Journal_08_10 by Echo

October 2008

A Journal for Community Association Leaders

echo-ca.org

What it Means to be a Fiduciary

ALSO INSIDE THIS ISSUE:

• Management Packages for Small HOAs • Rediscovering Community • Operating Rule Adoption and Change

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

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Contents Rediscovering Community on page 12

Being a Fiduciary Most board members understand that they owe a “fiduciary duty” to members of their association. But often they do not understand exactly what it means to have this fiduciary duty. Attorney Jan Kopczynski writes more about the concept in this article.

Rediscovering Community in the CID Environment Community association expert Larry Pothast raises some profound issues concerning how we will resolve the deeply ingrained issues of self-expression and individualism with the seeming paradox of homogeneity demanded by most CID governing documents.

Management Packages for Smaller HOAs Many smaller associations lack the need for fulltime management and opt for self-management. Although a less expensive option, the inherent responsibilities involved with self-management can overwhelm many directors. Paul Collins examines custom packages.

28 20

Operating Rule Adoption and Change The upcoming rainy season presents cost-saving opportunities for associations faced with tight maintenance budgets. The potential savings is due to supplyand-demand: construction companies are less busy in the winter and spring than in the summer and fall. Mike Muilenburg tells you more about this trick.

Departments 23 News from ECHO 34 ECHO Bookstore 36 Calendar of Events 38 ECHO Volunteers

38 About ECHO 41 ECHO Marketplace 41 Advertiser Index

On the Cover Being a Fiduciary Page 6

October 2008 | ECHO Journal

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 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 September 23, 2008 Bill No.

Author

Subject

Status

Position

Summary

AB 567

Saldana

Common Interest Development Bureau

Amended. Passed by Legislature

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 952

Mullin

Mandatory Payment Plans

Amended. Passed by Legislature

Oppose

Would compel associations to provide payment plans to any owner who can provide documentation of a need for such a plan. The plan must be granted within 45 days of the request, provided the need is justified. An association must suspend lien enforcement proceedings against the delinquent owner, and may not impose a fee for the administration of the payment plan.

AB 1892

Smyth

Solar Energy Equipment Restrictions

Signed by 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 later.

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. Passed by Legislature

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. Passed by Legislature

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. Would require owners to provide to the association verification of the date that the title was acquired.

AB 2806

Karnette

Board Member Education

Amended. Passed by Legislature

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. Passed by Legislature

Support

This bill would permit homeowners who are involved in a dispute over assessments with their association to pay under protest and commence an action in small claims court, provided the amount of the dispute does not exceed the courtâ&#x20AC;&#x2122;s jurisdiction.

SB 127

Kuehl

CID Sale Disclosure Deadlines

Amended. Passed by Legislature

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. Passed by Legislature

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 | October 2008

October 2008 | ECHO Journal

By Jan A. Kopczynski, Esq.

What Does it Mean for a Board Member to be a Fiduciary? M

ost board members for community associations understand that they owe a “fiduciary duty” to the homeowner members of their association. But what exactly does it mean, as a practical matter, for a board member to have a fiduciary duty to its homeowner members? For many years now, it has been well established that homeowner associations have a fiduciary relationship with their members. But as we know, a homeowners association is, in most cases, a non-profit corporation, not an actual person; therefore it must act through its board of directors just like any corporation must. As such, the law states that the individual board members themselves of any corporation, non-profit or otherwise, owe their shareholders (or members, in

the case of community associations) a special duty to ensure that the affairs of the corporation are managed in the best interest of the members. The failure of a board of directors to adhere to this heightened standard of care and loyalty can, and often does, result in serious liability to the corporation for failing to comply with this duty. But how does this fiduciary duty concept play itself out in the real world? For example, most board members for community associations recognize that they have an obligation—a legal duty—to disclose to the association members that a lawsuit may be filed against the association’s developer for construction defects. Specifically, the California Legislature has imposed upon homeowner associations the duty

ECHO Journal | October 2008

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of giving their members written notice of intended litigation regarding construction defects. (See Civil Code section 1368.5.) Fair enough, but letâ&#x20AC;&#x2122;s consider another scenario. For example, does a homeowner association, through its board of directors, have a fiduciary duty to notify its members that it has filed a lawsuit against a third party, a lawsuit that has nothing to do with construction defects? This question was squarely addressed by the California Court of Appeal in a case known as Ostayan v. Nordhoff Townhomes Homeowners Assn., 110 Cal. App. 4th 120 (July 2003). The circumstances that gave rise to that case took place in 1997 when the plaintiff, Mr. Ostayan, purchased an uninhabitable condominium for the sum of $25,000 in the North Hills of Los Angeles; the condominium had been damaged by the 1994 Northridge earthquake. As a result of that purchase, Mr. Ostayan became a dues-paying member of the Nordhoff Townhomes Association.

Homeowner associations have a fiduciary relationship with their members. During the period Mr. Ostayan owned his condominium, the association was involved in a dispute with its insurance carrier over coverage arising out of the 1994 earthquake. The dispute with the carrier was the frequent subject of discussion at meetings of the associationâ&#x20AC;&#x2122;s board of directors, and, in fact, the association had sent its members three written notices about the dispute during the time Mr. Ostayan owned his unit. After negotiations with the insurance carrier broke down, the association filed a badfaith lawsuit against the carrier while Mr. Ostayan owned his unit. But the association did not inform its members of the litigation until a week after Mr. Ostayan had sold his unit to a third party for $53,000. As it turned out, in 2002 the association ended up settling 8

October 2008 | ECHO Journal

its lawsuit against its insurance carrier for $20 million, and each unit owner received $180,000 of the settlement. Mr. Ostayan, believing he was entitled to some of the settlement proceeds, filed suit against the association, alleging breach of fiduciary duty based on the theory that the association owed him a duty of notification with respect to the association’s lawsuit against its insurer. The implication of the lawsuit was that, had the board timely informed Mr. Ostayan that it was suing the association’s insurance carrier for failing to provide funds to repair the condominiums, Mr. Ostayan would have waited until the conclusion of the lawsuit before selling his unit. But, instead, he sold his unit for a small gain, and in doing so he failed to reap the benefit of the $180,000-per-unit settlement with the insurance carrier. In effect, Mr. Ostayan lost out on an additional $127,000. But the trial court disagreed with Mr. Ostayan and found in favor of the association, finding that the association owed no such duty to the plaintiff. Notably, the Court of Appeal agreed and affirmed the summary judgment in favor of the association. The Court of Appeal ruled that the association did not have a fiduciary duty to notify Mr. Ostayan (or its others members, for that matter) that it had filed a bad-faith lawsuit against its insurer where the governing statutes and the association’s governing documents did not require such notification. In other words, the court ruled that filing the action was within the scope of the association’s inherent authority. And even if the association had such a duty of notification, it satisfied that duty in this case by disclosing its dispute with the insurer in three separate written communications to its members, which included plaintiff at the time. From this one case, board members can learn several valuable points: First, there is no doubt that a homeowner association, acting through its board members, has a fiduciary relationship with its members. Second, the primary governing document of a homeowner association is the declaration of covenants, conditions, and restrictions (CC&Rs), the document that contains a legal description of the development and “the restrictions on the use or enjoyment of any portion of the common interest development that are intended to be enforceable Continued on page 11

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By Tyler P. Berding, Esq.

Off Their Radar? Why are CIDs Not on Party Platforms?

t’s all about politics this year. More to the point, its all about Republicans and Democrats. This is the season of the candidates, the issues and the political parties. We hear everything about illegal immigration, the economy and the war. The two political parties and their nominees for public offices everywhere are consumed with new and old answers to such social and economic issues as universal health care, housing, and interest rates. This is business as usual in an election year. However, if you listen to all of the speeches, read all of the political flyers, hear all of the endorsements, you will still hear nary a word about common interest developments, homes for millions of Americans. “Who cares?” you say, “Elections are about important national and state issues, not about something as mundane as my homeowners association.” That’s probably true at the national level where the debate about our country’s future rages over problems that are often close to insoluble. But what about at the state and local levels? What about the candidates for city council, the state legislature or governor? At the state level, housing and real estate law and land use should carry a great deal of weight with politicians, and common interest 10

October 2008 | ECHO Journal

developments are all about those issues. Where should we build new ones? How do we make them green? How do we govern those that already exist? How do we make them affordable? What do we do with the projects that have reached the end of their useful lives? These issues can and will have an enormous impact on any state’s housing stock, its economy and its future. Yet, we hear almost nothing about this huge constituency from any politician. “Is it that big a deal?” you ask. Well how about this: as of this year there are over 300,000 association-governed communities in the United States and they are home to almost sixty million residents! That’s somewhere around 20 percent of the entire population of this country living in common interest developments. Yes, it’s a big deal. So, what do all of these real estate interests need from our elected officials? Well first of all, they need understanding. An understanding of the importance of this type of housing to the entire nation. An understanding of the unique nature of its governance. An understanding of the potential economic disasters that will occur if these communities can no longer self-govern or maintain their facilities. After that, we need carefully drafted legislation that recognizes these concerns and looks

to the long-term survival of this type of housing. For example, current law in most states does not provide meaningful support or even a legal context for the community that can no longer raise the funds necessary to maintain the project, can no longer recruit volunteers to serve on boards of directors, or has reached the end of its useful life. In most states there is no statutory recognition of this problem whatsoever. In California, there is an ongoing attempt to revise the existing statutory framework governing common interest developments, but a viable end strategy for failed communities has not yet found its way into the proposed revisions. It is apparent that many political candidates are largely unaware of important community association issues. Even less interest is shown by the major political parties. Maybe that’s because what makes good community association government does not lend itself to a Republican or Democratic platform. Is that because the preservation and support of common interest communities has no political ring to it? That’s not true, of course. Community associations resound with debates over less Continued on page 40

Being a Fiduciary Continued from page 9

equitable servitudes.” [See Civil Code section 1353(a).] Third, in addition to the governing documents, homeowner associations are governed by statute. The statutory duties of homeowners associations are set forth in the DavisStirling Common Interest Development Act (Civil Code section 1350 et seq.) and the Nonprofit Mutual Benefit Corporation Law (Corp. Code section 7110 et seq.).

The safest course of action for board members is to keep your members reasonably informed about all litigation. And, finally, the Nordhoff opinion is another in a growing line of appellate opinions that affirms the power of a community association board to exercise discretion and sound business judgment in its affairs with its members and third parties. [See also Lambden v. La Jolla Shores Homeowners Assn., 21 Cal. 4th 249 (1999) and Nahrstedt v. Lakeside Village Condominium Assn., 8 Cal 4th 361 (1994).] That said, and despite the favorable holding of this opinion in favor of community association boards of directors, the safest course of action for board members is to keep your members reasonably informed about all litigation against third parties, even though such notice may not be required under the association’s CC&Rs or the statutes in effect at the time. Doing so provides the board with powerful evidence in a later dispute with a member that the board met its fiduciary responsibilities.

Jan Kopczynski is a litigation partner at the law firm of Berding & Weil LLP in Alamo. In addition to providing general counsel to the firm’s commercial and homeowner association clients, he specializes in handling complex construction defect cases, business disputes and real estate litigation.

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By Larry J. Pothast, PCAM, CCAM

Rediscovering Community in the CID Environment Thoughts on the CID Paradox in the Next Millennium

“C

ommunity” is a word as indelibly etched in the American psyche as “freedom” or “liberty.” Ours is a nation founded on principles of individual freedoms, self-expression and individuality. Indeed, at the root of the American experience is a fundamental belief in the kind of rugged individualism that challenged a monarchy, settled a continent and now pushes us further into the heavens. Yet, underlying this desire for individual freedom and expression has always been the basic human need for social identity. A seemingly primal drive to belong to a greater 12

October 2008 | ECHO Journal

whole, to be a member of the “tribe.” In short, a tradition of “community” has grown progressively stronger with each generation of Americans. One need only look at a demographic map of the country to see that a vast majority of Americans live within 500 miles of either coast. Early settlement and family tradition maintaining populations in the east, with weather and opportunity drawing us to the west. This sense of community is so strong that when we meet a new person most of us usually find out about where they are from within a few moments of polite conversation. We

identify people with the communities from which they hale. I am a native Nebraskan but often refer to myself as a Minnesotan (having spent many years of my adult life there). Pressed further on the subject I would tell you I was a Lincolnite or Minneapolitan. Pressed still further I would tell you I was from the Russian Bottom in Lincoln or the community of Robbinsdale in Minneapolis. All of this serves to illustrate how attached we, as a culture, are to our sense of community. For all the complaining, grousing and outright electoral rebellion we subject our

political leaders to, we will always hearken back to a place we call “home.” The great anthropologist Margaret Mead once observed that, “An individual member of any society can accomplish anything with the help and support of the group, but left alone to his own devices he will accomplish only half as much and it will mean little without anyone to share it with.” The desire to be accepted and belong, to be part of a greater whole, is not only a matter of personal orientation but necessary for societal and individual development.

So here we are. After more than 200 years of experience with the American experiment we are engulfed in the single greatest sociological change since World War II. People are coming together into ever smaller and more tightly knit communities we call common interest developments. In 1965 there were approximately 500 CIDs nationwide. Today, it is estimated that there are nearly 300,000. Millions of people have come together in these mutual benefit communities out of either personal choice or economic necessity. How then do we resolve the deeply ingrained issues of self-expression and

individualism with the seeming paradox of architectural (and often behavioral) homogeneity demanded by most CID governing documents? As someone who made a living nearly all his adult life from the progenation of common interest developments, I grow increasingly aware of this paradox. When I first entered the association management business more than 20 years ago I, like most of my colleagues, were strict constructionists regarding architectural control, covenant and rules enforcement. Enforcement, and indeed the covenants and rules themselves, ECHO Journal | October 2008

were born out of a perception that “maintaining the value of the asset” required somehow limiting the self expression of individuals within the community. “Maintain, protect and enhance the value of the asset” grew to be a mantra of sorts within the CID industry. Rightly or wrongly it has brought us to the place we find ourselves, often more concerned with conformity than personal contentment. In many CIDs the paint is perfect and the lawns are as finely manicured as a European palace. Guests are strictly regulated regarding where they can park while they visit, and for how long. Picket fences within many communities can be painted by the individual members any one of 50 or so shades of white to retain a homogenous appearance. Pets are routinely regulated for type and size. Behaviors of members and guests have become the purview of association policy rather than common sense, reasonable thought and personal responsibility. Litigation and dispute resolution are permeating our mutual benefit communities and directors often find themselves making decisions out of a fear of reprisal or litigation rather than out of a 14

October 2008 | ECHO Journal

sense of fairness or of building a strong community fabric. In his book “Privatopia” the author, Evan McKenzie, points out that in many ways the proliferation of “walled, gated communities” is symbolic of the deeper divisions seen in society as a whole. Those “who have” increasingly feel the need to protect and isolate themselves from those “who have not” or those who are somehow different. The need to minimize “the threat” has lead us deeper into personal isolation from our neighbors. This “isolationism” often carries beyond the walls and gates of the CID to the very doorsteps of the members of the communities themselves. We are probably all poorer for listening to the sound of shrill voices telling us to be physically and financially afraid of each other’s tastes and behaviors. Growing up in the little town of Alma, Nebraska, we knew and visited frequently with all of our neighbors. It was considered a noble enterprise in those days to reach out to anyone in the community who might be struggling or need help. Transgressions were quickly forgiven and tolerance of individual eccentricities or sometimes odd behaviors, however manifested, was commonplace.

These things were viewed as enrichments to the lives of the community rather than violations of some codified standard of behavior. They are the kinds of things that added value and character to every small town in America, and they may be in danger of being lost forever in the new community models that pock the modern urban landscape. In today’s world of planned communities and high-rise condominiums it is a rare thing for neighbors to even know each other, let alone reach out in time of need. Instead, if someone is in trouble in one of our community associations, we threaten to lien their home and then foreclose. Neighbor helping neighbor has never been so far removed from our collective consciousness. Tolerance and forgiveness are words that seem to be missing in the lexicon of CIDs. Perhaps this is how it should be. After all, many community members have no desire to meet their neighbors or become part of the fabric of a larger community. They are content to “live and let live” and do not welcome or desire the community to encroach on their lives. Continued on page 16

Improving Your Association’s Financial Practices ECHO Association Finances Seminar Saturday, October 11, 2008 Crowne Plaza Hotel, Union City

Program Agenda 8:00 a.m. Registration and Continental Breakfast 8:45 a.m. Welcome and Introductions 9:00 a.m. A Director’s Fiduciary Responsibility

John Garvic, Esq.

9:30 a.m. Basics of Accounting and Internal Controls

James Ernst, CPA

10:00 a.m. Preparing Good Operating and Reserves Budgets

Bill Erlanger, CPA

10:30 a.m. Break 10:50 a.m. Understanding Internal Controls and Fraud

Joelyn Carr-Fingerle, CPA

11:20 a.m. Employees vs. Independent Contractors

Robert Castle, CPA

12:10 p.m. What About Uncollected Assessments?

Don Haney, CPA

12:40 p.m. Questions and Answers—Ask The Experts

All Speakers

1:00 p.m. Sponsor Prizes 1:15 p.m. Adjourn

Registration Cost $40 Yes, reserve _____ spaces for the Finance Seminar. Amount enclosed: $__________ (attach additional names) Name: ______________________________________________________ HOA or Firm: ________________________________________________ Address: ____________________________________________________ City: __________________________ State: _____ Zip: ____________ Phone: ______________________________________________________ Visa/Mastercard No. _____________________ Exp. Date: ________ Signature: ___________________________________________________ Orders will not be processed without payment in full. Fees for cancelled registrations will not be refunded. Return with payment to: ECHO, 1602 The Alameda, STE 101, San Jose, CA 95126 Telephone: 408-297-3246; Fax: 408-297-3517

Rediscovering Community Continued from page 14

We have come to this point after a long journey that taught hard lessons along the way. It is difficult to imagine we have summated this peak. The journey continues and lessons of the past need to be reexamined for their current and future appropriateness. Common sense needs to be resuscitated in the realm of CIDs with added emphasis given to the “community” aspect of community governance. To remain vital and viable, CID leaders and managers may need to become less focused on the physical plant and become more focused on the human characteristics of CID living. Associations without a sense of community are merely shells populated by replaceable components rather than friends and neighbors cooperating to enrich and improve the quality of their lives. Nurturing this sense of community will become the greatest challenge of the next 25 years. Striking the balance between the value represented by the bricks and sticks and the sense of “quality of life” is daunting. However, if we should ignore the difference, we may find ourselves facing a political and economic climate that renders the entire concept of CIDs untenable. How then should we start moving toward this idyllic sounding governance concept? Perhaps one way might be to begin focusing on “quality of life” issues within the community. We need to begin asking ourselves hard questions regarding covenants, rules and their enforcement. For example, when architectural variances are requested we might ask, “Will this change really negatively impact values?” When faced with frequent violations of a particular rule, we may need to evaluate whether the rule makes sense relative to its impact on value and the enjoyment of people’s homes. Clearly, in our ever more litigious society we need to be diligent against arbitrary enforcement of rules and covenants. However, should the fear of litigation force people to abandon common sense? If it does we will become more and more captive of a system that takes decision making and personal responsibility out of the hands of individuals and places them into the hands of the CID boards. As attorney and association legal expert Wayne Hyatt states in the California Association of Community Managers’ video Community Associations, Can We Talk?, “It is 16

October 2008 | ECHO Journal

not true that one need abandon common sense when enforcing rules and covenants. A waiver or special circumstances do not necessarily create a precedent or affect future enforcement.” It may be time to act out of a heightened sense of fairness rather than blindly following the rules without consideration of community and “quality of life” consequences. Grappling with this concept has proven as much a challenge for the industry as anything we have faced. Time alone will answer the questions about how much of a home’s value is based on the enjoyment of the neighborhood versus the pristine, homogenous look and maintenance of the structures. I suppose, in the end, we would all be well served by becoming a little more “generous of spirit” when dealing with each other inside our communities.

CIDs are about people as much as they are about structures and perfect landscaping. Newsletters probably need more emphasis on individuals in the community. Common sense tells us that if you know about your neighbor you will be more likely to think of him or her as someone who acts out of good intentions rather than malice. We as a society have lost the sense of grace that motivated us to walk across and meet the neighbors. Many of us prefer to be left alone. I wonder how much richness and value we leave on our doorsteps because we fail to feel comfortable approaching the people next door or across the street and making them friends as opposed to “strangers living down the way.” Another key element might involve associations making an effort to build a sense of identity in the larger community. Newsletters about the people who live in the association, who make up the fabric of the community can contribute a great deal to raising the awareness about a community’s identity and help galvanize feelings of belonging by the members. Typically, when a builder constructs and sells a community he or she will spend

Continued on page 18

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hundreds of thousands of dollars on advertising to entice buyers to believe the new community is just this side of Valhalla. The builder creates a strong sense of community in order to sell the homes. Once they are sold the builder goes away, the advertising goes away and after a time, the larger community’s awareness of the association goes away as well. There are exceptions of course. There will always be the Rossmoors, Woodbridges and Leisure Worlds that are so large they can not be ignored. However, if the association uses its newsletter properly and distributes it to local Real Estate brokers and appraisers, the local town council, grocery stores, dry cleaners, etc. it might very well become the best advertising vehicle ever to enhance the general market’s perception of the association as a community. In the final analysis, CIDs are about people as much as they are about structures and perfect landscaping. People have personal interests that can be well served by the association. Having evolved somewhat over the years from that strict constructionist described above, I now think that perhaps the small town that dwells somewhere in the heart of each of us, that spirit of neighborliness that was an underpinning of liberty, just might be able to be recaptured inside the CID industry. It will require the effort, rethinking and retooling of volunteer board members and industry professionals but in the end may be the best chance to rekindle the spirit that made communities warm and friendly places where we could count on each other for help, friendship and a resolve just to “do better.” We are in the unique position of creating the future in any image we, as an industry, choose. I suppose it may be an overstatement to suggest that the spirit of “community” dwells as much in the heart as in the organization. We should all hope to listen closely to the sound of that heart beating as we move into the new millennium. Good luck to us all.

Larry Pothast was a manager and banker in the community association industry before his retirement several years ago. He was a member of the ECHO board of directors and of several ECHO resource panels. 18

October 2008 | ECHO Journal

By Paul Collins, PCAM, CCAM

Custom-Tailored Management Packages for Smaller Homeowner Associations A

ll common interest developments are unique. Therefore, most management companies offer a variety of custom service packages to meet the unique needs for each of its clients. Many smaller associations lack the need or the resources for full time management services and opt for self-management. Although self-management may be the cheapest option in the short term, the inherent responsibilities involved with self-management can be overwhelming to many boards of directors. Those responsibilities may include: • Association law • Accounting procedures • Bid development • Vendor relations • Owner relations • Facility management • Risk management • Community leadership In spite of these difficult requirements, many boards have opted for self-management, resulting in overworked (and underappreciated) directors. Board members are often unaware of the extensive and complex federal and state laws, requirements, accounting procedures, and disclosures with which every association, regardless of its size,

must comply. Too often, this can lead to an insolvent association and diminished property values. Further, board members who are operating an association without proper guidance may be vulnerable to personal liability. The Challenge Community associations with fewer than fifty homeowners often struggle to meet maintenance, insurance and administrative obligations while also paying for the additional cost of professional management. Often, management companies are unable to offer significantly reduced prices to smaller associations due to a workload comparable to that of a medium sized development of 50–100 units. Accordingly, many small associations seek scaled down or financial-only management packages, which many small communities have found more in line with their restricted financial resources. Note: A small association is not defined only by number of units. A small budget, regardless of the number of units, is also a defining characteristic of a small association. For example, a housing development may have 150 homes, but very little common area to maintain and, as a result, low assessments and minimal financial resources. It might be

difficult for this association to earmark the majority of their dues towards management fees. For the purposes of this discussion, these large membership, small budget associations are considered “small associations.” Consulting Services For this reason, many management companies offer consulting services to associations who want to manage themselves. The broad scope of knowledge and experience needed to run a common interest development effectively makes it very important that boards seek some professional guidance and assistance to maneuver through these tricky subjects but wisely seek professional advice for the more technical issues. Associations with 10–50 units may be large enough to afford a regular contract with a management company. The very small associations (10 units or less) may be almost entirely self-managed but still seek professional advice on certain issues, as they arise. The following consulting services offered by management companies can assist board members to run their homeowner associations effectively: • Initial association evaluation • Assist board to develop a system that will accurately and completely record association business. ECHO Journal | October 2008

• Verify that a complete set of governing documents is on file. • Verify that vendor contracts and proof of insurance certificates are on file. • Verify that accounting systems and procedures are in compliance with generally accepted accounting procedures. • Verify that your association is carrying required insurance and has copies of all policies and proof of insurance from vendors. Assist the board in limiting their risk exposure. • Verify that the association is meeting all owner disclosure requirements including distribution of budgets, year-end financials, proof of insurance and alternate dispute resolution. • Verify that all required reports (e.g. Reserve Study, Pro Forma Budgets, Yearend Financial statements, etc.) are on file. • If any required materials are not present in association files, assist board in procuring missing documents. • Review internal systems, including contracting, owner relations, declaration enforcement and maintenance programs. 22

October 2008 | ECHO Journal

• Review internal financial procedures, including assessment collection, disbursements, financial reporting, bankcards, reconciliations and budgeting. • Review delinquent owner collection procedures. • Assist board in conducting board meetings in a business-like manner. The goal of using professional management on a consulting basis is to empower the board with the necessary information to effectively self manage their common interest development. Remember, when you work with a reputable management company you are working with an ensemble of knowledgeable and experienced lawyers, accountants, general contractors and other vendors that have been found to be exceptional in their respective fields. Economies of Scale and Cutting Costs Because there are usually fewer homeowners in a small association contributing money “into the pot,” there is a higher per unit cost for all goods and services. For example, a $500 per month pool maintenance contract might cost $10 per unit per month in a 50unit complex. However, in a 200 unit com-

plex, the per unit cost drops to $2.50 per month. Whether you are a large community or a small community, a standard sized pool will require significant resources to maintain, not to mention heat and saving for its longterm repair. These same economies of scale exist for management firms. Whether it is for a 50 or 100-unit complex, many of the redundant tasks that a management company must perform are identical. Of course there is some correlation between size of community and managerial workload, but often that difference is insignificant. Many management companies will not even consider an association of fewer than 100 units for this very reason! Some management companies will gladly contract with a small community, offer basement prices, and then do one or both of the following: 1. Completely neglect the community and collect the monthly fee. 2. Bill a lot of “extras.”

Continued on page 24

News from ECHO

A Trick of the Trades The onset of the rainy season presents cost-saving opportunities for homeowners associations faced with tight maintenance budgets. The mechanism triggering the potential savings is the economic principle of supplyand-demand: the construction companies that maintain your properties are less busy in the winter and spring than in the summer and fall. Confronted with the prospect of losing key personnel, many contractors offer slow-season discounts— intentionally or otherwise—in an effort to keep their companies intact for the peak seasons ahead. In fact, in trades such as painting and roofing, where rain directly affects scheduling, the busiest months of the year are not necessarily the driest ones, but those leading up to the winter, as procrastinators try to complete projects by year’s end. Implementing a painting program during the winter is an organizational challenge, with its inherent delays, canceled appointments, and protracted homeowner inconvenience; however, many projects are well suited for off-season completion. For

example, common area surfaces such as pool house exteriors and interiors, perimeter walls, curbs, light standards, pool fencing, vehicle entry gates, mail kiosks, mailboxes, hallway interiors, and street signs can be painted in the winter with little homeowner involvement. Since metal does not absorb water like wood components, consider painting all wrought iron surfaces in the slow season. Whatever option a board may choose, sitting idly in anticipation of spring or summer need not be one of them. Certainly everyone involved benefits by the increased efficiency achieved by performing as much preparation and planning as suits each different project. And what’s wrong with saving money at the same time?

Off The Radar? It’s all about politics this year. More to the point, its all about Republicans and Democrats. This is the season of the candidates, the issues, and the Parties. We hear everything about illegal immigration, the economy, and the war. The two political parties and their nominees for public offices everywhere are consumed

with new and old answers to such social and economic issues as universal health care, housing, and interest rates. This is business as usual in an election year. However, if you listen to all of the speeches, read all of the political flyers, hear all of the endorsements, you will still hear nary a word about common interest developments, homes for millions of Americans. “Who cares?” you say, “Elections are about important national and state issues, not about something as mundane as my homeowner association.” That’s probably true at the national level where the debate about our country’s future rages over problems that are often close to insoluble. But what about at the state and local levels? What about the candidates for city council, the state legislature, or governor? At the state level, housing and real estate law and land use should carry a great deal of weight with politicians, and common interest developments are all about those issues. Where should we build new ones? How do we make them green? How do we govern those that already exist? How do we make them affordable? What do we do with the projects that have reached the end of their useful lives? These issues can and will have an enormous impact on any state’s housing stock, its economy, and its future. Yet, we hear almost nothing about this huge constituency from any politician. “Is it that big a deal?” you ask. Well how about this: as of this year there are about 300,000 association-governed communities in the

United States and they are home to almost sixty million residents! That’s somewhere around 20 percent of the entire population of this country living in common interest developments. Yes, it’s a big deal. It’s time for community association issues to receive more political attention. The foreclosure crisis that we have seen over the past two years could be equaled by the crisis that would befall the nation if common interest communities begin to fail in large numbers. The resolution of that crisis, however, will take political guts at all levels, starting with boards of directors and also including our elected officials.

Important Upcoming Events Saturday, October 11 Association Finances Seminar 8:00 a.m. to 1:00 p.m. Crowne Plaza, Union City Saturday, October 25 Mastering the Board Game 8:00 a.m. to 4:00 p.m. Marriott Hotel, San Ramon Saturday, November 1 Peninsula Fall Seminar 8:00 a.m. to 1:00 p.m. Hyatt Regency, Burlingame ECHO Journal | October 2008

Management Packages Continued from page 22

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In either case, the association is at a disservice, but these conditions occur all too often. It is critical to know the primary cost driver of all management companies—employee salaries. Community association management is part of the service economy. Since management companies do not manufacture a product, their value is not derived from producing and selling widgets. A management company’s value is a function of time (and its efficient use thereof). The management firm must pay its employees to perform a service. The company will be profitable only if the employees create enough value within their allotted time to cover the expenses and generate a profit for the firm. Typically management companies are compensated for their time based on a per unit fee schedule (e.g. $15 per unit). If an association has only 15 units, at $15 per unit, the management firm will generate only $225. This sum is hardly enough to produce a financial statement, much less to pay for other management services. Therefore, the challenge for the smaller association is to prioritize its managerial needs with an emphasis on minimizing the amount of time the manager will need to spend dedicated to the community. All this must be done without a lapse in the level of service the association provides its members. Here are some ways to significantly cut the management company’s time on task: 1. Cut down on the number of meetings that your association conducts or at least the number the manager attends. Consider quarterly or bi-annual meetings. Another option is to schedule meetings during normal business hours at the manager’s offices. 2. Do not require the manager to take minutes at the meeting. 3. Do not require the manager to deal with smaller “low-skill” jobs such as day-to-day landscaping or CC&R enforcement issues. 4. Do not require the manager to perform weekly or monthly site inspections. Quarterly walkthroughs supplemented by an active grounds committee ought to suffice. Just because the management company does not perform a given task should not mean that the task can be left undone. These Continued on page 26

October 2008 | ECHO Journal

Management Packages Continued from page 24

tasks must be delegated to volunteer board members or committee members. Yes, this does mean more work for volunteer homeowners, but it also means lower monthly fees and lower monthly dues. It also means that the homeowners will be more involved in the day to day operations of the community, which almost always equates to a better-run, more harmonious community; nobody has a better idea of what a community needs than the people that live there! Note: Associations with a high volume of volunteer work may wish to purchase a worker compensation policy with an endorsement for volunteers. Hybrid Management Packages Hybrid Management: “Teaming up board and committee members, professional community association managers and professional financial managers into the overall community association management strategy.” The question arises: What tasks should the board perform and what should be delegated to the management company? A hybrid management package should require your management company to provide a qualified manager to consult with the board, as needed, to oversee large complex projects (e.g. painting or re-roofing) or guidance on managing small day-to-day issues. Meanwhile, the management company will administer your association’s financial and legal obligations. The important thing is having a relationship with a firm that can provide, when needed, a 26

October 2008 | ECHO Journal

qualified manager (preferably a CCAM or PCAM) to assist the board with more technical issues. With so much regulation coming in from Sacramento every year (e.g. case law, the Davis-Stirling Act, Corporate Code and other statutes) it may be difficult for a board member to navigate the shark-infested waters of association law and protocols. An example would be administration of annual meetings and elections or special meetings. It is important that an impartial competent party be involved to administer all aspects of an annual meeting to ensure that a fair and legal election is conducted. Having a neutral party convene the annual meeting is critical for associations dealing with controversial issues or a contested election. A second example would be annual disclosures. There are countless documents that must be distributed yearly, or as needed, for a variety of association functions. Note: These requirements change yearly. Thus it will require a professional to keep track of what must be disclosed, when, and to whom. A final example is financial accounting, wherein there are too many requirements, procedures, and pitfalls to begin mentioning in this venue. The following is a list of tasks that a board would be well advised to have handled by a community association management company or a community association financial management company:

• Set up and maintain a lockbox system for assessment collections. • Offer owners automatic electronic payment of dues. • Assistance in developing an investment strategy of reserve funds. • Reconciliation of all accounts; checking, savings, money market, etc. • Prepare checks as authorized by board. • Provide board detailed monthly or quarterly financials, using the modified accrual method of accounting. • Monitor reserve investment rollover dates. • Assist independent auditors with data gathering. • Review financial statements with board. • Assist board with preparation of pro forma operating budget. • Collect and process assessment payments. • Prepare and post accounts receivable. • Prepare and post accounts payable. • Assist board in obtaining and reviewing a current and accurate reserve study and funding study. • Pursue collection of delinquent accounts per association’s Collection Policy. • Keep reserve schedule current.

Fiscal and Accounting Services • Provide owners with dues payment coupons and/or statements.

Records and Correspondence • Maintain association financial records and files in safe condition.

Protection of Property Against Risk • Assist in securing coverage and costs for annual insurance premium(s) including fire, general liability, fidelity, bonds and other statutory coverages • File insurance claims on behalf of association.

• Maintain current membership and mailing list. • Maintain membership files on each individual owner. • Provide up-to-date assessment and ownership information to title companies, on request, for use in title transfers and refinancing. • Provide for duplication and mailing of copies of association documents as needed. • Provide for duplication and mailing of correspondence, reports, newsletters, and flyers as required. The following are other managerial functions that can be selected on an as-needed or consulting basis: Rules Enforcement, Maintenance, Repairs and Replacements • Enforce Rules & Regulations and Fine Policy. • Receive and follow up on maintenance requests and complaints. • Inspect common area property as needed. • Assist with preparation of contract specifications. • Accept bids for board to review. • Monitor contractual agreements of independent contractors or personnel. • Obtain written proposals/contracts when requested by board. Meetings of Association • Attend Annual Meeting and election • Attend regular meetings. • Arrange for and schedule place, date, and time for general membership meetings. • Prepare and mail meeting notice, proxy, ballot, agenda, etc. • Prepare and present special reports, as requested. • Prepare and present minutes of board meetings. • Attend Annual Meeting Note: All management companies offer different billing structures. It is important to know which services will be performed under the base contract and which services will be billed as extras. A good way to cut down on extra billing is to assume responsibility for duplication and distribution of mailings, storing archived files onsite, and other administrative tasks.

Paul Collins is the co-owner of Collins Management in Richmond CA, an ECHO-member company.

M & C Association Management Services provides community association management and developer services to Fremont, Santa Clara, Stockton, Modesto, Copperopolis and the surrounding foothills. Since 1990, we’ve enriched communities and enhanced the lives of the people we serve. M & C is proud to be an Accredited Association Management Company® (AAMC®), which is the Community Associations Institute’s highest designation awarded to management firms.

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For management proposal information, please visit www.mccommunities.com or email info@mccommunities.com The nation’s leader in community association management M&C_ECHOad_apr07.indd 1

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

By John Paul Hanna, Esq., and David Van Atta, Esq.

Adopting and Changing Operating Rules for California CIDs everal years ago the Davis-Stirling Act was amended to add Civil Code §§ 1357.100 et seq. regarding Operating Rules of common interest development associations. All board members and managers should be diligent in following these provisions. This article will provide a review of the provisions contained in these sections of the Civil Code. Civil Code § 1357.100 defines “Operating rules” and “Rule changes.”

October 2008 | ECHO Journal

(a) “Operating rule” means a regulation adopted by the board of directors of the association that applies generally to the management and operation of the common interest development or the conduct of the business and affairs of the association. [Civ. Code, § 1357.100(a).] (b) “Rule change” means the adoption, amendment, or repeal of an operating rule by the board of directors of the association. [Civ. Code, § 1357.100(b).]

An operating rule is valid and enforceable only if all of the requirements stated in Civil Code § 1357.110 are satisfied. These requirements are: • The rule is in writing. • The rule is within the authority of the board of directors of the association conferred by law or by the declaration, articles of incorporation or association, or bylaws of the association.

• The rule is not inconsistent with governing law and the declaration, articles of incorporation or association, and bylaws of the association. • The rule is adopted, amended, or repealed in good faith and in substantial compliance with the requirements of this article. • The rule is reasonable.

Procedures for Adopting Rules Civil Code § 1357.130 provides specific procedures for the board of directors of a community association to follow when proposing and adopting rule changes. Civil Code § 1357.140 provides a process where members of the association may call a special meeting to reverse a rule change made by the board of directors of the association. The provisions of Civil Code § 1357.130 and 1357.140 only apply to an operating rule

that relates to one or more of the following subjects: (1) Use of the common area or of an exclusive use common area. (2) Use of a separate interest, including any aesthetic or architectural standards that govern alteration of a separate interest. (3) Member discipline, including any schedule of monetary penalties for violation Continued on page 31 ECHO Journal | October 2008

Directory

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

Directory Updates Continued from page 30

Cypress Construction Services has been a leader in the remodeling industry in the Monterey Bay Area since 1994. Founded eleven years ago, Cypress has been the number one choice of realtors, property managers, HOAs and homeowners in Santa Cruz County.

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Changes to Member Listings All About Gutters, Inc. 404 Martin Avenue Santa Clara, CA 95050 Tel & Fax remain the same Frazee Paint Company 960 S. Bascom Ave., # 10 San Jose, CA 95128 Contact: Judy O’Shaughnessy Tel: 408-294-2199 Fax: 408-296-2276 Email: joshaughnessy@frazee.com

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

Rebello’s Towing Service, Inc. 696 Kings Row San Jose, CA 95112 Tel. & Fax remain the same Reliable Association Management 1757 Tribute Rd., Ste. H Sacramento, CA 95015 Tel. & Fax remain the same

ECHO Journal | October 2008

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 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.

Robert’s Rules of Order $7.50 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.

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Calendar of Events

Mark these events in your calendar Wednesday, October 1 Maintenance Resource Panel 12:00 Noon ECHO Office 1602 The Alameda, Ste. 101 San Jose Friday, October 3 East Bay Resource Panel 9:30 a.m. Angius & Terry 1900 N. California Blvd. Suite 950, Walnut Creek

Friday, October 17 Annual Membership Meeting 10:00 a.m. ECHO Office 1602 The Alameda, Ste. 101 San Jose Saturday, October 25 Mastering the Board Game 8:00 a.m. to 4:00 p.m. San Ramon Marriott 2600 Bishop Drive San Ramon

Wednesday, October 8 South Bay Resource Panel 12:00 Noon Il Fornaio 302 Market St., San Jose

Saturday, November 1 Peninsula Fall Seminar 8:00 a.m. to 1:00 p.m. Hyatt Regency 1333 Bayshore Hwy. Burlingame

Saturday, October 11 Finances and Accounting Seminar 8:00 a.m. to 1:00 p.m. Crowne Plaza 32083 Alvarado-Niles Road Union City

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

Wednesday, October 15 Wine Country Resource Panel 11:45 a.m. Eugene Burger Mgmt. Co. 6600 Hunter Dr., Rohnert Park

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

Friday, November 7 East Bay Resource Panel 9:30 a.m. Angius & Terry 1900 N. California Blvd., Suite 950, Walnut Creek Monday, November 10 Accountants Resource Panel 6:00 p.m. Francesco’s Restaurant, Oakland Tuesday, November 11 Central Coast Resource Panel 12:00 Noon Pasatiempo Inn, Santa Cruz Wednesday, November 19 Wine Country Resource Panel 11:45 a.m. Eugene Burger Mgmt. Co. 6600 Hunter Dr., Rohnert Park

Friday, December 5 East Bay Resource Panel 9:30 a.m. Angius & Terry 1900 N. California Blvd. Suite 950, Walnut Creek Wednesday, December 10 South Bay Resource Panel 12:00 Noon Il Fornaio 302 Market St., San Jose Wednesday, December 17 Wine Country Resource Panel 11:45 a.m. Eugene Burger Mgmt. Co. 6600 Hunter Dr., Rohnert Park

Wednesday, December 3 Maintenance Resource Panel 12:00 Noon Location TBD

Regularly Scheduled Resource Panel Meetings Resource Panel Maintenance North Bay East Bay Accountants Central Coast South Bay Wine Country Legal 36

October 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, Even 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

Operating Rule Adoption Continued from page 32

(e) A meeting called under this section is governed by Chapter 5 (commencing with Section 7510) of Part 3 of Division 2 of Title 1 of, and Sections 7612 and 7613 of, the Corporations Code. [Civ. Code, §1357.140(e).] (f) A rule change reversed under Civil Code § 1357.140 may not be readopted for one year after the date of the meeting reversing the rule change. Nothing in this section precludes the board of directors from adopting a different rule on the same subject as the rule change that has been reversed. [Civ. Code, § 1357.140(f).] (g) As soon as possible after the close of voting, but not more than 15 days after the close of voting, the board of directors shall provide notice of the results of a member vote held pursuant to this section to every association member. Delivery of notice under Civil Code § 1357.140(g) is subject to the requirements of Civil Code § 1350.7. [Civ. Code, § 1357.140(g).]

(h) The provisions of Civil Code § 1357.140 do not apply to an emergency rule change made under Civil Code § 1357.130(d). [Civ. Code, § 1357.140(h).]

An operating rule is valid and enforceable only if all of the requirements stated in Civil Code § 1357.110 are satisfied.

Article 4 of the Davis Stirling Act applies to a rule change commenced on or after January 1, 2004. [Civ. Code § 1357.150(a).] Nothing stated in Article 4 is to affect the

validity of a rule change commenced before January 1, 2004. [Civ. Code § 1357.150,(b).] For the purposes of Civil Code § 1357.150, a rule change is commenced when the board of directors of the association takes its first official action leading to adoption of the rule change. [Civ. Code §1357.150(c).] Members of an association have access to association records, including accounting books and records and membership lists, in accordance with Article 3 (commencing with Section 8330) of Chapter 13 of Part 3 of Division 2 of Title 1 of the Corporations Code. The members of the association shall have the same access to the operating rules of the association as they have to the accounting books and records of the association. [Civ. Code, § 1363(f).] These provisions do not apply to industrial or commercial common interest development projects.

John Paul Hanna and David Van Atta are the principals in the law firm of Hanna and Van Atta in Palo Alto, CA. The firm is an ECHO member. These attorneys have authored a number of publications relating to real property law and Hanna is a member of the ECHO Legal Resource Pane. ECHO Journal | October 2008

Honor Roll

About

ECHO Honors Volunteers Mike Muilenburg 2008 Volunteer of the Year ECHO Resource Panels Accountant Panel Richard Schnieder, CPA 707-576-7070 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.

October 2008 | ECHO Journal

2008 Annual Seminar Speakers Jeffrey Barnett, Esq. Sandra Bonato, Esq. Lori Burger, PCAM, CCAM Doug Christison, PCAM, CCAM 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, PCAM, CCAM Karen Conlon, CCAM Rolf Crocker, CCAM 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 Kerry Mazzoni Larry Russell, Esq. Steve Saarman Nathaniel Sterling, Esq. Debra Warren, PCAM, CCAM Steven Weil, Esq. Mark Wleklinski, Esq. Glenn Youngling, Esq.

Recent ECHO Journal Contributing Authors June 2008 Tyler P. Berding, Esq. Tina Wang, Esq. David West Mary L. Wulf July 2008 Doug Christison, PCAM, CCAM Mary Filson, Esq. Monty Hollingsworth Brian Seifert August 2008 Tyler P. Berding, Esq. Molly A. Foley-Healy, Esq. Geri Kennedy, CCAM Hermann Novak Dick Tippett September 2008 Linda Alexander, CCAM, PCAM Tyler P. Berding, Esq. Michael J. Gartzke, CPA Diane Marie Rossi, CCAM Chris Seeger

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.

ECHO Journal | October 2008

Off the Radar Continued from page 10

government vs. more government, similar to the rhetoric among political parties. Should boards more aggressively enforce the CC&Rs or should they adopt a “hands off” point of view? Should an individual’s freedom to build what she wants, to choose the color he wants, or to park whatever vehicles on their lot that they want, be curtailed by written rules? Should the board be able to adopt a prudent economic policy by raising assessments as necessary to assure sufficient funds for future maintenance, or should they have to accept the political reality that the owners do not want to pay higher taxes? Are there constitutional questions here? Individual rights vs. the needs of the community? These issues emulate the national political debate. At the local level, however, they are largely non-partisan. Also, the issues outlined above are probably too narrow to be of consequence, or even of interest, to a political party. But nevertheless, they should be the focus of state regulators, and politicians owe it to condominium and planned development owners everywhere to focus their radar on the potential consequences of failed budgets or failed community association government. These issues involve such a sizable chunk of the population that politicians at the state level, where real property law and policy is decided, must be aware of these issues so at least they will be prepared to evaluate any proposed legislative changes to the law governing associations. It’s time for community association issues to receive more political attention. The foreclosure crisis that we have seen over the past two years could be equaled by the crisis that would befall the nation if common interest communities begin to fail in large numbers. The resolution of that crisis, however, will take political guts at all levels, starting with boards of directors and also including our elected officials.

Tyler Berding is a founding partner of Berding & Weil, LLC, a community association law firm located in Alamo, CA. He has taught real estate and community association law at California State University East Bay and is the immediate past president of ECHO. He is a frequent contributor to the Journal. Questions or comments can be directed to him at www.berding-weil.com or www.condoissues.com. 40

October 2008 | ECHO Journal

ECHO Marketplace

Advertiser Index

The place to find business and professionals for your association Alpha Restoration and Waterproofing .8 American Asphalt . . . . . . . . . . . . . . .24 American Management Services . . . . .9 Angius & Terry . . . . . . . . . . . . . . . . . . .3 Applied Reserve Analysis . . . . . . . . . .33 AquaTek Plumbing . . . . . . . . . . . . . .24 A.S.A.P. Collection Services . . . . . . . .16 Association Reserves . . . . . . . . . . . . .41

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.

Advertise your business to thousands of homeowner association directors in California in the pages of the ECHO Journal.

Still the Nation’s Leading Provider of Reserve Studies “I’ve been in this industry for 25+ years and I choose AR year after year because they’re professional, enjoyable to work with, and the reports are accurate and easily understandable for me and my boards.” —Ms. Kathy, Portfolio Property Manager, Salinas, CA

www.reservestudy.com

Bayridge Group . . . . . . . . . . . . . . . . .18 Berding & Weil . . . . . . . . . . . . . . . . . .44 Collins Management . . . . . . . . . . . . .33 Community Association Banc . . . . . . .30 Community Management Services . . .30 Compass Management . . . . . . . . . . .33 Cool Pool Service . . . . . . . . . . . . . . . .30 Cornerstone Community Mgmnt . . . . .8 County Bank . . . . . . . . . . . . . . . . . . . .2 Discovery Play Systems . . . . . . . . . . . .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 Louis & Riparetti . . . . . . . . . . . . . . . . .25 M&C Association Services . . . . . . . . .27 M. L. Nielsen Construction . . . . . . . . .40 Massingham and Associates . . . . . . .32 Neighborhood Association Mgmnt . .31 Pelican Management Group . . . . . . .41 PML Management Corp. . . . . . . . . . .11 Pollard Unlimited . . . . . . . . . . . . . . . .17 R. E. Broocker Co. . . . . . . . . . . . . . . .17 Rebello’s Towing Service . . . . . . . . . .14 REMI Company . . . . . . . . . . . . . . . . .39 Saarman Construction . . . . . . . . . . . .16 Statcomm . . . . . . . . . . . . . . . . . . . . .17 Steve Tingley Painting . . . . . . . . . . . .37 Steve’s Painting Services . . . . . . . . . . . .9

ECHO Journal | October 2008

Mastering the Board Game Defining Board Roles, Relationships and Leadership Program Agenda 8:15 a.m. Registration and Continental Breakfast 8:45 a.m. Welcome and Introductions 9:00 a.m. Exploring the Board’s Role and Legal Duties

October 25, 2008 8:15 a.m. –4:30 p.m.

Marriott Hotel, San Ramon Contra Costa Ballroom Presenter: Bill Charney, CEO, Charney Associates

10:15 a.m. Break 10:30 a.m. Ends vs. Means—Controlling Activities and Results 12:00 noon Lunch 1:00 p.m. Policy Development; Monitoring Staff Performance; Making Committees Effective 2:30 p.m. Break

Major Program Sponsors: Christison Company Community Association Banc Berding & Weil, LLP Registration $75 Attendance limited to 75 registrants

2:45 p.m. Agendas; Performance Monitoring 4:00 p.m. Special Situations; Final Questions 4:30 p.m. Adjourn

Yes, reserve ___ spaces for Mastering the Board Game. Amount enclosed: $__________ (attach additional names) Name: ______________________________________________________ HOA or Firm: ________________________________________________ Address: ____________________________________________________ City: __________________________ State: _____ Zip: ____________ Phone: ______________________________________________________ Visa/Mastercard No. _____________________ Exp. Date: ________ Signature: ___________________________________________________ Orders will not be processed without payment in full. Fees for cancelled registrations will not be refunded. Return with payment to: ECHO, 1602 The Alameda, STE 101, San Jose, CA 95126 Telephone: 408-297-3246; Fax: 408-297-3517

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Condominium Conversions Did You Get What You Paid For?

Condo conversions are not new condominiums. They are older rental apartments that were converted to condos. So, what’s wrong with that? Nothing, if the financial plan that came with your condo is up to the task of maintaining a building with 20-30 years of deferred maintenance. How do you know? You probably don’t unless someone

has taken a close look at the homeowner association’s budget and compared it to the actual condition of the buildings. The fact is, very few condominium conversions were sold with repair budgets that are adequate to meet the needs of the project. What does this mean to you? If the budget is inadequate, it will mean either increased homeowner assessments or a gradually deterio-

rating condominium project. Or both. In either case, you didn’t get what you paid for. If you’d like to know the truth now about what you bought, call us. If you want to wait and see what happens, ok, but either way, we’ll be here when you need us. Berding | Weil, LLP 3240 Stone Valley Road West Alamo, California 94507 925-838-2090 www.berding-weil.com