Journal_09_10

October 2009

A Journal for California Community Association Leaders

echo-ca.org

Why Won’t They Serve?

ALSO INSIDE THIS ISSUE:

• Reserve Projects—Now or Later • Directors Obligations and Liabilities • Association Banks are Lending

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Contents Reserve Projects—Now or Later?

—page 12

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Why Won’t They Serve?

Community associations require management of the association by an elected board of directors that serves by conducting the business of the association. The directors, and its officers, have the sole legal authority to handle its vital functions. Without the board, an association ceases to function.

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 2009 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.

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Whether to spend now or later is an important question for associations contemplating plans for reserve projects. Should the work be delayed because of the economy? For components scheduled for replacement within a few years, should work be undertaken ahead of schedule?

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28 20

Reserve Projects—Now or Later?

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Obligations & Liabilities of Directors: Part II

Board of Directors and Officers

Part I reviewed the basic governing principles by which directors must carry out their fiduciary obligations. Part II discusses the business functions of an homeowners association—those that are analogous to the functions of a private for-profit corporation.

President David Hughes

Yes, Association Banks are Lending!

The question most frequently heard by bankers lately is “Are you making loans to HOAs?” The answer is a resounding “Yes”! This article discusses how an association loan works, how to get started to obtain a loan, and how to make your association look its best during the loan application process.

Departments

Vice President Karl Lofthouse Treasurer David Levy Secretary Dorothy Kopczynski Directors Paul Atkins John Garvic Diane Rossi Richard Tippett Steven Weil

Jerry L. Bowles Robert Rosenberg Kurtis Shenefiel Wanden Treanor

29 Directory Updates 32 News from ECHO

Executive Director Oliver Burford

33 Legislation at a Glimpse 34 ECHO Bookstore

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36 Events Calendar 38 ECHO Volunteers 38 About ECHO 40 Ask the Panel!

41 ECHO Marketplace 41 Advertiser Index

On the Cover Why Won’t They Serve?—page 6 4

October 2009 | ECHO Journal

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 homeowners associations through education and related services to board members, homeowner members, government officials and the professionals in the industry.

2010 ECHO Annual Seminar Yes, it’s already next year.

The 2009 Annual Seminar is just behind us, but we are already preparing next year’s community association event.

Do not forget to mark these dates in your calendar for the ECHO Annual Seminar: June 18 and 19, 2010. You will not want to miss California’s largest common interest development event.

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October 2009 | ECHO Journal

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HOMEOWNERS WON’T volunteer for boards of directors of community associations—another nail in the coffin?

By Tyler P. Berding, Esq.

Why Won’t They Serve? ommunity associations are corporations.

Their bylaws require management of the association by an elected board of directors. That board serves all of the owners by conducting the business of the association. Like any corporation, the board of directors, and its officers, have the sole legal authority to handle all of the vital functions of the enterprise—from hiring and firing property managers, to contracting for repairs, to

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determining the adequacy of the association’s revenue stream.

A property manager does not have the authority to conduct the business of the association on its own. No matter how good, how efficient the manager, without the legal authority of the corporation behind it, business would stop.

Vendors would not continue to provide critical services to the association if there was no one

ECHO Journal | October 2009

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with the authority to write checks. Local government would begin to question whether a condominium project could continue to be habitable if no one was able to pay the water or the electric bill.

Without the board of directors, the association would cease to function. There is no alternative within a corporate framework. Yet many associations have a very difficult time recruiting board members. Board positions go unfilled waiting for volunteers. This has potentially disastrous consequences and justifies further examination. First, we’ll examine some of the reasons why it is so difficult to convince owners to serve on their community association’s board of directors and then discuss the impact of that.

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Reason 1—Lack of Awareness Many owners of property in common interest developments have little knowledge of the operation of the homeowner association. They pay their dues when that bill comes but know very little about the organization itself or its activities. They may not read the newsletter, or if they do it’s only to find out the pool hours. The only budget figures they are concerned about is the amount of the monthly assessment. They are only remotely aware that it is the board of directors and not the management company that has legal responsibility for the business decisions of the association. They simply do not connect the operation of the association with anything in which they have a personal interest.

Reason 2—Time Constraints There are those owners who are familiar with the role of the association and its board of directors and who generally stay abreast of it activities and decisions. They read the newsletter and occasionally attend a meeting of the board; but they see their occupations or family responsibilities as impediments to accepting the additional responsibilities required of members of a board of directors.

Reason 3—Fear of Responsibility Many property owners in community associations are quite aware of the operations of the association and the function of the board of directors, and they would otherwise have the time to devote to a place on the board.

The problem is that, for one reason or another, they are afraid to accept the responsibility. Perhaps it is a lack of confidence in their own ability or concern about liability should they make a mistake; or they are simply discomforted by the thought of making deci-

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October 2009 | ECHO Journal

sions that are critical to the economic interests of their fellow owners.

Reason 4—Us vs. Them This is the most difficult reason of all.

Some owners view the board of directors and the community association as an extension of governmental authority, but more to the point, authority that should be challenged at every opportunity. They do not see a board member as simply a fellow owner volunteering his or her time, but rather as an incompetent bureaucrat. These owners often lack the tolerance necessary to acknowledge that board members are unpaid volunteers trying to do their best. This problem serves the dual purpose of insuring that the critic will have no interest in serving as well as dissuading those who otherwise might. But then, the critic may be right. But this should open the door to challenging an existing board member at the next election—not to providing more reasons for no one to run.

Many owners of property in common interest developments have little knowledge of the operation of the homeowner association Reason 5—Not Your Landlord Speaking When a landlord tells his or her tenants that they can’t smoke inside their apartments, or put satellite dishes on their balconies, or park backwards in the carports, the tenants generally obey the rules. When the board of directors of a community association passes similar rules, it is often met with profound resistance. Why? The tenants “own” their airspace, at least for the duration of the rental agreement, so why is their disposition toward the landlord’s dictates different from the owner of a condominium? Probably because owners feel more empowered than tenants, but whatever the reason, board members, neighbors and sometimes friends do not want to be put in the position of landlord and be required to enforce the rules.

This may also be the reason why it so difficult for boards to raise assessments to an approECHO Journal | October 2009

9

priate level; they do not want to be the ones to tax their neighbors or field complaints.

The net result of these and other reasons is that boards often have to struggle with open positions; and with few members willing to assist in the operation of the association it makes the remaining board members’ jobs that much more difficult—if there are remaining members. If the corporation cannot function because it has no members willing to be directors, the alternative is to seek assistance from the courts, often by petitioning the court for the appointment of a receiver, a very expensive proposition. So there is good reason to be concerned. There is also an argument that the entire scheme of association operation and management by volunteer owners is essentially flawed and that the authority to run the business of all multi-family common interest developments should be vested in professionals. These arguments are difficult to refute if the owners refuse to step up.

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October 2009 | ECHO Journal

For the volunteer management system to work, there have to be volunteers. But the trend is to fewer, not more, people willing to serve their neighbors in this capacity.

And that may happen one day.

Developers, tired of the construction and budget litigation that invariably ensues, may retain sufficient ownership rights to allow them to manage the property for years or in perpetuity, with a set management fee and assessment formula in the governing documents that allows the manager to assess whatever is necessary to maintain the project without a vote of the members. Or, as we have previously written, developments could be joined into large special districts with sufficient governmental powers, including the power to tax, to manage their constituent developments—again without a vote of the owners.

I call these, and similar ideas, the “dedemocratization” of community associations.

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W That sounds bad, but what good is representative democracy if there is no representative? For the democratic volunteer management system to work, there have to be volunteers. But the trend is to fewer, not more, people willing to serve their neighbors in this capacity. If this trend continues, any remaining funds could be exhausted through legal fees and the fees of a court-appointed receiver; or local government may have to act to protect habitability by condemnation of the project. If those situations become widespread we could see either a wholesale change in the governance of owned, multifamily housing or a major shift of that type of housing into rentals.

It seems that I am increasingly a prophet of doom. But really, if owners are unwilling to govern themselves, then condominiums are merely apartments. If owners are unwilling to make the contributions that must be made for a community association to survive, then they must be willing to surrender their ownership interests and be renters. This is a housing crisis as serious as the present economic one, and in fact it may be worse because the crisis in community association government is not likely to end in a year or two.

Tyler Berding is a founding partner of Berding| Weil, a community association law firm located in Alamo. He has taught real estate and community association law at California State University East Bay and is the immediate past president of ECHO. Questions or comments can be directed to Dr. Berding at www.berdingweil.com or www.condoissues.com.

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October 2009 | ECHO Journal

By Marcia Nylander

Reserve Projects Now or Later? o spend now or not to spend now is the question for financially sound homeowners associations contemplating their spending plans for reserve projects. Obviously every reserve component will eventually need to be replaced. For those components starting to show signs that the need to replace is at hand, should the work be delayed because of the economy? For those components that are scheduled to be replaced within a few years, should the work be undertaken ahead of schedule?

There exists an enormous body of economic theory, and it is not our intent to argue the relative merits of these theories, especially in light of the fact that no existing theory is, during these trying economic times, proving itself

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particularly useful in explaining the present or predicting the future. However, a common sense look at the economic factors that are presently in play may be helpful to wellheeled associations reviewing their upcoming reserve project work. The short answer is that now might be exactly the right time to do reserve work, notwithstanding the grim economic forecasts.

Despite the absence of reliable guidance from the economists, homeowner association boards of directors and their management companies do need to function regardless of the rampant economic uncertainties. To function implies making decisions that inevitably involve the financial resources of the association.

Generally, boards of directors take seriously their fiduciary responsibility to protect and preserve the assets of the

ECHO Journal | October 2009

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association. Boards also desire to avoid assessment increases that would be burdensome to the homeowners. Not surprisingly, boards sometimes find that upward trending expenses cannot be met by operating assessment revenue. Consequently, there is a long, but not so venerable, tradition of reducing reserve fund contributions when operating expenses temporarily drain cash. This illadvised behavior has prompted some of the disclosure requirements codified in the Davis-Stirling Act. But current economic factors have taken the economic stress that associations experience to a completely new level. Associations are being severely impacted by foreclosures and the overall increase in the aging of their receivables. With less cash flowing in, many associations have responded by implementing cost cutting efforts, which can run the gamut from reducing the frequency of custodial service to draconian measures such as eliminating all services not directly required to maintain safety. These actions are in addition to the cessation of reserve funding mentioned above. Such associations have limited options and are not well positioned financially to take advantage of the soft economy.

On the other hand, financially sound associations should consider the early completion of reserve projects. At a minimum, these associations should be wary of delaying a scheduled reserve project simply because they are nervous about the current economy.

Association boards need to avoid a knee-jerk response to economic uncertainty; however timely completion of reserve work (before collateral damage has occurred) can ultimately save an association money. Take for example a roof replacement. If done timely, the roof is merely being replaced. But if that replacement is delayed too long, the association may find that they are replacing the roof and also paying to repair damage caused by roof leaks.

In the normal course of events, an association should commence reserve component replacement as that component approaches the end of its useful life (or earlier if the possibility of early failure is identified). A good policy in the year or two prior to the scheduled replacement would be for an association to develop the specifications for the replacement job, to invite bids from qualified vendors, to evaluate those bids, and to award the job to the vendor whose bid is most attractive. During the year identified as the replacement year, the replacement project

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could commence and work would proceed as planned.

The question at hand is whether there is an advantage to the association if it elects to replace a reserve component prior to the end of its life. If a component is scheduled for replacement in 2013, should the association begin the bid process in 2012 or tomorrow?

Does taking action today provide a unique benefit to the association that derives from the current economic climate?

Because of the economic downturn, new housing construction has virtually stopped and demand for renovation, rehabilitation and remodeling work has slowed markedly.

Due to reduced demand, the much soughtafter financially healthy buyer may find this to be a good time to negotiate a very competitive price on a reserve project. While contractors are not willing to undertake projects for free, they may well reduce their profit margin in order to find work that allows them to meet their fixed and indirect costs.

It’s good advice for association boards to consider seriously taking advantage of the current buyer’s market.

At this point, it is appropriate to digress briefly to remind the reader of the necessity

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Reserve Project—Hypothetical Price Increase Annual Inflation Rate

Monthly Inflation Rate

Price Increase Product Price

Today's Bid Price

$ 250,000

Savings Account—Hypothetical Growth Annual Interest Rate

Monthly Interest Rate

Interest Earned

Account Balance

Today's Savings Account Balance

$ 250,000

Jun-09

5%

0.417%

$ 1,042

$ 251,042

1.50%

0.125%

$ 313

$ 250,313

Jul-09

5%

0.417%

1,042

252,083

1.63%

0.135%

339

250,651

Aug-09

5%

0.417%

1,042

253,125

1.75%

0.146%

366

251,017

Sep-09

5%

0.417%

1,042

254,167

1.88%

0.156%

392

251,409

Oct-09

5%

0.417%

1,042

255,208

2.00%

0.167%

419

251,828

Nov-09

5%

0.417%

1,042

256,250

2.13%

0.177%

446

252,274

Dec-09

6%

0.500%

1,250

257,500

2.25%

0.188%

473

252,747

Jan-10

6%

0.500%

1,250

258,750

2.38%

0.198%

500

253,247

Feb-10

6%

0.500%

1,250

260,000

2.50%

0.208%

528

253,775

Mar-10

6%

0.500%

1,250

261,250

2.63%

0.219%

555

254,330

Apr-10

6%

0.500%

1,250

262,500

2.88%

0.240%

609

254,939

May-10

6%

0.500%

1,250

263,750

3.00%

0.250%

637

255,577

Jun-10

7%

0.583%

1,458

265,208

3.13%

0.260%

666

256,242

Jul-10

7%

0.583%

1,458

266,667

3.25%

0.271%

694

256,936

Aug-10

7%

0.583%

1,458

268,125

3.38%

0.281%

723

257,659

Sep-10

7%

0.583%

1,458

269,583

3.50%

0.292%

752

258,411

Oct-10

7%

0.583%

1,458

271,042

3.63%

0.302%

781

259,191

Nov-10

7%

0.583%

1,458

272,500

3.75%

0.313%

810

260,001

Dec-10

8%

0.667%

1,667

$274,167

3.88%

0.323%

840

$260,841

Table: Comparison between the rate at which reserve project prices might increase and the interest rate increases on a typical savings account.

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October 2009 | ECHO Journal

to work only with qualified vendors. In the past this meant verifying insurance, checking references, etc. Now, however, the due diligence required of boards and association managers extends to vetting the financial health of the vendor carefully. Does a contractor have the wherewithal to weather the economic times? Will he be here to finish the job? Does he have the financial depth to perform the inevitable rework? Can he afford his insurance premiums both currently and at the time of renewal? Ask for a copy of contractor’s audited financial statements and for information regarding the contractor’s borrowing capacity.

Just as the traditional microeconomic model of supply and demand formally explains our intuitive understanding of why prices might be low in a depressed economy, there is also the macroeconomic theory that links the rate of inflation to the money supply. Bottom line—when the money supply goes up, so does the inflation rate. The economic recovery package introduces in excess of $1 trillion “new” money into the money supply and inflation seems likely, although when this might occur is unclear.

Inflation will be manifested by increased prices of goods and services. The reserve project with a bid price today of, let’s say, $250,000 will have a higher bid price in the future for exactly the same work. An association that has $250,000 set aside in reserve funds today will find it is underfunded for the project in the future. The real purchasing power of the dollars in the reserve bank accounts declines as inflation sets in. This phenomenon is why some people switch from financial assets (such as savings accounts) to real goods (such as gold or a new roof).

The interest earned on the reserve funds may not compensate for higher prices of goods and services. Currently the interest rate on savings and investment accounts is a very low one percent. The conservative financial instruments that are the recommended investment vehicles for associations simply do not pay high interest because they are low risk. Inflation should increase the interest rate paid on these deposit accounts and investments. However the upward drift of interest rates may lag the upward movement of the prices of goods and services. If the inflation rate on products is expected to exceed the interest rate applicable to finan-

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Continued on page 18 ECHO Journal | October 2009

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a reserve project increased by $24,167 from $250,000 to $274,167. At the beginning of the period the association had $250,000 in the bank to pay for a $250,000 reserve project. Eighteen months later, the association could not pay for the same project and was underfunded by $13,326. The shortfall on a $1,000,000 project would be approximately $53,000.

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Reserve Projects Continued from page 17

cial assets then net purchasing power will have been lost. Keep in mind that this is a permanent loss unless the compounding effect of interest payments on the savings accounts is sufficient to offset price increases.

On page 16 is a simple model of the divergence between the increasing balances in a savings account compared to an inflation-driven increase in the price of a reserve project.

To highlight this divergence, the model 18

October 2009 | ECHO Journal

assumes a significant difference between the rate at which reserve project prices might increase and the interest rate increases on a typical savings account. Interest is compounded on the savings account.

The model can be made to yield very different results depending on the assumptions made about the timing and extent of inflation, the actions of the Federal Reserve, consumer confidence, etc. In this version, the bank account balance increased by $10,841 from $250,000 to $260,841 over an 18-month period. During the same period the price of

So, what should an appropriately funded association do? Should it go ahead with a reserve project that is currently scheduled or wait until the economic crisis has passed?

Similarly, should it undertake a reserve project a bit early or wait for the normal replacement cycle? The answer cannot be completely known. However, it is the case that prices are currently depressed due to the weak economy and inflation may be looming. For those associations that are financially sound, perhaps it is better to spend now than to wait.

Marcia Nylander is the Chief Operations Officer at the Christison Company, a full-service association management firm in Livermore. She is a member of the ECHO East Bay Resource Panel.

I

IN PART I OF THIS ARTICLE, PRINTED in the September 2009 issue of the ECHO Journal, the author reviewed the basic governing principles by which a director must carry out his or her fiduciary obligations and began to consider some of the obligations of a director and how these principles might apply in certain situations. In undertaking these considerations, he separated the various functions of a board of directors of a homeowners association into two general categories.

The first category, related to those functions that are governmental in nature and relate to many of the relationships between the association and its members, the association and third parties, were discussed. In Part II of the article, he discusses the business functions of a homeowners association—those that are analogous to the functions of a private for-profit corporation.

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October 2009 | ECHO Journal

PART II

By John D. Garvic, Esq.

Legal Obligations and Potential Liabilities of Directors he business functions of a homeowners association are analogous to those of a private for-profit corporation.

The governing documents of a homeowners association make it clear that one of the primary responsibilities of the board of directors is to preserve the physical surroundings of the complex. This will require contracting with various services to maintain the grounds and to perform maintenance and repair. A system for receiving assessments from owners and disbursing funds must be established. Financial management of the affairs of the association is extremely important, and complete books and records must be maintained.

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Recognizing these obligations and functions, let us consider how the general principles discussed in Part I might apply. If one of the primary functions of the directors is to maintain the physical surroundings of the complex, it would seem clear that a director has an affirmative obligation to become aware of the physical condition of the complex. In other words, a director who does not periodically tour the complex is not living up to his responsibility. Should that director then discover that certain aspects of the physical surroundings are in need of repair or additional mainte-

nance, it then becomes his or her obligation to see that such repair or maintenance is performed. Often this requires the board to deal with outside contractors in which legal contracts are involved. This being the case, the director has an obligation to familiarize himself or herself with the contract and to obtain a basic understanding of it. If the director is unable to completely comprehend the document, he or she should consult others whom that director believes to have sufficient qualifications so as to obtain clarification.

Similarly, in the preparation of the homeowner association budget, one of the more important functions of a board of directors, each director has an obligation to understand the budget in detail. Each director should make reasonable inquiry to understand why certain figures have been allocated to various categories, why increases have incurred or are projected, and whether or not the amount of money allocated to each category appears to be adequate. If the directors need the assistance of experts, they have a clear obligation to seek their advice.

Not only must a director act in a reasonable and prudent manner as to such matters as contracts and finances, that director must also undertake to investigate when facts are

ECHO Journal | October 2009

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brought to his or her attention that would suggest that such investigation is appropriate.

For example, consider the situation where the board is informed that the spa operates in such a way that a small child could be pulled to the bottom by the action of the spa pumps, with the potential result that the small child could be held under water.

Obviously, the potential for serious harm is great in this situation and requires the director to examine the situation immediately. If, upon examination, the director determines that the report is accurate, he or she then has an obligation to take the necessary steps to rectify the situation. Such steps might include the enclosing of the spa area and/or requiring that no children under a certain age be permitted in or near the spa. The point is that a director who has been put on notice of a dangerous condition within the complex has an affirmative obligation to investigate and to act when appropriate, and failure to do so may result in not only liability for the association but also for the individual director.

Once again, the examples discussed here are basically specific applications of the general principles discussed earlier. It is for this reason that each and every member of the board must understand the general principles so that each director can apply them in performing their duties.

Having briefly reviewed the basic obligations of a director of a homeowners association and the principles relating to the performance of those obligations, it is appropriate to consider certain general procedures for fulfilling those obligations and thus minimizing the liability of both the association and the individual directors.

Minimizing the Potential for Liability It goes without saying that one of the first actions a director should undertake after having been elected to the board is to become thoroughly familiar with the governing documents and all of the rules and regulations of the association. These documents set forth, sometimes in general terms and sometimes specifically, the obligations of the board of directors and the limitations on their powers.

Whenever a question arises as to either such obligations or such limitations, reference should always first be made to the governing documents. Never guess!

It is also a very good idea for each new director to examine the minutes of the Continued on page 24

22

October 2009 | ECHO Journal

ECHO Peninsula Seminar Don’t miss this opportunity to stay informed on how your association can survive the economic crisis of 2009.

The Seminar Agenda will be announced—Watch for it in the upcoming flyer

Peninsula Seminar Saturday, October 17, 2009

Yes, reserve ___ spaces for the Peninsula Seminar.

Amount enclosed: $__________ (attach additional names)

8:00 a.m. to 1:00 p.m.

Name: _______________________________________________________

Sofitel Hotel

HOA or Firm: _________________________________________________

223 Twin Dolphin Dr., Redwood Shores Address:_____________________________________________________

Registration Fee: $40 Non-Members: $50

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

Obligations and Liabilities of Directors Continued from page 22

association for the previous years. This will enable that director to become familiar with many of the issues that have already been raised and how the previous boards have dealt with them. Such a review will also emphasize the importance of the maintenance of good minutes.

The Code requires that minutes of all board meetings be maintained. However, these minutes and all other records of the association will be of little value unless they are sufficiently detailed such that one can read them long after the meeting and still know what occurred at the meeting. Not only should the minutes be detailed, but when a vote is taken, the minutes should indicate how each of the members voted. Further, where there is reference to written reports and letters, those reports and letters should be attached to the minutes and made a permanent part of the record of the association.

Not only should the minutes be detailed, but when a vote is taken, the minutes should indicate how each of the individuals voted.

Recognizing that the board ultimately has responsibility for the operation of the association, it should establish a strong committee system with written charters for each committee. Written reports from each committee should be required and when appropriate, sufficient authority should be delegated to a particular committee to permit them to fulfill their function.

In addition to committees, the board of directors should have professional personnel on retainer to assist them. Such professional personnel should include management companies, accountants, attorneys and technical experts. All too often, boards of directors wait until a problem occurs before they Continued on page 26 24

October 2009 | ECHO Journal

New election rules: $500 In today’s economic crisis, there may be some items that associations can cut to reduce costs. ECHO membership is not one. Let’s face it, educated board members are better fiduciaries, which helps them to avoid costly law suits and possibly personal liability.

ECHO is the premier resource in California for board member education. ECHO offers new articles each month with practical and easy to understand advice about current California requirements, and what may be on the horizon. ECHO staff is available by phone or E-mail to answer members’ questions about association problems or to recommend competent professional services when necessary.

And with discounted member rates at more than a dozen educational events throughout the year, ECHO is simply the best educational resource for California homeowners.

Avoid Litigation Each year, as a member benefit, ECHO sends every board member a copy of the updated Community Association Statute book. Every issue of the ECHO Journal and every seminar examine one or more aspects of compliance with association law, because one of the major causes of expensive litigation is ignorance of the law.

Mailing ballots: $200 Make Better Financial Choices Many associations struggle to understand reserve funding requirements and strategies, the benefits and disadvantages of using special assessments, proper collections practices, and even how to determine what components the association is required to maintain.

At a time when wise financial planning is essential, ECHO members have access to a wealth of articles about reserve funding, budgeting, insurance, collections, and much more.

Fight Costly Regulation Every year, Sacramento legislators introduce more legislation that confuses the job of California board members and increases the costs of compliance. ECHO is committed to fighting unnecessary regulation in California and promoting the interests and welfare of common interest developments.

Hire Competent Professionals ECHO offers a variety of articles and publications to help members evaluate their service providers, including questions to ask prospective management firms and contractors. All ECHO Journal articles are available to members at no cost, and publications are sold to members at a discount.

Avoiding a lawsuit: Priceless.

Spend a Little, Get a Lot The cost of ECHO membership is minimal. In a worsening economy, associations are looking to cut big expenses from their budgets. Yet, ECHO membership is as little as 25¢ per unit each month. For that small cost, here’s what every board member receives as part of being a member of ECHO: • A subscription to the ECHO Journal • An annual copy of the current Community Association Statute book • Unlimited access to ECHO’s library of past articles • Telephone consultations with ECHO staff about their problems • Reduced fees for ECHO events • Discounted prices on publications • And much more…

In These Tough Economic Times, ECHO Membership is a Necessity As the only California organization devoted exclusively to board member and homeowner education, ECHO is a one-of-a-kind resource that your association can’t afford to lose.

Obligations and Liabilities of Directors Continued from page 24

contact a professional for assistance. Many times, the problem could have been avoided or at least minimized had the board consulted with the professional at an earlier point in time. The Code permits the board to rely upon the information and opinions of professionals, and the directors should take full advantage of that provision.

The board should establish a system of communication between itself and the members of the association. If the members are adequately advised as to the various issues confronting the board on a regular basis, much more understanding, cooperation and participation from the members will result.

Most governing documents of homeowners associations permit directors to obtain errors and omission insurance, and directors who do not obtain such insurance are foolish. While insurance does not relieve directors from their obligations, which have already been discussed, the coverage that is available is relatively inexpensive and does afford each director some degree of protection. As with other contracts, each member of the board should familiarize himself or herself with the contents of every insurance policy entered into by the association and particularly with those exclusions contained therein.

Individual directors should be acutely aware of the concept of conflicts of interest.

Whenever such conflicts arise, those board members in conflict should refrain from vot26

October 2009 | ECHO Journal

ing on the particular issues involved. Further, those board members should disclose all such conflicts to the remaining members of the board.

Board members should make every effort to educate themselves in all phases of their responsibility... this begins by thoroughly familiarizing oneself with the governing documents of the association.

Individual board members should make it a point to attend all meetings of the board. It is no defense to a claim of mismanagement or non-management that a director simply did not have enough time to devote to the meetings of the association. If a director does not have the time to comply fully with his or her obligations, then he or she should get off of the board without delay.

Board members should make every effort to educate themselves in all phases of their responsibility. As indicated earlier, this begins by thoroughly familiarizing oneself with the governing documents of the association and reading the minutes of previous meetings of the board of directors. But the education should not stop there. Numerous courses, seminars, periodicals, and books relating to the management of homeowners associations are available and directors should make a reasonable effort to obtain this information. Ignorance may sometimes be bliss, but it is definitely not a defense to an action for breaching the fiduciary obligation that each director has.

These suggestions are not intended to be all inclusive. However, if directors undertake a reasonable effort to follow these suggestions, they are well on their way to fulfilling their obligations and at the same time insulating themselves and their association from the potential liabilities that always exist.

Perhaps the most important thing for a director of a homeowners association to remember is that it is very serious business and should not be taken lightly.

John Garvic is the founding member of Garvic & Associates, a law firm in San Mateo, California, specializing in common interest developments since 1977. He is a member and past president of the ECHO board of directors and is the chair of the ECHO Legislative Committee.

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

Changes to Member Listings C. L. Sigler & Associates 1731 Embarcadero Rd., Ste. 210 Palo Alto, CA 94303 Contact: Chris Sigler Tel: 650-424-0900 Fax: 650-424-0909 Tel. & Fax remain the same Collins Management Co. 500 Alfred Nobel Dr., Ste. 250 Hercules, CA 94547 Tel. & Fax remain the same

6(59,1* &20081,7,(6 7+528*+287 1257+(51 &$/,)251,$ 672&.721 +4 ‡ )5(0217 PLEASANTON ‡ &233(5232/,6 ‡ 02'(672 ‡ 6$17$ &/$5$

M & C Association Management Services provides community association management and developer services to Fremont, Pleasanton, Santa Clara, Stockton, Modesto, Copperopolis and the surrounding foothills.

Since 1990, our sole focus has been to deliver performance that enriches communities and enhances the lives of the people we serve. M & C is proud to be an Accredited Association Management CompanyŽ (AAMCŽ), which is the Community Associations Institute’s highest GHVLJQDWLRQ DZDUGHG WR PDQDJHPHQW ÀUPV

3OHDVDQWRQ ‡ )UHPRQW ‡ 6DQWD &ODUD Stockton 209.644.4900 ‡ 0RGHVWR ‡ &RSSHURSROLV For management proposal information, please visit www.mccommunities.com or email info@mccommunities.com ECHO Journal | October 2009

27

28

October 2009 | ECHO Journal

By Geri Kennedy, CCAM, and Karl Lofthouse

Yes, Association Banks are Lending! he question most often heard by association bankers lately is “Are you making loans to HOAs?” The answer is a resounding “Yes”!

A bank loan can be the best answer to an association with a large project on the horizon, but with reserve balances that are just not sufficient.

The interest rates earned on the reserves right now are at a low point. It may be the best time to move forward with your projects. The bank loan will provide the cash needed to get the work done now and allow the homeowners to pay over time.

Electing to defer projects until there is more cash in the bank may not be the best choice.

When major repairs are deferred, problems only get worse and more expensive. A recent example is a project that one year ago was in the one million dollar range is now going to be $1.2 million due to additional rot damage. Keeping your buildings in good repair is not only the duty of the board of directors but helps to maintain the property values, which is especially important in this economy. An association with faded or peeling paint and potholes in the streets is not going to be appealing to most buyers. Your homeowners need all the help they can to begin the process of bringing the property values, and thereby their equity, back to where it was a year or so ago.

T

How an Association Loan Works The loan to the association is considered a commercial loan. No liens are filed against individual units or the association-owned property.

The bank’s collateral is the association’s assessment stream. Payment of the assessments, both special and regular, is an ongoing obligation of the unit owners. The association has full rights to lien and foreclose or obtain a court-approved judgment when owners do not pay. The bank can step into the association’s collection “shoes” if loan payments are not made in a timely manner.

Most association loans begin as a non-revolving line of credit. As the invoices arrive from the contractors, funds from the loan are deposited into the association’s bank account. The association makes interest-only payments on the balance that is drawn. At the completion of the project, the loan payments begin to include both principal and interest.

Association loans are usually project specific.

In other words, if the association tells the bank it is borrowing money to replace the roof and then submits invoices for new trees, a loan drawdown transfer will likely not be made. The bank may require copies of invoices and lien releases prior

ECHO Journal | October 2009

28

to transferring funds to the association’s bank account.

How to Get Started with an Association Loan The terms of the loan will of course vary both from association to association and bank to bank. Some questions to ask when looking for a lender are: • Is your bank “association friendly”? In other words, does your bank have a focus on the HOA/CID industry and will it understand how the association’s finances work? Has your bank done other loans to associations? Will the bank provide several references?

• How long is the payback?

• Will there be a balloon payment?

• What is the interest rate?

• Are there loan fees? If yes, ask for details.

• Are there any prepayment penalties? If yes, ask for details.

• What if a payment is late?

• If the association moves funds to the lending bank, what investment options are offered?

• What special documentation will be required? Is an appraisal required and what are the costs?

• Will the loan continue to be serviced locally?

The bank can step into the association’s collection “shoes” if loan payments are not made in a timely manner.

Making Your Association Look Its Best Of course, the bank will be looking very carefully at the financial health of the association. They will request what may seem like a long list of documents. By following the guidelines below, you will save time and show that you have a well-run association.

1. How does the association plan to repay the loan? Have a plan in mind prior to submitting the application.

Continued on page 37 30

October 2009 | ECHO Journal

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31

News from ECHO is not going to be appealing to most buyers. Your homeowners need all the help they can get to begin the process of bringing the property values, and thereby their equity, back to where it was a year or so ago.

Yes, Association Banks Are Lending!

The question most often heard by association bankers lately is “Are you making loans to HOAs?” The answer is a resounding “Yes”!

A bank loan can be the best answer to an association with a large project on the horizon, but with reserve balances that are just not sufficient. The interest rates earned on the reserves right now are at a low point. It may be the best time to move forward with your projects. The bank loan will provide the cash needed to get the work done now and allow the homeowners to pay over time.

Electing to defer projects until there is more cash in the bank may not be the best choice.

When major repairs are deferred, problems only get worse and more expensive. A recent example is a project that one year ago was in the one million dollar range is now going to be $1.2 million due to additional rot damage. Keeping your buildings in good repair is not only the duty of the board of directors but helps to maintain the property values, which is especially important in this economy. An association with faded or peeling paint and potholes in the streets 32

October 2009 | ECHO Journal

Why Won’t They Serve?

Community associations are corporations. Their bylaws require management of the association by an elected board of directors. That board serves all of the owners by conducting the business of the association. Like any corporation, the board of directors, and its officers, have the sole legal authority to handle all of the vital functions of the enterprise. Without a board of directors, an association ceases to function. There is simply no alternative within a corporate framework.

A property manager does not have the authority to conduct the business of the association on its own. No matter how good a manager is, without the legal authority of the corporation behind him or her, business stops.

Yet, many associations have a very difficult time recruiting board members. Board positions go unfilled waiting for volunteers. This has potentially disastrous consequences and justifies

further examination. What are some of the reasons it is so difficult to convince owners to serve on their community association’s board of directors?

Reason 1—Lack of Awareness. Many owners of property in common interest developments have little knowledge of the operation of the homeowner association. They pay their assessments when that bill comes but know very little about the organization itself or its activities. They do not connect the operation of the association with anything in which they have a personal interest.

Reason 2—Time Constraints.

There are those owners who are familiar with the role of the association and its board of directors; but they see their occupations or family responsibilities as impediments to accepting the additional responsibilities required of members of a board.

Reason 3—Fear of Responsibility. Many property owners in community associations are quite aware of the operations of the association and the function of the board of directors. However, for one reason or another, they are simply afraid to accept the responsibility.

Reason 4—Us vs. Them. This is the most difficult reason of all.

Some owners view the board of directors and the association as an extension of governmental authority but, more to the point, authority that should be challenged at every opportunity.

Reason 5—Not Your Landlord Speaking. When a landlord tells his or her tenants that they can’t smoke inside their apartments, or put satellite dishes on

their balconies, or park backwards in the carports, tenants generally obey the rules. When the board of directors of a community association passes similar rules, they are often met with profound resistance.

The net result of these, and other, reasons is that boards often have to struggle with open positions; and with few members willing to assist in the operation of the association it makes the remaining board members’ jobs that much more difficult—if there are remaining members.

I call these, and similar ideas, the “de-democratization” of community associations. That sounds bad, but what good is representative democracy if there is no representative? For the democratic volunteer management system to work, there have to be volunteers. But if owners are unwilling to govern themselves, then condominiums are merely apartments.

Upcoming Events Friday, October 16 Annual Membership Meeting 10:00 a.m.

ECHO Office 1602 The Alameda, Suite 101 San Jose Saturday, October 17 Peninsula Fall Seminar 8:00 a.m. to 1:00 p.m.

Hotel Sofitel, Redwood City

2009 Legislation at a Glimpse As of September 12, 2009 Bill No.

Author

Subject

Status

Position

Summary

AB 49

Feuer

Water Reduction

In Conference Committee

Watch

Would state the intent of the Legislature to enact legislation to establish a 20% water efficiency requirement for the year 2020 for agricultural and urban water users.

AB 121

Hernandez

Judgment Lien Extension

Passed Legislature; to Governor

Neutral

Under certain conditions, this bill would allow creditors to extend judgment liens on specified personal property by filing a continuation statement in the office of the Secretary of State. The statement must be filed no earlier than six months before the lien is scheduled to expire.

AB 300

Caballero

Water Supply

In Senate Resources

Oppose

Would regulate water supplies to subdivisions of 50 units or more.

The bill is long, controversial and will likely become a two-year bill.

AB 313

Fletcher

Tax-based Assessments

Passed Legislature; to Governor

Oppose

After December 30, 2009, would prohibit associations from levying assessments based upon the taxable value of the separate interests within the association. Associations that levied assessments based upon taxable value on or before December 30, 2009 would be exempted.

AB 370

Eng

Unlicensed Contractors

Passed Legislature; to Governor

Support

Would increase fines for unlicensed contractors.

AB 473

Blumenfield

Recycling Mandate

Passed Senate; Pending Assembly concurrence

Support if Amended

Would require an owner of a multi-family dwelling with five or more units to arrange for recycling services.

AB 566

Nava

Mobilehome Conversion Approval

Amended; Passed Assembly.

In Senate, Third Reading

Support

In deciding whether to approve or disapprove a subdivision map, would allow a legislative body or advisory board to consider whether a majority of the residents in a mobilehome park approve conversion of the park to resident ownership.

AB 869

Mendoza

Mobilehome Park Managers

Failed passage, two-year bill?

Support

Defines “Park Manager” and “Certified Mobilehome Park Manager.”

AB 899

Torres

Disclosure Documents Index

Passed Legislature; to Governor

Support

Would require associations to distribute a list of all legally mandated disclosures to their members annually, if requested. Clarifies and improves provision allowing the electronic distribution of records.

AB 1061

Lieu

Low WaterUsing Plants

Passed Legislature; to Governor

Support

Would render void and unenforceable any provision in the governing documents of an association that has the effect of prohibiting low water-using plants or prohibits or restricts compliance with local conservation ordinances. Allows associations to enforce landscaping rules and regulations.

AB 1328

Salas

Contract Restrictions

Passed Legislature; to Governor

Neutral

Extends to 5 years contract length restrictions for water or energy efficiency programs for associations when the board reasonably anticipates verifiable savings to the association. Requires the board to provide notice of the contract length before approving it.

SB 23

Padilla

Mobilehome Safety Plan

Passed Legislature; to Enrollment

Support

Would require all owners or operators of mobilehome or manufactured home parks to adopt an emergency preparedness plan. Requires that the plan be posted and that an enforcement agency determine park compliance.

ECHO Journal | October 2009

33

2008 ECHO Business & Professional Directory $20.00 Non-Member Price: $25.00

Condominium Bluebook 2009 Edition $18.00 Non-Member Price: $25.00

Homeowners Association and You $13.00 Non-Member Price: $20.00

Community Association Statute Book—2009 Ed. $15.00 Non-Member Price: $25.00

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 associations.

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.

A practical problem solving guide to all aspects of community association living. 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.

Contains the 2009 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 associations.

Robert’s Rules of Order $7.50 Non-Member Price: $12.50

The Board’s Dilemma $10.00 Non-Member Price: $15.00

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.

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.

California Building Guidelines for Residential Construction $52.50 Non-Member Price: $60.00

Homeowners Associations— How-to Guide for Leadership $35.00 Non-Member Price: $45.00 This well-known guide and reference is written for officers and directors of homeowners associations who want to learn how to manage and operate the affairs of their associations effectively.

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.

ric ReP duce ed

Questions & Answers About Community Associations $18.00 Non-Member Price: $25.00 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.

Reserve Fund Essentials $18.00 Non-Member Price: $25.00 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.

The Condo Owner’s $15.00 Answer Book Non-Member Price: $20.00 An excellent guide to understanding the rights and responsibilities of condo ownership and operation of homeowners 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.

2009 ECHO Annual Seminar Program Book $15.00 Non-Member Price: $20.00 This 300+ page reference book contains the presentation outlines, text and handouts from the sessions at the 2009 ECHO Annual Seminar held on July 13, 2009. It also contains vital information for association directors, such as assessment collection policies, internal dispute policies, and much more.

Dispute Resolution in Homeowner Associations $20.00 Non-Member Price: $25.00 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 Non-Member Price: $25.00

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

QUANTITY

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.

SUBTOTAL CALIFORNIA SALES TAX (Add 9.25%) TOTAL AMOUNT

Yes! Place my order for the items above.

Board Memberâ&#x20AC;&#x2122;s Guide for Management Interviews $20.00 Non-Member Price: $25.00 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.

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

ECHO Events Calendar

Dates for your calendar Wednesday, October 7 Maintenance Resource Panel 12:00 Noon ECHO Office 1602 The Alameda, Suite 101 San Jose Friday, October 9 East Bay Resource Panel 9:30 a.m.

Angius & Terry 1900 N. California Blvd., Suite 950, Walnut Creek Wednesday, October 14 South Bay Resource Panel 12:00 Noon Il Fornaio 302 S. Market St., San Jose Friday, October 16 Annual Membership Meeting 10:00 a.m.

ECHO Office 1602 The Alameda, Suite 101 San Jose Saturday, October 17 Peninsula Seminar 8:00 a.m. to 1:00 p.m.

Sofitel Hotel 223 Twin Dolphin Dr., Redwood Shores

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

Eugene Burger Mgmt. Co. 6600 Hunter Dr., Rohnert Park

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

Eugene Burger Mgmt. Co. 6600 Hunter Dr., Rohnert Park

Thursday, November 5 North Bay Resource Panel 11:45 a.m.

Contempo Marin Clubhouse 400 Yosemite Rd., San Rafael

Friday and Saturday June 18 and 19, 2010 ECHO Annual Seminar Santa Clara Convention Center Santa Clara

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

Francesco’s Restaurant Oakland Tuesday, November 10 Central Coast Resource Panel 12:00 Noon Pasatiempo Inn, Santa Cruz Friday, November 13 East Bay Resource Panel 9:30 a.m.

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

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

36

October 2009 | ECHO Journal

Meeting First Wednesday, Even Months First Thursday, Odd Months Second Friday, Monthly Second Monday, Odd Months Second Tuesday, Odd Months Second Wednesday, Even Months Third Wednesday, Monthly Quarterly

Location ECHO Office, San Jose Contempo Marin Clubhouse, San Rafael Angius & Terry, Walnut Creek Francesco’s Restaurant, Oakland Pasatiempo Inn, Santa Cruz Il Fornaio, San Jose Eugene Burger Management Co., Rohnert Park Varies

Association Banks are Lending Continued from page 30

a) Will there be a special assessment? This is generally the best way to fund both your project and the future loan payments. b) Even in this economy, you may be surprised by how many owners are able to pay a special assessment in one lump sum or perhaps a couple of large payments several months apart. There are owners out there who have existing home equity lines of credit or are noticing that their own funds aren’t earning much. Often they would rather pay the assessment up front, rather than paying over time and having to include the association’s loan interest costs. c) An increase in the regular assessment rate may be sufficient to cover the loan payments.

2. Does the association follow its own collection policy aggressively? a) Because the bank’s collateral is the association’s assessment stream, it is important to show the bank that good policies for collection of assessments are in place and that the association follows through on delinquent owners. b) In general, the banks are looking for minimal delinquencies. When an aging report is provided to the bank, be sure it includes detailed information on the status of collection efforts for each delinquent unit. c) If the delinquency report includes owners who are four or five months delinquent and a lien has not even been recorded, it will not look very good. d) Consider setting up an allowance for bad debts in your operating budget.

This will show the bank that the budget is realistic, taking into consideration the level of delinquent owners in the association. e) Write off those units that have been sold through foreclosure. That does not mean that the association needs to stop collection efforts; it just removes them from the active delinquency list.

3. Will the association continue to have a positive cash flow especially once the project has been completed? a) While making payments on the loan, it is important for the association to Continued on page 39

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Fire Alarm Systems Fire Sprinkler Systems Testing, Service, Design & Installation 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

Tele-Entry & Access Control Emergency Exit Lighting Automated Gates Fire-Rated & Rollup Doors For Information please call: 650 988-9508 or 888 988-9508 or e-mail info@statcomm.com Lic # 675521 Underwriters Lab #UUFX.S8915 Diamond Certified ECHO Journal | October 2009

37

ECHO Honor Roll

About ECHO

ECHO Honors Volunteers Tyler Berding 2009 Volunteer of the Year ECHO Resource Panels Accountant Panel Richard Schnieder, CPA 707-576-7070 Central Coast Panel John Allanson 831-685-0101 East Bay Panel Scott Burke, 408-536-0420 Mandi Newton, 925-937-0434 Legal Panel Mark Wleklinski, Esq. 925-280-1191 Maintenance Panel Brian Seifert, 408-536-0420 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 Maria Birch, 707-584-5123

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

38

October 2009 | ECHO Journal

SF Luncheon Speakers John Allanson Jeffrey A. Barnett, Esq. 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. Beverly Gordon, CCAM Sandra Gottlieb, Esq. Beth Grimm, Esq. Brian Hebert, Esq. Roy Helsing Stephen Johnson, CFP 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.

Marin Seminar Speakers David Feingold, Esq. Linnea Juarez, PCAM, CCAM Wanden Treanor, Esq. Glenn Youngling, Esq.

Association Finances Seminar Speakers Joelyn Carr-Fingerle, CPA Bill Erlanger, CPA James Ernst, CPA John Garvic, CPA Donald Haney, CPA

North Bay Winter Seminar Speakers Sandra Bonato, Esq. Robert Hall, Esq. Diane Kaye, CCAM David Kuivanen, AIA Steve Lieurance, CCAM Steven Saarman Robert Smylie Barbara Zimmerman, Esq.

Recent ECHO Journal Contributing Authors June 2009 James O. Devereaux, Esq. Hermann Novak Steven O’Brien Debra J. Oppenheimer, Esq. Allen F. Schafer Dean Williams, PCAM July 2009 Andrew Baugh, Esq. Melanie J. Bingham, Esq. Matt Malone, Esq. Marjorie Jean Meyer, PCAM Matt D. Ober, Esq. Carole Robinson Brian Seifert August 2009 Tyler P. Berding, Esq. Damon Burk Michael Gartzke, CPA Patrick Hendry Tracy Neal, Esq. Judy O’Shaughnessy David C. Swedelson, Esq. September 2009 John D. Garvic, Esq Roy Helsing John Schneider

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.

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 Non-members/Homeowners Businesses & Professionals

$50 $75 $125

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 408-2973246 or visit the ECHO web site (echo-ca.org) to obtain an application form and for more information.

Association Banks are Lending Continued from page 37

continue funding the components shown in the reserve study. b) Does the association follow the funding recommendations in the reserve study?

Bankers often hear something along the lines of â&#x20AC;&#x153;Well, the reserve study is off-base with regard to when that component needs to be replaced.â&#x20AC;? The answer should instead be â&#x20AC;&#x153;We are working with our reserve study preparer to assure the accuracy of the information and will be allocating sufficient money to fully fund future projects.â&#x20AC;?

4. Is the association well managed? a. The minutes and past financial records will be reviewed. b. Has the project been well thought-out?

Have the appropriate experts been consulted? Will there be a construction manager? c. Be prepared to provide copies of any engineering or other reports. d. Is the cost of the project reasonable considering the value of the property?

5. Have the appropriate steps been taken for approval of the special assessment and, if required by the governing documents, member approval for the loan?

Once all the paperwork has been provided to the bank and the loan has been approved, the board will sign the loan documents and the funds will be available.

If you partner with an experienced association lender, your project will be started in a timely manner and successfully completed.

Your owners will have the choice of making payments over time that will better fit their personal budgets while their property values have been protected and in most cases improved.

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pro craft builders MULTI-UNIT SPECIALISTS

Geri Kennedy is a vice president at First Bank Association Services. She is the co-chairperson of the South Bay Resource Panel, a member of the ECHO Legislative Committee and a past member of the ECHO board of director. Karl Lofthouse is a senior vice president in the Homeowner Association Banking Services Department at First Bank. He is currently vice president of the ECHO board of directors and is a member of several ECHO resource panels.

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ECHO Journal | October 2009

39

Ask the [Maintenance] Panel!

Members of ECHO’s Maintenance Panel address from time to time a specific maintenance concern that many associations face. These concerns come to the panel from communications with the Panel members and the ECHO Office. Resource Panels are established partially to help member directors get answers to their questions. If you have a question or concern about maintenance informative, please—Ask the Panel!

Question

We want to hire a contractor to replace some siding, rebuild some rotted decks and do some waterproofing.

Our management company has given us the name of a general contractor that they use, but we aren’t comfortable with the contractor and we want to look at other companies. What are the things that we should look for, to be sure that we hire a company that meets our needs?

ing with businesses that are at least five to seven years old.

This answer was provided by Dick Tippett of ERTECH, Inc., a general construction contractor.

3. Do they do projects the size of yours?

Smaller contractors may not have the financial strength to take on multimillion-dollar projects.

Conversely, larger contractors with large overhead can’t always be competitive on small projects or may not be able to do them efficiently.

Answer

Matching the contractor to the type of work you want done, to the size of the project and to the personality of your board is critical to the success of any project. You will be spending a lot of money and a lot of time together. There needs to be a bond of both professional respect and professional trust.

We suggest that you develop a list of at least five contractors who do the type of work that you want done. ECHO is a good source of names, as are referrals from your manager, acquaintances at other associations, the Contractors Blue Book, even the Yellow Pages.

Once you have your list, invite each of them to an interview with your board. Plan at least an hour per contractor for the interview. Here are nine questions to ask each company. The answers they give will tell you a lot about whether or not you want them bidding on your work.

1. How long have they been in business?

Eighty percent of contractors go out of business in fewer than five years. The same thing that made a man a great foreman doesn’t always make a sound business manager. Prudence dictates stick-

2. Do they do the type of work that you want done?

Not every contractor does every type of work, although increasingly are developing relationships with specialty subcontractors such as waterproofers or stucco installers.

Conversely, you don’t need a general contractor just to do waterproofing or painting.

4. What is their professional reputation?

This is best learned from others—their references, their competitors, and their suppliers. A corollary is: what is their reputation and their experience in working with condominiums or townhouses.

5. Will they warrant their work for five years?

All major repairs/remodeling work must be guaranteed against fault or failure for five years.

Many contractors do their best to sidestep this requirement by offering shorter warranties. Don’t accept bids from those that do.

6. Financial stability, or do they pay their bills on time?

Find out from whom the contractors regularly buy material and whom they regularly use as subcontractors. Then call those suppliers/subcontractors and learn the length of time they have been working with the contractor and how quickly the

Continued on the next page 40

October 2009 | ECHO Journal

ECHO Marketplace

Adver tiser Index

The place to find business and professionals for your association Alpha Restoration & Waterproofing . .8 American Asphalt . . . . . . . . . . . . . .24

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SBI, LLC 180 Second Street Suite A Los Altos, California 94022 Voice: (650) 949-3774 Fax (650) 941-3689 Email: tom@sbiusa.net General Contractors • Civil Engineers

Reserve Studies • Energy Surveys Insurance Replacement Cost Analysis Construction Defects Mold Sampling Foundation and Drainage Inspections

American Management Services . . .10 Angius & Terry . . . . . . . . . . . . . . . . .3 Applied Reserve Analysis . . . . . . . . .18 AquaTek Plumbing . . . . . . . . . . . . .37 A.S.A.P. Collection Services . . . . . . . .9 Association Reserves . . . . . . . . . . .17 Bayridge Group . . . . . . . . . . . . . . . .14 Berding | Weil . . . . . . . . . . . . . . . . .44 Coastal Termite Control . . . . . . . . .14 Collins Management . . . . . . . . . . . .18 Community Association Banc . . . . . .15 Community Management Services . .24 Compass Management . . . . . . . . . .11 Cool Pool Service . . . . . . . . . . . . . .17 Cornerstone Community Mgmnt . . . . .8 Draeger . . . . . . . . . . . . . . . . . . . . .11 Ekim Painting . . . . . . . . . . . . . . . . .31 ERTECH . . . . . . . . . . . . . . . . . . . . .26 First Bank Association Bank Services30 Flores Painting . . . . . . . . . . . . . . . .27 Focus Business Bank . . . . . . . . . . .22 Helsing Group . . . . . . . . . . . . . . . .14

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Ask the Panel!

Continued from page 40

contractor pays them. If the relationship has existed for a year or less, or the contractor is a slow payer, be careful.

7. Can they do the work when you want it done? Can they start and finish within the time frame that you want?

There must be a firm commitment from the contractor to both start and finish “on time.”

8. Is their license current? Are there any complaints against it? Is it held by one of the company’s principals?

Ask them these questions and then check the answer at www.cslb.ca.gov. Click on “contractor information” and go to “license status check.” The license should be current, clear

of complaints and held by a principal or key employee.

9. Do they carry insurance, and what type do they carry?

Hill & Company. . . . . . . . . . . . . . . .19 Louis & Riparetti, Inc. . . . . . . . . . . .43 M&C Association Services . . . . . . . .27 M. L. Nielsen Construction . . . . . . .30 Massingham and Associates . . . . . .31 Pelican Management Group . . . . . . .14 PML Management Corp. . . . . . . . . .39 Pollard Unlimited . . . . . . . . . . . . . .31 Pro-Craft Builders . . . . . . . . . . . . . .39 Professional Association Services . .39 R. E. Broocker Co. . . . . . . . . . . . . .22 REMI Company . . . . . . . . . . . . . . . .17 Saarman Construction . . . . . . . . . . .9 Statcomm . . . . . . . . . . . . . . . . . . .37 Steve Tingley Painting . . . . . . . . . . . .2 Steve’s Painting Services . . . . . . . .10 Varsity Painting . . . . . . . . . . . . . . . .15

Incredibly, California does not require contractors to carry liability insurance. You should. At minimum, any contractor that you hire should have at least $1,000,000 general liability insurance, at least $1,000,000 Workman’s Compensation and at least $300,000 vehicular insurance.

Satisfactory answers to these nine questions will go a long way to ensuring that you select a contracting business that can meet your association’s construction needs.

ECHO Journal | October 2009

41

Officers and Directors Update Association Presidents or Secretaries President Name

Term of Office:

to:

Address City and State

Zip:

Business phone ( Home phone (

Please complete and send to: ECHO 1602 The Alameda, Suite 101 San Jose CA 95126-2308 Tel: 408-297-3246 | Fax: 408-297-3517 Or email changes to: info@echo-ca.org

) )

Date

Email

Association Name

Vice President

Association Address

Name:

Term of Office:

to: City

Address: Zip

City and State Business phone ( Home phone (

County

Zip

County

Zip

Management company or manager Address

)

City

)

Email:

Management phone (

Secretary

Dues statements should be mailed to:

Name

Term of Office:

)

to:

Address City and State

Zip

Business phone ( Home phone (

Please complete the items listed below. This information is for use in the ECHO Office and will assist us in the planning of future programs.

) )

1. Type of Association:

Email

Treasurer Name

Term of Office:

to:

Address

PD

[ ]

Condo

[ ]

2. Total Number of units: 3. Average Monthly Assessment/unit:

Zip

City and State Business phone ( Home phone (

(Please check one)

4. Annual Meeting Date: 5. Type of Management:

)

Volunteer self-management

[ ]

Management company

[ ]

On-site manager

[ ]

Other

[ ]

)

Email

Board Member Term of Office:

Name

to:

6. Does your association have earthquake insurance?

Yes [ ]

No [ ]

Address Zip

City and State Business phone ( Home phone ( Email

) )

Please provide information for additional board members on an attached sheet.

Note: All officers and directors are entitled to receive copies of the ECHO newsletter. A special subscription rate of $50/year is available to those homeowners who live in an ECHO member association but are not on the board.

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