention of legal counsel to calm the waters.

A typical life cycle for a governing document rewrite project can be one to two years.

Associations with documents that suffer from non-law deficiencies have a strong motivation to rewrite their documents, completely independent of the ebb and flow of the legislative cycle.

When Also Depends on Other Internal and External Factors When an association undertakes a document rewrite project also depends on its own internal considerations and on external factors. These factors can cut both ways.

Internally, if an association is involved in litigation or major reconstruction, it may not have the financial or manpower resources to take on a governing document project at the same time. On the other hand, if an association is funding a major reconstruction, the board may decide to also rewrite the documents at that time to clarify or modify maintenance obligations. Similarly, a brewing controversy over an impending major maintenance or enforcement issue or assessment may be the trigger for a particular association to decide to go forward with a rewrite project but might cause another association to postpone until emotions settle down.

Externally, the recent and continuing dislocation of the mortgage market has resulted in some associations’ postponing projects because of inability to collect assessments from lots or units that are in limbo pending foreclosure but has prompted others to go forward due to a desire to address enforcement and maintenance issues.

Another external factor can be pending legislation. The current bill, AB 1921, is an ambitious proposal but it is advertised as a reorganization that will continue the existing substance of the law. As with any legislation,

if AB 1921 eventually passes, attorneys who practice in the homeowner association field will study, interpret and apply it.

Attorneys who devote their practice to rewriting governing documents will develop appropriate changes to their template documents. Effective governing documents are organized based on the reality of how associations operate and not on how applicable statutes are organized. Just as the current law is not the reason existing poorly organized governing documents are that way, so a “reorganization” of Davis-Stirling will not cause attorneys’ existing document formats for rewrites to become obsolete.

A typical life cycle for a governing document rewrite project, from request for a proposal to completion of voting and recording of the amended CC&Rs, can be one to two years. This is about the same as the life cycle of a bill in the Assembly. With two relatively slow-moving objects, there is room to maneuver. Practitioners will develop procedures for keeping project documents that are in the pipeline up to date prior to taking the documents to a member vote. And they will advise their clients about modulating the schedule

of the project if developments in the Legislature warrant.

There can be benefits to an association’s having its project underway when legislation is enacted. If, contrary to its self-described objective, the enactment of AB 1921 should result in substantive changes, it is likely that there will be a surge in the demand for document rewrites. Those associations with projects in the pipeline at the time will benefit because the changes can be immediately incorporated in their documents.

Associations who sat on the sidelines could find themselves waiting in a long line for the finite resources of knowledgeable and experienced attorneys with expertise in rewriting governing documents, and all the while continuing to live with the “non-law” deficiencies in their existing documents.

other local agencies to raise revenues to provide for many community amenities and ensures that homeowner associations will continue to be with us in order to maintain unstable hillsides and pay for parks, streets, and other facilities.

Our cast is the constantly revolving stream of Assembly members and Senators. There is no guarantee that AB 1921 will be adopted this year, or next year, or at all. Probably some version of a major revision of DavisStirling will be enacted eventually. However, when it is and whenever it is, that will not stop continuing future changes from being made to the re-organized Davis-Stirling Act. That’s how the play ends. We will always be dealing with pending legislation. Godot does not arrive.

Conclusion So, SHOULD you defer updating your association’s governing documents to see what the Legislature is going to do about Davis-Stirling? Let’s go back to our play.

Our production of Waiting for Godot is set in Sacramento. The backdrop is Proposition 13, which makes it impossible for cities and

Mary Filson has been an attorney since 1986. She became a partner at Berding & Weil in 1995 and in 2004 changed to an of counsel position with the firm. Her practice now focuses almost exclusively on governing document amendment projects. As an undergraduate, she minored in theater and was involved in a production of Waiting for Godot, which makes her very philosophical about what goes on in Sacramento.

ECHO Journal | July 2008

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“W

hat a wonderful day,” thought George. He and his wife were finally getting out of the renting market and could call themselves homeowners. In just a few hours, they would be closing escrow on their new condominium that was only eight years old. Yes indeed, this was a great day.

Once again, he and his wife sat at the morning breakfast table and went over everything they were supposed to do, knowing that they had covered every little detail. But George was just that type of person; “everything right the first time,” he said to his wife, “and you don’t have to worry later.”

George and his wife drove to the title company office, met their realtor at 9:00 a.m. sharp, and promptly signed all the documents, making sure everything was explained to them in great detail. George even read all the documents that he had received from “Heavenly Management Company” and felt assured that he had everything under control—yes sir, no mistakes in this purchase.

Shortly after closing, both the escrow officer and their realtor told them they needed to be sure and purchase their own individual “Condominium Owners Insurance Policy” or HO-6, to cover their household belongings.

“Wait,” said George “why am I just finding out about this now?” “Not to worry,” said the realtor; “it’s only a small formality and they are very inexpensive.” “Just go to your insurance broker, and he will fix you right up.”

“But I thought the homeowner association had the master insurance to cover my condo,” said George. “Well, this is one item you need to clear up on your own because the association doesn’t cover your personal property—just the buildings in the association and the common area liability.”

George, being the ever-vigilante person that he was, left the title and escrow company and grabbed his wife’s hand and told her 14

July 2008 | ECHO Journal

By Monty Hollingsworth

The History of an HO-6 Policy Georgeâ&#x20AC;&#x2122;s Great Adventure

ECHO Journal | July 2008

15

that they were going immediately to their insurance guy and get that HO-6 insurance policy their experts said they need and that no one had told them about this until now.

George and his wife drove to his insurance broker that he had used since he bought his first car 11 years ago and asked him about the “HO-6” policy he was instructed to buy.

His broker said “Sure George, I can fix you right up with that; how much is your furniture worth?” George and his wife took a quick mental inventory and told him about $25,000. “OK” said the broker; he then quickly explained that if his condo caught on fire, his “stuff’ would be covered, and he would also get $100,000 in personal liability coverage included in his policy in the event he did something that got him sued. So George and his wife went merrily on their way, thinking they had done everything they could as new homeowners to protect themselves.

Many insurance agents aren’t aware of the proper procedure to protect that new condominium owner.

The short little story above is too often the outcome when a purchase is made in a condo or townhouse association. But in fact, the process should be much more involved, and the association needs to assist the new homeowner in acquiring the proper insurance for his unit, based on the CC&R requirements, or how the association is insured.

Many insurance agents aren’t aware of the proper procedure to protect that new condominium owner and wind up issuing the standard “vanilla” HO-6 policy, when in fact the new homeowner needs a much more indepth investigation by the insurance broker to determine his clients’ needs for their particular association.

My motivation for writing this article is directly related to my recent involvement as a consultant for an eight-unit fire loss in a 154unit condominium association. When talking to each individual unit owner, I discovered that only four of the eight had an HO-6 16

July 2008 | ECHO Journal

policy and that none of those four policies had adequate building coverage to replace the interiors of their units. The other four believed they were covered by the associations master policy. The very sad part of that particular claim was that one of the burnedout unit owners was an elderly person who was not able to acquire the funds to rebuild the interior and had to abandon her property. The unfortunate part of this story is the association could have purchased an interior coverage endorsement for $943.00 a year or $6.29 a year for each unit.

How does an association help its homeowners acquire the right insurance and, and for that matter, why should it even bother?

After all, owners received a copy of the association CC&Rs and should have figured out themselves what insurance they want to buy.

Let’s go back not too many years ago and think about the purchase of the association master policy. A call would have been placed by the association manager to a (hopefully) good agent, or one of the board members would have a recommendation or one of many other possibilities. That broker or agent would have acquired a copy of the existing insurance and a copy of the CC&Rs and tried to figure out a policy that was cheaper than the existing policy, probably by manipulating some of the coverages to make them fit his agenda. Everyone has a $1000 dollar deductible and the new policy, in the vast majority of the cases, covered all the buildings and their interiors.

The insurance companies soon found out it was costing more to replace the interiors of the units than it was to rebuild or replace the buildings. So in their wisdom, and a stroke of the pen, the coverages were soon adapted by the major carriers “to follow the legal documents,” and we all know how concise and unambiguous the legal documents are.

Depending on how your CC&Rs were originally drawn now had a major bearing on how the association was insured and if the interior was covered. Did rebuilding the interior now become the responsibility of the homeowner merely by default? This often happened on renewal, and many association boards and managers, much less the individual homeowners, were not even aware of the new circumstances.

Thus, what should an association or board of directors do to assist a homeowner in acquiring the right coverage? Probably the most important thing an association board of directors can do is to review its association

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master policy with their broker and determine exactly how the interior is covered, if at all. If the board finds there is no coverage is in place for the interior of the units, commonly known as a “studs out” policy, the board may decide not to put the interior coverage in place or their existing insurer simply may not write that coverage or cannot endorse their policy for the coverage. In that case, a contractor needs to be called (preferably one associated with ECHO) to determine what costs would be, on the average, to replace the interiors of the units from the unfinished interior walls inward.

Boards of directors need to keep in mind that the equity of one unit affects all the units.

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Once this amount has been established, each homeowner needs to be informed of that amount and advised that they are responsible for the interior of their unit. Also each new purchaser should be given, as part of the initial disclosures, instructions that they are responsible for the interior of their unit and the average amount of insurance needed to protect their interest.

The obvious problem with each homeowner’s purchasing his or her own individual coverage for the interior of his or her unit is the lack of continuity of coverage from unit to unit. This brings up the question of the association’s retaining an equitable position for all homeowners. Not only will you have a variance in coverage, but also a variance in the insurance companies and the different method of payments, as well as endorsements that each company will bring to the table when it is time to repair a loss.

How would this affect the association? Two units owners sharing a common wall will be approached differently by their respective companies when a loss occurs affecting both units. Each company will bring its own set of priorities when approaching its homeowner’s interior repairs or replacement.

Boards of directors need to keep in mind that the equity of one unit affects all the units. The reason for this is simple. The sales price of one unit will affect the sales price of future units because the earlier sold unit will be considered a comparable to all the other units sold in the future.

A Solution to the Interior Coverage Dilemma All association boards of directors should contact their insurance brokers or agents and set a meeting date so they can be fully informed about all of the master policy coverages, paying particular attention to how the policy addresses the interior coverage. Once the determination is made whether the interior of each unit is or is not covered, the board must reach a determination about how they want to address the issue. Each board should also reexamine the CC&Rs concerning the responsibility of the association and that of the unit owner.

The easiest solution to the problem would be simply to have your associationâ&#x20AC;&#x2122;s policy endorsed to assure each unit is covered to its replacement value. This would maintain the continuity of the equitable position of the entire association. If you find that your current insurance carrier cannot assist you in doing this or just simply does not endorse their policies to include this coverage, it might benefit the association to entertain the possibilities of another company.

Purely economically speaking, if the average replacement cost of an interior of the average condominium is in the $50,000 to $75,000 range, the cost of the building coverage for each homeowner would be somewhere in the range of $200 to $500 a year.

Depending on the number of units in the association, the endorsement to cover the interior of each unit for the entire association could be as low as $10.00 per year per unit. So, we are talking of pure cost to each homeowner of about 5 percent to 20 percent of what they would have to pay if they purchased their interior unit coverage personally.

In the 154-unit loss mentioned earlier, the cost savings to the membership would have been a minimum of approximately $29,000 dollars. What association wouldnâ&#x20AC;&#x2122;t consider this coverage?

Monty Hollingsworth is a retired Farmers Insurance broker who now provides consultation services to associations and managers on association insurance matters.

ECHO Journal | July 2008

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By Douglas B. Christison, CCAM, PCAM

A Comparative Traditional Management Practices T

his article draws on the experiences of leading practitioners in community associations as well as the experiences of leaders in other professions. I will draw from Community Associations Institute, the Executive Council of Home Owners, the California Association of Community Managers and the materials produced by John Carver in the management discipline of “Policy Governance®.”

The Community Associations Institute reissued “Guide to Association Practitioners #1—Community Association Management, Governance and Services” in the fall of 2002; this publication recaps the management practices of this industry. However, with the assistance of other points of view, I shall compare the “traditional management practices” as defined by CAI to a model of management commonly referred to as “Policy Governance Model.”

Policy governance like the word “integrity” is not a loose concept. Policy governance and integrity contain the rule of congruency.

That is, the rules of Policy Governance are not in conflict or are the means/procedures that cause the implementation. Theory and practice are consistent. John Carver observes “…it is a complete technology.” It is not a set of unadaptable rules that don’t work with differing fact patterns. The discipline of “Policy Governance Model” is useful for non-profit 20

July 2008 | ECHO Journal

Analysis of Policy Governance Model

®

organizations, which do not benefit from the rigor of the market-place.

The following measurements are useful in comparing different management models.

Does a model provide the following results; (1) accountability (2) leadership; and, (3) productive relationships?

Background In the United States, community associations, or common interest communities, planned communities, cooperatives and condominiums—developed over the past 150 years. As with many other management concepts borrowed from Europe, associations evolved into something uniquely American.

In order of historical appearance, the three basic types are: • Planned Communities: These communities first appeared beginning in the 1820s.1 • Cooperatives: Arrived on the scene in the 1880s primarily in New York and some other cities, such as Chicago and Washington, D.C. 1 See J.C. Nichols and the creation of the Country Club district in Kansas City. Community associations came into their own [a decade after the Urban Land Institute published The Homes Association Handbook, Technical Bulletin No. 50] in 1964.

Continued on page 23 ECHO Journal | July 2008

21

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Management Practices Continued from page 21

• Condominiums: Arrived on the scene as result of the National Housing Act of 1961, which extended mortgage insurance to projects developed as condominiums.

Most of these ownership variants were developed to meet residential needs.

However, recently we find that the residential and commercial interests are being incorporated successfully into to a single entity and facility. In many instances we have professional buildings being originally constructed as condominiums and business parks built as planned communities. In either case, they have the common challenge of how to run the business affairs of their organization.

test without experience or objective criteria.

Beauty is in the eye of the beholder. This approach is like most of the organically grown models discussed herein. Organically grown models differ widely but are all referred to as the traditional model.

One experienced and wise community association manager2 observed that a distinguishing characteristic of community association management is that we are all in the

same business but all doing the business in a different way. That admission captures the fact that the discipline or management model really doesn’t exist. Rather, the models that are out there are the products or bequeathals of some group that served as the leaders of the community at one time or another.

However, I will rely upon the work of Caroline Oliver and Susan Morgensen from their articles in Board Leadership—Edition 64,

2 James McCarthy.

Continued on page 25

In the United States, community associations or common interest communities developed over the past 150 years.

Some effort needs to be made now to distinguish what is meant by the term “management model.” The “management model” for the sake of this paper is to include not the activities and processes used by the various players/stakeholders but rather includes an emphasis on “the purpose of the organization; the structure; and the roles of the various stakeholders.” Understanding the purpose of the association is central to understanding the various models and hence to evaluating the effectiveness or defectiveness of these models.

The industry has produced information on selecting managers or management companies but not about the management model. One of the least useful productions published was “How Good is Your Management Company?—A Board Member’s Perspective.” This article’s approach listed activities and focused on procedures rather than results. What you receive from this approach is the individual director’s personal experiences. It is like judging a beauty con-

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23

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Management Practices Continued from page 23

408-295-7767

Nov.–Dec. 2002, a publication edited and published by John Carver.

Some of the management models that Oliver and Morgensen reviewed are as follows: • “Traditional Model” • Complementary Model • Peter Drucker’s Governance Model

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For brevity I will not compare each of these approaches. Rather I will focus on the Policy Governance Model against the following criteria: Does a model provide the following results: 1. Accountability, 2. Leadership, 3. Productive relationships, 4. Measurement results?

Traditional Model: As cited above, the traditional model is anything that you are presently doing or you think you are doing.

Continued on page 26

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25

Management Practices Continued from page 25

Governing documents (Bylaws and Declaration of Covenants, Conditions and Restrictions) emphasize an approach that defeats the legal requirements of a fiduciary. Most governing documents combine functions of the officers with the persons on the board.

This defeats the principles of “separation of powers” and “checks and balances.” The average person is left with the opinion that they are indemnified and held harmless and entitled to make decisions without support or reference. The fundamentals of fiduciary/trustee are not emphasized.3 The prevalent models combine executive roles of President/CEO, Treasurer/CFO, and Secretary (the executive titles) with the title Director.

Additionally, the typical governing documents refer to committees such as the Architectural Committee and the Nominations and Elections Committee.

Nearly always, the governing documents imply that these committees are given powers to establish policy and implement the policies. Committees adopt policies in the name of the association without effective oversight by boards and/or the membership.4 While limited delegation is appropriate, the implementation of the policies is a serious problem. Committees given the range of authority to define their purpose, to adopt policies and to direct actions run afoul of the role of the board. The role of the board is to protect the interests of the association and its members. Also, it runs afoul of holding the management accountable.

Rarely do committees write policy.

Remember, a policy describes desired results.

What happens in place of written policy statements is a set of procedures or maybe some

3 Cal. Corp. Code 7231 Performance of Duties; Degree of Care; Reliance on Reports, Etc.; Good Faith; Exemption from Liability

(1)One or more officers or employees of the corporation who the director believes to be reliable and competent in the matters presented;

(a) A director shall perform the duties of a director, including duties as a member of any committee of the board upon which the directory may serve, in good faith, in manner such director believes to be in the best interests of the corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.

(2)Counsel, independent accountants or other persons as to matters which the director believes to be within such person’s professional or expert competence; or

(b) In performing the duties of a director, a director shall be entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by:

26

July 2008 | ECHO Journal

(3)A committee of the board upon which the director does not serve, [emphasis added] as to matters within its designated authority, which committee the director believes to merit confidence, so long as, in any such case, the director acts in good faith, after reasonable inquiry when the need therefore is indicated by circumstances and without knowledge that would cause such reliance to be unwarranted.

forms. Committees and boards skip the policy, go directly to the executive activities, and stop there.

Traditional management models most times evolve into a system of committees or individuals acting autonomously in the creation of policy, procedures and executive action to implement it. These committees range from the Landscape Maintenance Committee, Budgets and Assessments Committees, Audit Committees, etc. These committees act as autonomous bodies.

Another variant of the Traditional Models is when a board allows the individual directors authority to act. In this approach the title “Director” is taken literally. The “directors” assume autonomous authority to give directions. Sometimes the directions are to management, but sometimes it is to others whom the association holds accountable, such as the association’s attorney, auditor, landscaper and management. The president becomes the chief executive officer, a title

(c)A person who performs the duties of a director in accordance with subdivisions (a) and (b) shall have no liability based upon any alleged failure to discharge the person’s obligations as a director, including, without limiting the generality of the foregoing, and actions or omissions which exceed or defeat a public or charitable purpose to which assets held by a corporation are dedicated.

4 In most cases policies that are considered by the Architectural Committee do come under the jurisdiction of Civil Code 1357.100-1357.150. These laws require notice to the membership before being adopted. Other policies adopted by committees as well as the board may require oversight as provided by these laws.

that is reserved for the person responsible to the board for the overall day-to-day operations of the association. When the president of the board takes this title and duty, he or she assumes a job that they would be hard pressed to fulfill. And if they did, they would be seriously pressed to be an objective reviewer of their own job.

Other directors assume the role of chairperson of the grounds committee or the like.

All issues that come to the association are to be referred to Mr. Chairperson.

You get the picture. However, the question is what does the “professional manager or management company” do? In the models above, it seems that all executive authority is retained by the board and it is the board that makes all of the operational decisions. But anyone who has observed boards knows that it would be impossible for a board to act as a body and make all the day-to-day decisions that need be made. The fact is that if boards were acting as a body, as they should, they would be meeting constantly. You could suppose, using the traditional model, the manager is there to take directions and follow procedures devised by the board or from the individual “directors. If that is the case, the title “manager” is a misnomer. The title should be clerk or gofer.

Assessment of the Traditional Model Question 1: Does this model provide accountability? No. Why? Because the combining of executive authority; i.e., the doing or causing something to be done, with the duty of oversight proves to challenge human nature. The Corporation Code describes in Section 7231 “Fiduciary Standards” that directors are not the source of expertise nor are they the managers of the policies. Boards cannot hold themselves accountable for resultant outcomes of decisions that they make or don’t make. Boards are held accountable by the membership for results.

Good boards go on record to tell the membership what they intend to accomplish. This then allows the board as well as the membership to measure performance.

Question 2: Does this model provide leadership? It is hard to tell. If leadership is simply going somewhere, a traditional model may meet that expectation. However, if leadership is getting to a place that was intended and resulted in some defined good consistent with the purposes of the organization at a pre-established cost, then the traditional

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2008 2:35:17 27 ECHO Journal | July 4/23/08 PM

Calendar of Events

Make a note of these ECHO Events Tuesday, July 8 Central Coast Resource Panel 12:00 Noon Pasatiempo Inn, Santa Cruz Wednesday, July 9 South Bay Resource Panel 12:00 Noon Il Fornaio 302 Market St., San Jose Monday, July 14 Accountants Resource Panel 6:00 p.m.

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

Eugene Burger Mgmt. Co. 6600 Hunter Dr., Rohnert Park Thursday, July 17 San Francisco Luncheon 11:45 a.m. to 2:00 p.m.

St. Francis Yacht Club San Francisco Friday, August 1 East Bay Resource Panel 9:30 a.m.

Angius & Terry 1900 N. California Blvd., Suite 950, Walnut Creek

Wednesday, August 6 Maintenance Resource Panel 12:00 Noon ECHO Office 1602 The Alameda, Suite 101, San Jose Wednesday, August 20 Wine Country Resource Panel 11:45 a.m.

Eugene Burger Mgmt. Co. 6600 Hunter Dr., Rohnert Park Thursday, September 4 North Bay Resource Panel 9:30 a.m.

Contempo Marin Clubhouse 400 Yosemite Rd., San Rafael Friday, September 5 East Bay Resource Panel 9:30 a.m.

Angius & Terry 1900 N. California Blvd., Suite 950, Walnut Creek Monday, September 8 Accountants Resource Panel 6:00 p.m.

Francesco’s Restaurant, Oakland

the r o f e t a d is Keep th Seminar l a u n n A O ECH 2009 , 3 1 – 2 1 e n u J

Tuesday, September 9 Central Coast Resource Panel 12:00 Noon Pasatiempo Inn, Santa Cruz Wednesday, September 10 South Bay Resource Panel 12:00 Noon Il Fornaio 302 Market St., San Jose

Saturday, October 25 Special ECHO Fall Seminar 8:00 a.m. to 4:00 p.m.

San Ramon Marriott Hotel, San Ramon

Wednesday, September 17 Wine Country Resource Panel 11:45 a.m.

Eugene Burger Mgmt. Co. 6600 Hunter Dr., Rohnert Park Thursday, September 18 San Francisco Luncheon 11:45 a.m. to 2:00 p.m.

St. Francis Yacht Club San Francisco Saturday, September 20 Central Coast Fall Seminar 8:00 a.m. to 1:00 p.m.

Best Western Seacliff Inn, Aptos

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

July 2008 | 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 Eugene Burger Management Co., Rohnert Park Varies

Directory

UPDATES Updates for listings in the 2008 ECHO Directory of Businesses and Professionals.

New Associate Members Casualty One Insurance Services 4320 Stevens Creek Blvd., #126 San Jose, CA 95129 Contact: Lance Bruce Tel: 408-244-0553 Fax: 408-244-0559 www.casualtyone.com Email: lanceb@casualtyone.com

Casualty One Insurance provides insurance packages tailored to homeowner associations, including building coverage, general liability, directors/officers E&O, workers comp and more.

Coast Landscape Management 103 Camino Oruga Napa, CA 94558 Contact: Kelly Solomon Tel: 707-251-8872 Email: kelly@coastlm.com Comcast 1485 Bayshore Blvd., # 168 San Francisco, CA 94124 Contact: Randy J. Johnson Tel: 415-715-0604 Fax: 415-715-0518 www.comcast.com Email: randy_johnson3@cable.comcast.com

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Continued on page 32 ECHO Journal | July 2008

29

News from ECHO

Few California Homeowners Buy Earthquake Insurance Less than 12 percent of California homeowners own earthquake insurance policies, and even fewer small business owners have purchased quake coverage, leaving millions of Californians financially unprotected in the event of a catastrophic earthquake.

Scientists have reported that a 7.8-magnitude quake scenario along the San Andreas Fault is likely. The quake is projected to level communities, water networks and freeway systems, as well as killing and injuring thousands of Southern Californians.

The report is the scientific framework for “The Great Southern California Shakeout,” a massive earthquake preparedness drill scheduled for November 13.

The hypothetical quake is projected to cause more than $200 billion damage. The most recent major California earthquakes, the 1994 Northridge and the 1989 Loma Prieta temblors, caused $20 billion and $12 billion in insured losses respectively, adjusted for 2007 dollars.

Polling commissioned by the Insurance Information Network of California (IINC) has consis30

July 2008 | ECHO Journal

tently found that far more Californians believe they have earthquake insurance than have actually purchased it. This may indicate confusion over homeowner insurance coverage, said IINC Executive Director Candysse Miller.

“Earthquake damage is not covered under a standard homeowner insurance policy and must be purchased separately,” Miller said. “With a catastrophic earthquake a near certainty in the next few decades, far too few homeowners have a financial recovery plan in place. The result could be billions of dollars in uninsured damage to homes and small businesses.”

A 2006 IINC poll found that less than half of Californians consider themselves prepared for an earthquake. Earthquakes have occurred in 39 states and been felt in all 50 states. About 5,000 quakes occur across the United States each year.

IINC is non-profit insurance communications association dedicated to helping the public understand insurance and risk management issues. For more information on this and other related subjects, visit www.iinc.org.

Roofing Materials Prices Increasing As we see the price of gasoline continue to rise because of the crude oil price increases, we also see rapid and dramatic increases in the costs for asphalt roofing products, because asphalt is one of many products produced from crude oil. Most roofing products have some asphalt-based product relating to the waterproofing component for the roofing material. In asphalt composition shingle construction both the shingles and the felt underlayment are constructed with asphalt as the key waterproofing component. For both wood shake and tile roofs, the secondary waterproofing layer, the underlayment, is commonly asphalt felt paper. Built-up roofs, modifieds and self-adhered membranes are all asphalt-based products used on low slope (flat) roofs.

Although single ply thermoplastic roofs and metal roofs are not asphalt based, prices for these materials have increased because of the transportation costs.

So far in 2008 roofing manufacturers and distribution companies have announced material increases of between five and ten percent for each of April 1, June 1 and July 1. In addition, surcharges of $65.00 to $150.00 per load are being added to orders to cover the increase in transportation costs. Roofing contractor costs for fuel to transport the roof debris to dump sites and associated other transportation costs are increasing. Additionally, labor prices will increase as the cost of living increases as a result of the fuel prices. The ultimate increase the consumer can

expect this summer will be ten to fifteen percent and possibly more by the end of summer. In other words, if a composition reroof use to cost $3.50 per square foot, it will now cost about $4.00 per square foot.

Unfortunately, the price of roofing will continue to increase over the foreseeable future.

Changes are occurring so rapidly that most contractors will guarantee their quoted prices for only short periods of time, possibly just ten days or less. Therefore, it is important to stay in contact with your contractor or construction manager concerning price changes. If a decision to re-roof is delayed, there is a good chance you will receive a price increase from the one originally quoted.

Important Upcoming Events Thursday, July 17 San Francisco Luncheon 11:45 a.m.

Speaker: Tyler P. Berding, Esq. Topic: Predicting the Future of Community Associations St. Francis Yacht Club San Francisco

Ask the Maintenance Experts

By Brian Seifert

Roofing Materials Prices Increasing uestion: With gas prices increasing so fast, what increased costs should I expect for reroofing my complex? nswer: The answer to this month’s question is provided by Brian Seifert, who heads the Roofing Division at Draeger.

As we see the price of gasoline continue to rise as a result of the crude oil price increases, we also see rapid and dramatic increases in the costs for asphalt roofing products, because asphalt is one of many products produced from crude oil. Most roofing products have some asphalt-based product relating to the waterproofing component for the roofing material. In asphalt composition shingle construction both the shingles and the felt underlayment are constructed with asphalt as the key waterproofing component. For both wood shake and tile roofs, the secondary waterproofing layer, the underlayment, is commonly asphalt felt paper.

Built-up roofs, modifieds and self-adhered membranes are all asphalt-based products used on low slope (flat) roofs. Although single ply thermoplastic roofs and metal roofs are not asphalt based, prices for these materials have increased as a result of the transportation costs.

So far in 2008 roofing manufacturers and distribution companies have announced material increases of between five and ten percent for each of April 1, June 1 and July 1. In addition, surcharges of $65 to $150 per load are being added to orders to cover the increase in transportation costs. Our own costs for fuel to transport the roof debris to dump sites and associated other trans-

Q A

portation costs are increasing. Additionally, labor prices will increase as the cost of living increases as a result of the fuel prices. The ultimate increase the consumer can expect this summer will be ten to fifteen percent and possibly more by the end of summer. In other words, if a composition re-roof use to cost $3.50 per square foot, it will now cost about $4.00 per square foot.

There is currently no real way to avoid these price increases. However, discounts may be available for volume purchasing; in other words, if you can afford to roof your entire complex instead of phasing the project, some savings can be realized both in material and efficiency costs.

Unfortunately, the price of roofing will continue to increase over the foreseeable future.

Changes are occurring so rapidly that most contractors can only guarantee their quoted prices for short periods of time, possibly only ten days or less.

Therefore, it is important to stay in contact with your contractor or construction manager concerning price changes. If a decision to re-roof is delayed, there is a good chance you will receive a price increase from the one originally quoted. Be aware of this volatility in the market place, and use your experts to help you make the best decision.

This column addresses specific maintenance concerns that most associations face. Our panel of experts is here to help answer questions you might have.

We hope that you will find this page to be informative and— please—Ask The Maintenance Experts!

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

ECHO Journal | July 2008

31

Management Practices Continued from page 27

model has none of those measurement criteria. If the question is “Are the individual elements of the traditional model capable of defining a destination and all working for that end,” the answer is “no.”

The traditional model can be likened to a herd of cats. They wander around looking for something that interests them. Leadership defines a vision, sells the vision and works to keep others on that course. A simple

Question 4: Does Traditional Model produce Measurable Results? Traditional models are generally devoid of any attempt to translate into clear written statements of the following: 1. Purpose of Organization (the Vision Statement),

Leadership defines a vision, sells the vision and works to keep others on that course. term that helps explain a concept of leadership is that the organization speaks with “one voice or not at all.” This idea offends many lay directors who feel that it is their inalienable right to maintain a separate opinion after the board has made a determination. In fact, the more the board slices up the authority to individual directors and committees, the more we slice up the concept of concentration of resources, direction and leadership. The idea that the dissenting opinion is allowed to work to undermine the decision of the majority is not within the personal reserved rights.

Question 3: Does the Traditional Model produce “productive relationships”? I think that it produces relationships but, by all the press releases we hear, it is not producing positive results. It is not for the lack of good intentions but from the lack of skills. Sometimes it is directly as a result of people with a special agenda obtaining power to effectuate outcomes that they believe are better than someone else could provide. Again, an objective assessment isn’t possible as these people stifle review of themselves by themselves.

32

July 2008 | ECHO Journal

BusinessProfessional Directory

The traditional model, with all of its good intentions, results in thousands of needless disputes that never existed before. A number of members of our industry recognized years ago that the model that was embodied in the 1961 Act was broken. Yet, thousands of new communities are being formed every year with the traditional management model.

2. Who are the beneficiaries (for what people), 3. What is to be delivered (what is the good that we are trying to attain), 4. At what cost?

Traditional models lack the discipline of saying what you are about and measuring if you have gotten the desired results.

A system that demands we maintain the focus on “purpose” and “performance” must employ the rigor of a technology that assures that all of the stakeholders have a job and that each of those jobs is not duplicative but complimentary. Boards are here to translate into coherent written policy statements that describe to others what is to be attained.

Good management requires of the board that the board holds management accountable for the results. The results must set out in the written policy statements the expectations/results desired. The only means that the board has to empower anyone is to describe what an appropriate result is, or in the negative what other results are not acceptable. Then this empowers others to attain the desired goal. It also provides a means to measure the performance of management.

Good management practice is to focus not the means and procedures but rather the results. “Empower” those whom you are holding accountable. Allow them to employ any means that would not violate the law or other ethical standards.

Douglas Christison is the owner and CEO at Christison Company, an association management company founded in 1980. He was instrumental in the founding of ECHO and served as its first President and Executive Director.

Continued from page 29

New Associate Members Continued DRYCO Construction, Inc. 42745 Boscell Road Fremont, CA 94538 Contact: Ravali Ravulapati Tel: 510-438-6500 Fax: 510-438-6510 DRYCO Construction is becoming Bay Area’s number one choice for pavement maintenance. We do complete asphalt services.

Whether you need parking lot repair, striping, regular seal-coating, drainage repair or concrete work, DRYCO can handle all aspects of your paving job including project management.

Restoration Management Co. 535 Getty Ct Benicia, CA 94510 Contact: Patricia DeRouen Tel: 510-377-1855 Fax: 510-315-5497 www.restorationmanagement.com

Email: pderouen@restorationmanagement.com

Sherwin Williams 2125 Oak Grove Road, # 325 Walnut Creek, CA 94598 Contact: Jeffrey Ensey Tel: 925-256-8902, ext. 325 www.sherwin-williams.com Email: jeff.w.ensey@sherwin.com

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BusinessProfessional Directory

Looking different isn’t enough. Being different is.

With a team that brings over 60 years of experience specializing in HOA management, Compass has the resources and depth of understanding to address the issues facing your association.

Compass Management Group tackles our clients’ challenges head-on, always delivering creative solutions, clarity of vision and technologies that simplify management tasks and communication for everyone. Through our proven strategies, we’ve earned our clients’ trust and loyalty and solidified long-term working partnerships. Discover what being different really means.

Listing Changes GAF—Elk Roof Corp 1635 Brewster Ave. Redwood City, CA 94062 Contact: Jay Smith Tel. & Fax remain the same Ian H. Graham, Inc. P.O. Box 7022 North Hollywood, CA 91615 Tel. & Fax remains the same

COM PA S S MANAGEMENT GROUP

408.226.3300 | 650.563.9900 | 831.583.9900

See our demo at www.gocompass.com today!

Find the Answers to your Questions on Condo Ownership Detailed on-site inspections, inventories and asset descriptions • Spreadsheet report format now available on request 30-year threshold and components models • 16 years of reserve study experience • Call today for a free proposal

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

Order today from ECHO! Call 408-297-3246 Fax 408-297-3517 Email: info@echo-ca.org

2008 Edition Community Association Statute Book Contains the 2008 version of the DavisStirling 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.

ONLY

$

10 ECHO Journal | July 2008

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Books and DVDs from ECHO

Homeowners Association and You $13.00 2008 ECHO Business & Professional Directory $20.00 This directory lists all business and professional members of ECHO as of December 2007. 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 2008 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.

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 provides an insightful overview of community living from the viewpoint of experienced owners in readable language.

Recently revised and expanded.

The Board’s Dilemma 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.

Reserve Fund Essentials $18.00 This book is an easy to read, musthave guide for anyone who wants a clear, thorough explanation of reserve studies and their indispensable role in effective HOA planning.

The author gives tips to help board members mold their reserve study into a useful financial tool.

This edition contains the 2008 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.

$10.00

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

The Condo Owner’s Answer Book

Community Association Statute Book—2008 Edition $10.00

California Building 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 $15.00

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

$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 This publication has been completely revised to reflect new requirements resulting from passage of SB 137.

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

Bookstore Order Form

Board Memberâ&#x20AC;&#x2122;s Guide for Contractor Interviews $20.00 This report is a guide for directors and managers to use for interviews with prospective service contractors.

Questions to find out capabilities and willingness of contractors to provide the services being sought are included for most of the contractor skills that associations use.

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

QUANTITY

SUBTOTAL CALIFORNIA SALES TAX (Add 8.25%) TOTAL AMOUNT

Board Memberâ&#x20AC;&#x2122;s Guide for Management Interviews $20.00 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

Editor’s Note: The following article was prepared by the Insurance Information Institute (III), a nonprofit communications organization supported by the property/ casualty insurance industry. While written with single family residences in mind, the article also offers considerations that boards of common interest developments should consider in selecting the coverage they secure for association buildings and that homeowners should consider in buying HO-6 coverage for their unit interiors and personal belongings.

From the Insurance Information Institute

The Value of Homeowners Insurance Braving Wind, Weather and Water

F

or many people, their home is their greatest asset. Yet studies show that 59 percent of today’s homes are underinsured by an average of 22 percent. To protect their investment this hurricane season, homeowners should update their insurance regularly to include improvements, major purchases and increased rebuilding costs, according to the Insurance Information Institute.

“Hurricane Katrina was a painful reminder to homeowners that they should contact their insurance agent or company representative at least once a year to make sure that their insurance is up to date,” said Jeanne Salvatore, senior vice president and consumer spokesperson for the III. “A major home alteration or addition, even a lifestyle change such as marriage, or a family member moving in (along with his or her belongings), should trigger a call to your insurance company.”

The cost of building or repairing a home has increased dramatically in recent years.

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July 2008 | ECHO Journal

According to the U.S. Census Bureau, homeowners spent over $218 billion on additions, alterations, maintenance and repairs in 2005, up from $201 billion in 2004. Materials like lumber, cement, gypsum and structural steel products have become more scarce, not only because of the devastation from recent storms and disasters, but also because of increased global demand. For example, the cost of lumber climbed 6.1 percent in 2005, according to statistics from the U.S. Department of Labor.

To insure their homes properly, owners should ask their insurance agent or company representative three key questions: 1. Do I have enough insurance to rebuild my home?

Your policy needs to cover the cost of rebuilding your home at current construction costs. Unfortunately, some homeowners simply purchase enough insurance protection to satisfy their mortgage lender. Others confuse the real estate value of their home

with what it would cost to rebuild it. Quite simply, you should have enough insurance to rebuild your home in the event that it is completely destroyed. Be sure to consider the following: • Replacement Cost—Most policies cover replacement cost for damage to the structure. A replacement cost policy pays for the repair or replacement of damaged property with materials of similar kind and quality.

• Extended Replacement Cost—This type of policy provides additional insurance coverage of 20 percent or more over the limits in your policy, which can be critical if there is a widespread disaster that pushes up the cost of building materials and labor.

• Inflation Guard—This coverage automatically adjusts the rebuilding costs of your home to reflect changes in construction Continued on page 39

ECHO Journal | July 2008

37

Honor Roll

About

ECHO Honors Volunteers 2008 Volunteer of the Year Mike Muilenburg ECHO Resource Panels Accountant Panel William Erlanger, CPA, 415-981-9350 Central Coast Panel Jim Harmon, 831-425-3622 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 Geri Kennedy, CCAM, 650-348-2691 ext. 1006 Kimberly Payne, 408-200-8470 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.

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July 2008 | ECHO Journal

2008 Annual Seminar Speakers Jeffrey Barnett, Esq. Sandra Bonato, Esq. Lori Burger, PCAM, CCAM Doug Christison, CCAM, PCAM Rolf Crocker, CCAM Jeffrey Draeger James Ernst, CPA Lisa Esposito, CCAM John Garvic, Esq. John Gill, Esq. Sandra Gottlieb, Esq. Walt Grady, CPA Beth Grimm, Esq. Robert Hall, Esq. Linnea Juarez, PCAM, CCAM Geri Kennedy, CCAM David Kuivanen, AIA Karl Lofthouse Kerry Mazzoni Ann Rankin, Esq. Rob Rosenberg, CCAM Kurtis Shenefield, PCAM, CCAM Dennis Socher Paul Terry, Esq. Wanden Treanor, Esq. Stephen Weil, Esq. Glenn Youngling, 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. Debra Warren Steven Weil, Esq. Mark Wleklinski, Esq. Glenn Youngling, Esq.

Recent ECHO Journal Contributing Authors March 2008 Jeffrey A. Barnett, Esq. Tyler P. Berding, Esq. Carole Murphy, PCAM Dick Tippett April 2008 Frank Arms Michael Biel Tom Fier, Esq. Walt Grady, CPA Michael Hardy, Esq. May 2008 Meghan Connolly Haupt Beth A. Grimm, Esq Garth Leone Lise K. Ström, Esq. June 2008 Tyler P. Berding, Esq. Tina Wang, Esq. David West Mary L. Wulf

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.

Homeowners Insurance Continued from page 36

costs. Find out if your policy includes this coverage or if you have to purchase it separately.

• Ordinance or Law coverage—If your home is badly damaged, you may be required to rebuild it to meet new (and often stricter) building codes. Ordinance or law coverage pays a specific amount toward these costs.

• Water Back-Up—This coverage insures your property for damage from sewer or drain back up. Most insurers offer it as an add-on to a standard policy.

• Flood Insurance—Standard home insurance policies provide coverage for disasters such as fire, lightning and hurricanes.

They do not include coverage for flood (including flooding from a hurricane).

Flood insurance is available through the federal government’s National Flood Insurance Program (www.floodsmart.gov), but it can be purchased from the same agent or company representative who provides you with your home or renters insurance. Make sure to purchase flood insurance for the structure of your house, as well as for the contents. Excess Flood Protection, which provides higher limits of coverage than the NFIP in the event of catastrophic loss by flooding, is available from some insurers. Keep in mind that there is a 30-day waiting period before the insurance is valid.

2. Do I have enough insurance to replace all of my possessions?

Most homeowners insurance policies provide coverage for your personal possessions for approximately 50 percent to 70 percent of the amount of insurance you have on the structure of your home. Therefore, if you have $100,000 worth of coverage on the structure of your home, you would be covered for $50,000 to $70,000 worth of the contents of your home, depending on the policy.

The best way to determine if this is enough coverage is to conduct a home inventory that details everything you own and the estimated cost to replace these items if they were stolen or destroyed by a disaster. You can download the III’s free home inventory software at www.knowyourstuff.org.

You can insure your possessions in two ways: by their actual cash value or their Continued on page 40 ECHO Journal | July 2008

39

Homeowners Insurance Continued from page 39

replacement cost. Make sure you review with your agent or company representative which type of coverage is best for your particular situation.

• Cash Value Policy—This coverage pays the cost to replace your belongings minus depreciation.

• Replacement Cost Policy—This coverage reimburses you for the full current cost of replacing your belongings.

To illustrate the difference between the two types of policies, suppose, for example, a fire destroys a 10-year-old television set in your living room. If you have a replacement cost policy for the contents of your home, the insurance company will pay to replace the TV with a comparable new one. If you have an actual cash value policy, it will pay only a small percentage of the cost of a new TV set because the old TV has been used for 10 years and is worth a lot less than its original cost. Some replacement cost policies specify that the new item be purchased by the insurance company as they may be able to purchase at a bulk or special rate. The price of replacement cost coverage is about 10 percent more than that of actual cash value.

3. Do I have enough insurance to protect my assets?

Homeowners insurance doesn’t just protect the structure or contents of your home, it also provides liability protection. This covers you against lawsuits for bodily injury or property damage that you or your family members may cause to other people. It also pays for damage caused by pets. Liability insurance pays for both the cost of defending you in court and for any damages a court rules you must pay—up to the limits of your policy. Most homeowners insurance policies provide a minimum of $100,000 worth of liability insurance, but higher amounts are available.

It is important to purchase enough liability insurance to protect your assets. If the standard liability coverage in your homeowners policy is not sufficient, you may need an excess liability, or umbrella, policy, which provides additional coverage over and above what is covered in your home (and auto) insurance policy.

More information about all kinds of insurance is available at the III website, www.iii.org.

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July 2008 | ECHO Journal

ECHO Marketplace

Advertiser Index

The place to find business and professionals for your association Affirmative Management . . . . . . . . . .25 Alpha Restoration and Waterproofing .8 American Management Services . . . . .9 Angius & Terry . . . . . . . . . . . . . . . . . . .3 Applied Reserve Analysis . . . . . . . . . .33 AquaTek Plumbing . . . . . . . . . . . . . .25 A.S.A.P. Collection Services . . . . . . . .16 Association Reserves . . . . . . . . . . . . .41 Bayridge Group . . . . . . . . . . . . . . . . .18 Berding & Weil . . . . . . . . . . . . . . . . . .44 Burdick Painting . . . . . . . . . . . . . . . . .37 Cal Bay Builders . . . . . . . . . . . . . . . . .19 Community Association Banc . . . . . . .29 Community Management Services . . .29

Your Ad Seen Here You read this, didn’t you? Thousands of officers and directors of homeowner association boards also read the ads each month in the ECHO Marketplace.

Compass Management . . . . . . . . . . .33 Cool Pool Service . . . . . . . . . . . . . . . .29 Cornerstone Community Mgmnt . . . . .8 Corum Painting . . . . . . . . . . . . . . . . . .2 County Bank . . . . . . . . . . . . . . . . . . .22 Draeger . . . . . . . . . . . . . . . . . . . . . . .11 Ekim Painting . . . . . . . . . . . . . . . . . . .26 First Bank Association Bank Services . .40 Flores Painting . . . . . . . . . . . . . . . . . .27 Helsing Group . . . . . . . . . . . . . . . . . .18 Hill & Company. . . . . . . . . . . . . . . . . .19 Jeff Atkinson Construction . . . . . . . . .39 M&C Association Services . . . . . . . . .27 M. L. Nielsen Construction . . . . . . . . .40 Massingham and Associates . . . . . . .12 Pelican Management Group . . . . . . .41 PML Management Corp. . . . . . . . . . .11 Pollard Unlimited . . . . . . . . . . . . . . . .17 Pratt & Associates . . . . . . . . . . . . . . .18 R. E. Broocker Co. . . . . . . . . . . . . . . .17 Rebello’s Towing Service . . . . . . . . . .13 REMI Company . . . . . . . . . . . . . . . . .39 Saarman Construction . . . . . . . . . . . .16 Statcomm . . . . . . . . . . . . . . . . . . . . .17 Steve Tingley Painting . . . . . . . . . . . .37 Steve’s Painting Services . . . . . . . . . . . .9 Wells Fargo . . . . . . . . . . . . . . . . . . . .23

ECHO Journal | July 2008

41

Mastering the Board Game Defining Board Roles, Relationships and Leadership Do you want to become a better board member or association manager? You can in only one day at the Special ECHO Fall Seminar on October 25, 2008 at the San Ramon Marriott Hotel.

Managing the Board Game is an intensive seminar where you learn the importance of relationships and how to build them effectively by identifying owners’ needs and defining board and staff roles.

The seminar also helps you to become an effective leader by giving you the skills to: • Differentiate board from executive leadership • Determine direction with a long-range perspective—delegate effectively • Create effective policies • Monitor policy implementation—exercise group authority • Define success in terms of outcomes, not activities Make effective plans that find success when you learn at the seminar to: • Create a vision • Launch your work • Plan your path for success • Fulfill all legal and fiduciary duties

What to Expect After attending this seminar, you will leave with a clear understanding of the distinctions between governance and management, and how boards can achieve more by empowering staff, but with systemic accountability. You will also learn: • Ten state-of-the-art Policy Governance® principles • Why boards should, and how they can, focus on purpose rather than process • The fiduciary and legal duties of directors • How to have control operations without “micromanaging” • How to delegate clearly to staff, committees and officers and hold them accountable • A new way to make board officer and committee structures more effective • Four categories of governing policies necessary for accountability and role clarity • Key policy topics with examples of policy development Special ECHO Fall Seminar October 25, 2008, 8:00 a.m.–4:00 p.m.

San Ramon Marriott Hotel

Central Coast Fall Seminar Make Plans Now to Attend Central Coast Fall Seminar Saturday, September 20 8:00 a.m. to 1:00 p.m.

Best Western Seacliff Inn, Aptos