Journal_10_04 by Echo

April 2010

A Journal for California Community Association Leaders

echo-ca.org

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n Won’t Work

ALSO INSIDE THIS ISSUE:

• Is Condo Financing in Jeopardy? • Myths about FHA Approval • How to Select a Towing Company

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Contents Myths and Misconceptions of FHA Approvals —page 18

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.

Bankruptcy Won’t Work

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.

Money has been tight for the association for some time. If the association cannot pay its bills, why not simply declare bankruptcy? This article discusses the practical and legal reasons why associations almost never go into bankruptcy.

Is Financing for Condos in Jeopardy?

Executive Council of Homeowners, Inc.

Financing for associations may be in serious jeopardy. Indeed, financing for owner-occupied real estate purchases or refinances is tighter than it has been in years. Because of recent changes in the FHA certification processes, condos are heavier hit than other common interest developments. Read this article to understand this situation better.

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

Myths and Misconceptions of FHA Approvals

Board of Directors and Officers

It is important to understand what the FHA is trying to accomplish to know why it has changed its lending requirements. Just like Fannie Mae, Freddie Mac or any mortgage lender, the FHA is required to assess risk in an effort to make lending or underwriting policy.

President David Hughes

How to Select a Towing Company

Secretary Dorothy Kopczynski

What is required for private property towing? This article assists you with investigating and selecting qualified private property towing companies. It describes the qualifications that need to be verified before allowing tow companies to provide private property towing services for a property.

Departments 28 News from ECHO

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

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

Vice President Karl Lofthouse Treasurer Diane Rossi

Directors Paul Atkins John Garvic Robert Rosenberg Richard Tippett Steven Weil

Jerry L. Bowles David Levy Kurtis Shenefiel Wanden Treanor

Executive Director Oliver Burford

29 Legislation at a Glimpse 30 Directory Updates

34 ECHO Bookstore 36 Events Calendar 38 ECHO Volunteers 40 Letters to the Editor 41 ECHO Marketplace 41 Advertiser Index

On the Cover Bankruptcy Won’t Work—page 6 4

April 2010 | 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 homeowner associations through education and related services to board members, homeowner members, government officials and the professionals in the industry.

Be an HOA Survivor ECHO Annual Seminar June 19, 2010 See page 42 for details

By Tyler P. Berding, Esq. and Sandra M. Bonato, Esq.

Bankruptcy Won’t Work Why There’s No Protection for Members When Community Associations “Go Broke”

ou’re at a board of directors meeting of your homeowners association. Things have been happening around the community—not good things—and you want to find out why. Why have they closed the pool? Why is the landscaping looking so bad? What’s with the rumor that the property manager might be let go? You know that money has been tight for the association. You’re aware that assessments haven’t gone up for years, and now word has it that a large number of owners have stopped paying altogether.

At the meeting, the president of the association announces further cutbacks—the association’s insurance may have to be dropped. There have been no deposits to the reserve account for several years and, worse, the account has been drained over time to meet monthly obligations. The board approves a five percent special assessment, but it’s not likely to go far with all there is to do and pay. A report from the manager confirms your worst fears: re-roofing of the project (including for your unit) will have to wait, and even temporary

ECHO Journal | April 2010

repairs to the leaking portions of the roof may not be done for months. There’s no money to pay for it. A member raises his hand and asks the inevitable question—if the association is too broke to pay its bills, why not simply declare bankruptcy? Hold the creditors at bay until the economy picks up? No one on the board has a good answer. Why? Because it almost never happens. Here are the practical and legal reasons why. No Big Creditors

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The typical association has two principal financial obligations: its regular monthly operating expenses and contributions to its reserve fund for future maintenance and repairs. Vendors who provide regular services to a community association are typically paid monthly or are on limited annual or monthly contracts. This would include the landscaper, the pool service, management and similar vendors. Any of these vendors can and will cancel further service if the association falls too far behind. So, unless there has been some major project, like re-construction or repair, the amount of any vendor’s outstanding invoice is not likely to get too high. And it is unlikely that any association would commence a major reconstruction project without having the funding for it in place. It is even more unlikely to find a willing contractor if the association can’t show that it can pay. Ironically, it is not unusual to find that an association’s largest “creditor” is itself. The failure, year after year, to make reserve transfers creates unfunded liability and makes it impossible for the association to effect repairs when the time comes. Consistent with this creditor-as-self theory, the members who haven’t paid enough in assessments in the past now have only each other to look to for funds to pay to do the work now. Filing association bankruptcy wouldn’t relieve the association of the duty to make (and look to the members to pay for) repairs. Another type of creditor might be someone who sues and wins a large judgment against the association. If the various insurance policies carried by the typical association remained in force, it is likely that they would cover such a claim. However, if it did not, this could be a substantial unplanned expense. It is an expense, however, that would survive any bankruptcy filing because of the ability to reach the assets of individual owners, as discussed below.

Another potential large creditor might be a bank making a loan to an association. The same impediments to bankruptcy would also be true of an association that borrows but then doesn’t repay. The lender would have the right to have a receiver appointed with authority to impose and collect assessments from the owners, to lien units and to file suit against individual owners who don’t pay their share. This is extremely unlikely to ever happen, however, since the lender would have carefully qualified the association and evaluated its and its members’ ability to repay the loan through assessments, before agreeing to extend credit in the first place.

The ability of an association to pay its obligations is as deep as the combined equity of all property in the community and the assets of all of its members. This makes bankruptcy not a feasible option for associations. The fact that some owners don’t pay their share of what their association owes to a creditor is not enough. That seeming shortfall becomes an internal debt to the association, which is in turn simply spread again across all owners in the form of assessment increases or emergency special assessments, until the creditor is paid in full. The ability of an association to pay its obligations is as deep as the combined equity of all property in the community and the assets of all of its members. This makes bankruptcy not a feasible option for associations. The Reserve Fund as Financial Cushion The association’s reserve fund for future repairs frequently acts as a cushion against a shortfall for monthly expenses. It shouldn’t be used that way1, but it frequently is. Even if cash isn’t drawn from the reserve fund directly, the failure to contribute regularly to ECHO Journal | April 2010

reserves because of underfunded assessments is just another way of subsidizing the monthly operating expense budget with reserves. Of course, many reserve funds have now been depleted because of either chronic underfunding or the recent economic downturn (or worse, both), so that source of financial support may not last much longer. A corollary to the reserve fund supporting monthly operating expenses is that reserve expenditures don’t occur monthly but arise slowly over time; so they are easy to put off, allowing further support for the monthly operating expenses. The problem with this strategy is that the condition of various building components deteriorates further than they should when repairs are postponed, increasing the cost of the eventual repair and impacting unit values in the meanwhile. Owner Pass-Through However, bankruptcies don’t typically occur with community associations for a big legal reason—owners are essentially liable for the association’s debts. “What?” you say. Community associations are corporations, and aren’t shareholders protected from corporate obligations? Isn’t that the whole point of a corporation?

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A bankruptcy filing is not normally considered a remedy available to a community association Yes, most community associations are corporations—non profit mutual benefit corporations. But there is a major difference between a community association and the typical business corporation. With a typical corporation, the investors’ (shareholders’) 1 California Civil Code Section 1365.5(c)(1) states: “The board of directors shall not expend funds designated as reserve funds for any purpose other than the repair, restoration, replacement, or maintenance of, major components that the association is obligated to repair, restore, replace, or maintain and for which the reserve fund is established.” Temporary borrowing, however, is permitted (subject to significant procedural requirements, including disclosing a replenishment plan) and depositing adequate funds into the reserve fund in the first place is not mandatory.

liability is limited to the amount of their individual investment. Community associations usually have something more—lien rights to an individual owner’s separate interest, either a lot or a unit, and the personal obligation of an individual owner for his or her share of assessments. So, if an association assesses the members and someone doesn’t pay, the association has the authority to place a lien upon the individual’s property and enforce that lien for payment through the process of foreclosure and/or to sue the owner personally to collect the funds owed. The corporate structure of the association protects an individual owner from being solely responsible for the association’s total obligations, but not for his or her (or the lot or unit’s) share. That authority, extended to the association by way of CC&Rs recorded against each individual’s lot or unit, has the effect of “passing through” the association’s obligations to the owners. And to protect property from deterioration or lack of provisions for insurance, utilities, management, landscaping, amenities, etc., this obligation is buttressed by state law, perhaps not directly but rather through the express requirement that every association must assess its members sufficient sums to pay its ongoing obligations. The California Civil Code contains the following language: “Except as provided in this section, the association shall levy regular and special assessments sufficient to perform its obligations under the governing documents and this title.”2 We recently wrote about this provision in an article3 and described a court case where the judge used the authority given to boards to levy emergency assessments and the owners’ obligation to pay assessments as grounds to charge individual owners for a debt of the corporation. The import of that case was and is that individual lot and unit owners are not insulated from the debts of the corporation. A corporate bankruptcy filing essentially tells the world that the assets of the company are insufficient to meet its obligations to creditors. But, where the value of all of the real estate interests within the community can be accessed through the lien process to pay assessments, where assessments are backed by the personal assets of all owners, and where the association has a statutory obligation to assess, the property and 2 California Civil Code Section 1366(a). 3 Berding, No Right to Refuse Payment, 2008.

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personal assets of the owners essentially become the “assets of the company.” Collectively, these are likely to be more than adequate to pay any creditors. For all of these reasons, a bankruptcy filing will not normally be considered a remedy available to a community association. There would have to be no equity available in property in the community, and each individual owner would have to file his or her own bankruptcy petition for that to be effective as against the association’s creditors. That’s simply not going to happen or ever be a permanent situation. As owners walk away from property and mortgage holders take it back, the banks become responsible for the next round of assessment shares to pay the creditor. Lender foreclosures wipe out mortgages and create new market equity in property. Owner bankruptcies, even if pre-petition assessment debt is discharged, won’t address post-petition rounds of assessments for bad debt as they’re spread across all owners. Shares may slowly contract and debts can be negotiated, but the principle that the obligation is shared by all remains. There are other remedies for an association that is overwhelmed with its financial obligations, and we have also written about them in the past.4 Nothing, however, substitutes for raising adequate income in the first place through steady, regular increases in assessments. There will be times, and we are now in them, when an economic downturn or other catastrophe can place an association’s financial condition in harm’s way. Unfortunately, if that should happen, it will fall on the owners to satisfy the debts of the community. Association bankruptcy is not a viable option. If a community association gets to the point of considering something like bankruptcy, a different strategy is likely to emerge. When it can no longer pay its essential utility bills, or its insurance, or management, then questions of habitability arise. At that point, the owners may need to consider a “partition” or sale of the entire property or perhaps a government takeover, strategies we have previously discussed.5

4 Berding, Your Association is Broke—What Bills do you Pay When the Cash Runs Out? 2008; Berding, Hang Together or Hang Separately? 2009. 5 Berding, What Happens when a Community Association Fails? 2009.

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Bankruptcy Won’t Work Continued from page 12

Boards and owners should be aware that there is probably no easy “escape hatch” through which a community association can pass to avoid failure. For many associations there is time to avoid that fate with sound financial management, an honest discussion with members about revenue needs, and a realistic funding plan.

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. Sandra Bonato is a principal at Berding | Weil. She is a member and former chair of the ECHO Legislative Committee. Both authors are frequent speakers at ECHO seminars, and articles written by them are a regular feature in the ECHO Journal. 14

April 2010 | ECHO Journal

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By Beth A. Grimm, Esq.

Is Financing for Condo Loans in Jeopardy? number of indicators suggest that financing for condominium associations may be in serious jeopardy. Indeed, financing for any owner-occupied real estate purchase or refinance is tighter than it has been in years for many reasons. But because of recent changes in the FHA certification processes, condos seem to be a heavier hit than other common interest development properties. (“Site condominiums,” which are those stand alone units and not part of attached housing, do not fall into the group of condos that is the subject of this article.) Condominium loans are jeopardized by new FHA regulations; so let’s start with a few words about the Federal Housing Authority (FHA). Understanding the FHA and how it works is helpful. The FHA helps lenders reduce their exposure to bad loans (those that go into default and foreclosure) by providing mortgage insurance. This backup protection allows lenders to make financing available to borrow-

ers at a lower cost and a lower down payment than many of the “conventional” financing options available (although the FHA up-front costs and down payment requirements are increasing in 2010). The FHA is a critical provider important to the overall health of the housing industry. There has been considerably more reliance on FHA loans during the current economic downturn because the ability of private lenders to take on more credit risk has been seriously affected. The share of FHA-insured single family mortgages was under two percent in 2006 but has risen exponentially, reaching close to 19 percent in 2009. And it is expected to considerably increase in 2010. The FHA counts on the federal government for funding, and it looks as if the current funds will run out in 2011 (check out www.hud.org for more information). The FHA will have to ask for more funding sometime in mid-2011 and maybe even before that if the market share continues to

ECHO Journal | April 2010

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increase. During these difficult times, many other agencies/entities including FNMA are posing to ask for or currently counting on the government for bailout in the current economic climate. As a result funding for FHA may run into some hurdles. Why is this important? It is but one factor for boards to consider in determining whether and who to use to seek FHA certification in the coming year. At the same time, many are suggesting that FHA will be the best source of funds for individual (non-investor) loans in the near future. Thus, the FHA has taken steps to initiate its own protections against defaulting loans. It is no longer accepting â&#x20AC;&#x153;spot certificationsâ&#x20AC;? in a condominium association for one loan by one lender. The certification process for FHA loans in the past was accomplished on a â&#x20AC;&#x153;spotâ&#x20AC;? basis by completion of a lender questionnaire and underwriting â&#x20AC;&#x153;machinationsâ&#x20AC;? between the lender and the FHA. This process was not perfect as completion of these questionnaires was problematic for HOAs and managers, largely for two reasons. One was the considerable liability potential and the other was concern over the creation of an additional legal relationship that did not otherwise exist between the HOA and the buyer/lender/and other parties involved in the sales transaction. Nevertheless, completion of the questionnaires and spot certifications did commonly get done one way or another. People found a way to get over the hurdles. Now, there are additional hurdles. The FHA has added or increased restrictions for the criteria for condominium loans. The requirements now include a 15 percent limit on delinquencies. This in and of itself is very difficult to achieve in these times. And the FHA says it will not consider developments with more than 20 percent commercial space or where any one person or entity has ownership of 10 percent or more of the condominiums in the development. Last but not least, lenders must attest to the â&#x20AC;&#x153;adequacyâ&#x20AC;? of finances in the condominium association. This attestation is accomplished through a special form provided by the FHA. In some cases, a current reserve study might suffice as long as it is not more than one year old. The form has a number of pointed questions and if the information on the form turns out to be false and the discovery comes through a loss to the FHA, the agency might be looking to recover the losses and any of the following might become a target: the lender, HOA

manager, and/or the condominium association or whoever provided false, misleading, unrealistic or inadequate information that lead to the loss. And, without the “spot certification” process as an option, in order for buyers to qualify for FHA funding of any individual unit within a condominium association, the entire association has to be “project certified.” This is a more time-consuming and costly process than the spot certifications previously accepted. Attestations have to be made. Forms have to be filled out. Governing documents have to be reviewed. And although the FHA does not require it, many lenders are also requiring attorney certification letters. Among the questions and concerns are: • Who is going to seek the certification? • Will the manager want to do it? • What is it going to cost? • Who is going to pay those costs? • Will a condominium board be obligated to seek certification? • Can it be sued for not doing it? • Can an interested buyer (or investor wanting to buy units) seek to get the entire development certified? • Who will accept the liability for mistakes in certifying information? As for the question about whether a condominium association should pay the fees to seek certification, the basics for charging fees to anyone are this: there has to be some underlying authority to charge any fee to an owner. Seeking development-wide certification may result in considerable costs (I am hearing $1500 to $5000 as estimates). So the question becomes, who should pay for the HOA certification process? Would it be all owners in the development (making this a budget item) or just those who need the benefit of it? And, another rub … the certification is not forever; it lasts for two years. However, there is some good news. If an association is certified and the certification expires, recertification should be a much easier and less expensive process than obtaining the original certification. Civil Code Section 1366.1 provides limitations on what an association can assess or charge an owner: That law says: “1366.1. An association shall not impose or collect an assessment or fee that exceeds the amount necessary to defray the costs for which it is levied.” Some feel this might be a limit on charging each owner a portion of the certification fee, as that is not normally a budget item; ECHO Journal | April 2010

others seem to believe the statute does not apply because the board is seeking a service that it believes is in the best interest of the members. Another limitation applies when charging any sum as a “transfer” fee. HOAs and condominium associations are limited by Civil Code Section 1368, which lists the items a seller has to provide to a potential buyer (although the seller can ask the association to provide the documents), as follows: “The association may charge a reasonable fee for this service, based upon the association’s actual cost to procure, prepare and reproduce the requested items.” None of the information or documents listed in Civil Code Section 1368 includes the FHA Certification, nor is any owner/seller required to provide it; thus charging any seller/owner a share of the cost to get the certification does not seem to be justified by this statute. For managers out there: if a manager offers his or her services to apply for the certification, the question arises as to whether the manager can find a way to be reimbursed for the service, and also whether whatever income that can be derived from it is worth the liability risks. Will the managers expect the association to pay? Will buyers who seek FHA loans in the development be called upon to pay a fee? Again, an attempt to call any fee assessed a “transfer fee” could present a problem. And one can be sure that people will argue over the authority to charge and the responsibility for the costs aspect. If a management company or manager gets involved and does the work, it is important that they be insured. Many managers rely on the indemnification clauses in their contracts with the association for protection, and it makes some sense if the manager is seeking approval on behalf of the association to have this kind of protection. However, if a manager is seeking approvals for associations as a business, including associations it does not manage, the question arises as to whether the association should bear the responsibility for what the manager says in the paperwork or in working with the FHA representatives. The association is providing the underlying information but the manager will be answering questions that I believe go further than the figures provided. Without any day-to-day involvement, a manager or, for Continued on page 22 20

April 2010 | 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.

Loans in Jeopardy? Continued from page 20

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April 2010 | ECHO Journal

that matter, any company that does the certifications, will find it difficult to assess whether the finances are “adequate.” In any case, the question arises as to whether the market will bear the costs sufficient to pay for any E&O coverage required for protection for doing this kind of work. And there may be other legal questions that need answering. One manager sent questions to me as follows: “If the manager does the work to get a condominium development certified, can he or she charge the costs to the owners who are getting FHA loans? Is it a RESPA (Real Estate Settlement Practices Act) issue?” The fact is that this Act also presents another area of possible complication in making disclosures. Under it, a new “Good Faith” Settlement Statement (HUD-1 form) is required and already questions have arisen as to what association costs have to be included in this form (hint, think transfer-related costs in a sale situation). Thus, as of this writing, answers to these questions about what laws might apply to managers who take on seeking project certification have not yet been fully vetted, but they will be in coming months. It is important to work with knowledgeable people in pursuing the certification process, whether they be managers, attorneys, or vendors. Why? They know the ins, the outs, the pitfalls, and the parties. There are entities other than managers/management companies that offer services to assist with certification. HomeWiseDocs.com is one. In this issue of the Journal you can read an allied article called “Myths and Misconceptions Regarding FHA Condominium Approvals” by Doug Pater, one of the founders of HomeWise.com, a company that works with condominium associations to seek FHA approval. The discussions in that article about the two FHA approval procedures may cause blurry vision but they are important. If a lender seeks “self” certification using the DELRAP process, that entity assumes more responsibility than under the HRAP process done by a party hired by or working on behalf of an association. The statement indicating that few lenders are doing this process because of the liability suggests that there probably is some liability to be concerned about, and thus working with an experienced

provider has its benefits (as does approaching the application process honestly.). Another company more active in Southern California is called FHA Pros. Other companies may have been missed and more are sure to come. Some management companies are getting help from lenders in some geographic areas, and I assume that when a lender rep is working with the HOA to help get the certification, the carrot at the end of the stick is that the lenders would hope to benefit from the certification by offering loans in the complex. One thing to note, of course, is that the certification does not guarantee that loans will be made. The plot thickens on issues of condominium and other homeowner association properties. The subprime mortgage fiasco continues in its domino effect. The toll taken includes serious limits on available money for condominiums and other properties in homeowners associations. This is wreaking havoc in more ways than one. With financing options getting more and more limited, and prices dropping rapidly, investors are swooping in and picking up the pieces. That might be a good thing if it revives an association having trouble collecting assessments from owners who walk away from their obligations to pay assessments or go through a bank foreclosure, causing the write-off of assessments. It can also be a bad situation if an investor ends up owning 10 percent of the units (only 2 units in a 20 unit association) or owns enough units to usurp control, or fails to pay assessments on multiple units. There are those that will argue vehemently that condominium associations must seek FHA certification, and those that will argue otherwise, claiming it is not cost effective or necessary. Stay tuned. This article is offered for informational purposes. You will hear a lot more on the issues of homeowner association financing options and questions in the coming months. Associations will have to decide what to do about seeking FHA certification.

Beth A. Grimm is a Bay Area attorney, practicing exclusively in the area of homeowner association law. She is the chair of the ECHO East Bay Resource Panel and frequent contributing author to many industry publications including the ECHO Journal. She is also the author of three books and a number of other publications. You can visit her website at www.californiacondoguru.com.

ECHO 38th Annual Seminar June 19, 2010 “Be an HOA Survivor” is Theme for 2010 n-site registration at the 2010 ECHO Annual Seminar will begin at 7:30 a.m. on Saturday, June 19, in the main lobby at the Santa Clara Convention Center. Now is the time for homeowner association board members and professionals to make advance reservations for this event. Ask your fellow board members and your associates who live in other common interest developments to join you for a day of education and fun at this important event. Convince them that they need to hear updates about every important CID responsibility and issue, to see new products and to share in the large number of prizes and favors distributed by 125 Trade Show exhibitors.

Annual Seminar sessions this year as always will address many of the challenging concerns currently facing association board members. Just a few of the highlights of the 2010 program are listed below: • The “HOA University” track will review every major aspect of board duties and responsibilities for beginning board members. Certificates will be awarded to those who complete the entire program. • Update on Proposed New Legislation that will affect community associations.

Continued on page 31 ECHO Journal | April 2010

By Greg Pater

Myths and Misconceptions Regarding FHA Condominium Approvals

n an effort to know fully why the Federal Housing Administration (FHA) has changed its condominium lending requirements, it is important to understand what the FHA is trying to accomplish. Just like Fannie Mae, Freddie Mac or any mortgage lender FHA is required to assess risk in an effort to make lending or underwriting policy. Condominium projects were hit exceptionally hard during this recent real estate collapse. Over the past ten to fifteen years the majority of condominium loans insured by the FHA were done through what was called the “Spot” approval process.

April 2010 | ECHO Journal

The discontinued “Spot” process was very limited as far as project data elements are concerned. FHA’s new project approval guidelines were created in an effort to get baseline data for any condominium project in which they insure loans. This will enable FHA to assess risk and create policy more effectively in the future. According to FHA Mortgagee Letter 2009-46B, there are clearly two different processes that will determine whether individual loans can be insured in condominium projects. The first process is FHA Condominium Project Approval. No loan will be insured as of

February 1, 2010 unless the project is on FHA’s approved list. The second process is the “loan level” review that is required by each lender seeking to insure individual condominium loans with the FHA. This review includes items such as owner occupancy ratios, FHA loan concentration, owner delinquency ratios and multiple unit owners, to name a few. It is possible to approve the project and not be able to insure individual loans. Project approval is mostly a review of legal documentation, the budget and other project related documentation. Due to the variable nature of the loan level

data elements, individual loans can be insured one month and may be ineligible for insurance the next. There are two methods by which a project may be placed on the FHA Approved Condominium List: HUD Review and Approval Process (HRAP) or Direct Endorsement Lender Review and Approval Process (DELRAP). No attorney’s opinion letter is required for legal documentation review especially concerning established condominium projects. Under HRAP, HUD will

Continued on page 27

ECHO Journal | April 2010

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You make your associations feel right at home. When you manage a portfolio of over 100,000 homes, there’s no room for error. So when CFO Michelle Burge of Professional Community Management wanted to upgrade operations, Union Bank took the lead. We designed a customized HOA lockbox solution that handles over 250 associations with critical information that is seamlessly integrated into their accounting system. And with CoveragePlusSM deposit insurance, Michelle’s clients know their funds are protected above FDIC limits. For HOAs, that’s definitely an asset. Michelle Burge, CFO, Professional Community Management

To put our HOA Banking expertise to work for you, visit us at HOAbankers.com or call us today. Western Region: Jolen Zeroski, 800-669-8659 Jason Lee, 800-660-4053 Stephanie Shade, 800-660-4053

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Myths and Misconceptions Continued from page 25

• perform the documentation and budget review process in an effort to determine whether a project will be approved. A lender approving condominium projects under the DELRAP process makes his own determination as to whether or not a project meets FHA’s guidelines. Of particular note here is that any lender making the approval decision on a project is liable for all representations and warranties to HUD and any subsequent lender that relies on the approving lender’s DELRAP decision. Because of this fact, very few lenders are submitting under the DELRAP option and Fannie Mae will no longer accept reciprocal project approvals at HUD. We are extensively involved with condominium financing around the country and quite often we see gross misunderstandings of the FHA 2009-46B guidelines from many entities involved in the transaction. Here are some of the most common misconceptions regarding the new FHA guidelines: • Many entities, including attorneys, project approval companies, management firms,

•

lenders or realtors, can submit projects for approval. Our conversations with the FHA indicate that they will not enforce the guideline that the budget should reserve for insurance deductibles. Once a project is approved, the FHA will track FHA loan concentration by project and display the numbers through FHA Connections and the Approved Project List. Reserve Studies or the Fannie Mae Budget Analysis Form 1073 A is required only if the budget does not meet the guidelines for established projects in ML 2009-46B. Project approval is good for two years. The process does not have to be repeated again but FHA will require a recertification process. At this time, the recertification has not been clearly defined but references litigation, special assessment and insurance analysis. Sales phasing is not allowed. Projects that are already complete but unsold and were constructed under one phase may be legally rephrased but the documents must be amended to show the new phasing.

• Foreclosed units are considered bad debt, not delinquencies, and should be removed from the delinquency calculation along with non-assessment related delinquencies. Credit guideline changes like these are common in the lending community. The current FHA and Fannie Mae project guidelines are actually less restrictive than the condominium guidelines that were established in the late 1980s and early 1990s. The new guidelines are much more understandable if you look to FHA and Fannie Mae as agencies that are trying to fulfill their charter to promote, and not restrict, prudent home financing.

Greg Pater is the original founder of CondoCerts.com and current CEO of HomeWiseDocs.com, an Application Service Provider providing critical association data and documents to the real estate industry nationally. He has more than 20 years experience as a mortgage banker and has managed the funding of over $30 billion of residential mortgage loans during his career. ECHO Journal | April 2010

News from ECHO ing for it in place. It is even more unlikely to find a willing contractor if the association can’t show that it can pay.

Bankruptcy Won’t Work If an association is too broke to pay its bills, why not simply declare bankruptcy? Hold the creditors at bay until the economy picks up? Most board members do not have a good answer to that question. Why? Because it almost never happens. Here are the practical and legal reasons why. The typical association has two principal financial obligations: its regular monthly operating expenses and contributions to its reserve fund for future maintenance and repairs. Vendors who provide regular services to a community association are typically paid monthly or are on limited annual or monthly contracts. This would include the landscaper, the pool service, management and similar vendors. Any of these vendors can and will cancel further service if the association falls too far behind. So, unless there has been some major project, like re-construction or repair, the amount of any vendor’s outstanding invoice is not likely to get too high. And it is unlikely that any association would commence a major reconstruction project without having the fund28

April 2010 | ECHO Journal

Ironically, it is not unusual to find that an association’s largest “creditor” is itself. The failure, year after year, to make reserve transfers creates unfunded liability and makes it impossible for the association to effect repairs when the time comes. Consistent with this creditor-as-self theory, the members who haven’t paid enough in assessments in the past now have only each other to look to for funds to pay to do the work now. Filing association bankruptcy wouldn’t relieve the association of the duty to make (and look to the members to pay for) repairs. The fact that some owners don’t pay their share of what their association owes to a creditor is not enough. That seeming shortfall becomes an internal debt to the association, which is in turn simply spread again across all owners in the form of assessment increases or emergency special assessments, until the creditor is paid in full. The ability of an association to pay its obligations is as deep as the combined equity of all property in the community and the assets of all of its members. This makes bankruptcy not a feasible option for associations.

ECHO 38th Annual Seminar June 19, 2010 On-site registration at the 2010 ECHO Annual Seminar will begin at 7:30 a.m. on Saturday, June 19, in the main lobby at the Santa Clara Convention Center. Now is the time for homeowner association board members and professionals to make advance reservations for this event. The theme for the 2010 Seminar is “Be an HOA Survivor.” Ask your own association members and your associates who live in other common interest developments to join you for a day of education and fun at this important event. Convince them that they need to hear updates about every important CID responsibility and issue, to see new products and to share in the large number of prizes and favors distributed by 125 Trade Show exhibitors. Annual Seminar sessions this year as always will address many of the challenging concerns currently facing association board members. Just a few of the highlights of the 2010 program are listed below: • The “HOA University” track will review every major aspect of board duties and responsibilities for beginning board members. Certificates will be awarded to those who complete the entire program.

• Update on Proposed New Legislation that will affect community associations. • Conflict Resolution for Directors: Learn practical skills in this dynamic session that you will use immediately to tackle and resolve small and large conflicts in your community. • Ethics for Board Members • Special presentations by super-exciting speakers Julie Adaman and Larry Pothast The complete seminar program and registration information appear on page 43 in this issue. We want to see you there this year.

Important Upcoming Events Saturday, April 17 South Bay Spring Seminar 8:00 a.m. to 1:00 p.m. Campbell Community Center 1 W. Campbell Ave., Campbell Thursday, May 20 San Francisco Luncheon 11:45 a.m. St. Francis Yacht Club San Francisco Friday and Saturday June 18 & 19 ECHO Annual Seminar Santa Clara Convention Center Santa Clara

2010 Legislation at a Glimpse As of March 24, 2010 Bill No.

Author

Subject

Status

Position

Summary

AB 1726

Swanson

Voting Quorums Amended. Hearing in Assembly Housing 4/14

Watch

In the event that there is not a quorum for a member meeting or an election of directors, would automatically reduce the quorum requirement for the next meeting to 33 percent of the members entitled to vote.

AB 1793

Saldana

Synthetic Grass Hearing in Assembly Housing 4/14

Oppose

Voids provisions in governing documents that prohibit the use of artificial turf or any other synthetic surface that resembles grass.

AB 1927

Knight

Rental Rights

Amended. Hearing in Assembly Housing 4/14

Oppose

For governing documents amended, adopted or recorded on or after January 1, 2011, requires that 2/3 of all owners vote to approve rental or lease restrictions.

AB 2016

Torres

Deed Requests

In Assembly Banking

Support

Clarifies that a request by an association for notification of a trusteeâ&#x20AC;&#x2122;s deed of sale does not constitute a request for a document that either effects or evidences a transfer or encumbrance, or that releases or terminates any interest, right or encumbrance, of an interest in real property.

AB 2120

Silva

Mobilehome Law Disclosure

Hearing in Assembly Housing 4/28

Oppose

Deletes requirement that the management shall provide a copy of the Mobilehome Residency Law to all homeowners by February 1 of each year if a significant change was made in that law during the prior year.

SB 995

Strickland

Conversion Plans

In Senate Local Government

Watch

Provides that a stock cooperative or community apartment project for senior citizens established before the Davis-Stirling Act, that is converting to a condominium, shall not be required to file a condominium plan to the Department of Real Estate.

SB 1427

Price

Default Notices

In Senate Judiciary

Watch

Requires that a notice of default include specified information for any person or entity designated to be responsible for the maintenance of the property. Provides that fines for failure to maintain the property would be treated as a lien against the property in a foreclosure sale.

ECHO Journal | April 2010

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

New Member Listings Whitâ&#x20AC;&#x2122;s Painting 5433 Clayton Rd., Ste. K, #322 Clayton, CA 94517 Contact: Kelly Whitney Tel: 925-429-2669 Fax: 925-672-2465 www.whitspaintinginc.com Email: kelly@whitspaintinginc.com Whitâ&#x20AC;&#x2122;s Painting, Inc. is a full service painting company specializing in common interest developments. We also do drywall, graffiti abatement, gutter cleaning and striping.

Changes to Member Listings American Management Services 90 Great Oaks Blvd., Suite 102 San Jose, CA 95119 Change in suite number only; everything else remains the same.

Coast Landscape Management 5600 Locust Avenue Cotati, CA 94931 Contact: Sharon Marchetti Tel: 707-332-8999 Fax: 707-795-7831 Email: sharon@coastlm.com Providing award winning full service maintenance, renovation and enhancement services throughout counties in the North Bay, East Bay and Sacramento Valley. Competitive pricing, exemplary service delivery, stringent cost containment, and resource management are our trademarks.

April 2010 | ECHO Journal

2010 ECHO Seminar Continued from page 23

â&#x20AC;˘ Conflict Resolution for Directors: Learn practical skills in this dynamic session that you will use immediately to tackle and resolve small and large conflicts in your community. â&#x20AC;˘ Ethics for Board Members â&#x20AC;˘ Special presentations by super-exciting speakers Julie Adaman and Larry Pothast The complete seminar program and registration information appear on page 43 in this issue. The 2010 Seminar and Exhibit will follow the same format as last yearâ&#x20AC;&#x2122;s seminar. There will be one full day of educational sessions, a CACM course manager education (See the course description on page 42 in this issue.) on Friday afternoon and the usual 300-page program book. A Friday evening reception honoring exhibitors is planned as a part of the 2010 Seminar. The Trade Show will be open all day Saturday. ECHO publications will be on sale throughout the seminar.

Annual Seminar sessions this year as always will address many of the challenging concerns currently facing association board members. Rooms are available at the Hyatt Regency Santa Clara adjacent to the Convention Center at the special ECHO rate of $89 single or double. Reserve directly with the Hyatt Regency (408-986-0700) to obtain the special rate, being sure to mention the Executive Council of Homeowners. This special rate is available only until June 1. Scholarship Program A limited number of scholarships to cover the cost of Annual Seminar tickets are available, thanks to the generosity of a number of

6(59,1* &20081,7,(6 7+528*+287 1257+(51 &$/,)251,$ 672&.721 +4 Â&#x2021; )5(0217 PLEASANTON Â&#x2021; &233(5232/,6 Â&#x2021; 02'(672 Â&#x2021; 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 CompanyÂŽ (AAMCÂŽ), which is the Community Associations Instituteâ&#x20AC;&#x2122;s highest GHVLJQDWLRQ DZDUGHG WR PDQDJHPHQW Ă&#x20AC;UPV

3OHDVDQWRQ Â&#x2021; )UHPRQW Â&#x2021; 6DQWD &ODUD Stockton 209.644.4900 Â&#x2021; 0RGHVWR Â&#x2021; &RSSHURSROLV For management proposal information, please visit www.mccommunities.com or email info@mccommunities.com

Continued on page 32 ECHO Journal | April 2010

2010 ECHO Seminar Continued from page 32

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

The Seminar is the place to get all the upto-date information about operating your association efficiently and legally. Awarding of scholarships will be handled by selected managers and the ECHO office. Anyone who wishes to be considered for a scholarship should apply, preferably in writing, to Oliver Burford, ECHO’s Executive Director, at the ECHO Office. Summary The ECHO Annual Seminar is the do-notmiss event of the year, and every ECHO member association should participate. The Seminar is the place to get all the up-to-date information about operating your association efficiently and legally. Complete the ticket order form on page 43 and mail or fax it to ECHO today. Take advantage of the earlybird registration rates and save $10 on every ticket. You may also reserve by telephone to the ECHO Office or on the ECHO website, using your Visa or MasterCard. Plan to attend all day to take full advantage of the information that will be available. You don’t want to miss this exciting event—California’s largest annual homeowner association seminar and trade show. No matter how many previous seminars you have attended, there will be plenty of new information in 2010 to hold your attention. We want to see you there! 32

April 2010 | ECHO Journal

Massingham & Associates. Competitive Price. Better Service. Massingham & Associates Management, Inc. has specialized in managing common interest developments since its inception in 1985. Weâ&#x20AC;&#x2122;re proud to say weâ&#x20AC;&#x2122;ve grown to be one of the largest community management firms in Northern California and we could not have accomplished that without great prices and even better service! We continue to be one of a select few full-service management companies in Northern

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Certified Management Firm (CMF) by the California Association of Community

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Managers (CACM). > Corporate Office 2247 National Avenue Hayward, CA 94545 P 510 780 8587 F 510 780 7535 800 863 MASS

Citrus Heights Office 6060 Sunrise Vista Drive Suite 2440 Citrus Heights, CA 95610 P 916 676 0024 F 916 676 0032

South Bay Office 550 Division Street Campbell, CA 95008 P 408 559 8001 F 408 371 5130

Concord Office 4085 Nelson Avenue Suite A Concord, CA 94520 P 925 405 4900 F 925 405 4747

For more information please visit us at www.massingham.com or call 800 863 MASS

ECHO Journal | April 2010

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

Condominium Bluebook 2010 Edition $18.00 Non-Member Price: $25.00

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

Community Association Statute Book—2010 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 2010 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

e Pricuced Red Homeowners Associations— How-to Guide for Leadership $25.00 Non-Member Price: $25.00 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.

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 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.

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 June 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, April 7 Maintenance Resource Panel 12:00 Noon ECHO Office, 1602 The Alameda, San Jose

Saturday, May 1 Sacramento Seminar 8:00 a.m. to 1:00 p.m. Marriott Rancho Cordova 11211 Point East Dr., Rancho Cordova

Wednesday, May 19 Wine Country Resource Panel 11:45 a.m. Eugene Burger Mgmt. Co. 6600 Hunter Dr., Rohnert Park

Thursday, May 6 North Bay Resource Panel 11:45 a.m. Contempo Marin Clubhouse 400 Yosemite Rd., San Rafael

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

Wednesday, April 14 South Bay Resource Panel 12:00 Noon Il Fornaio 302 S. Market St., San Jose

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

Wednesday, June 2 Maintenance Resource Panel 12:00 Noon ECHO Office, 1602 The Alameda, San Jose

Saturday, April 17 South Bay Spring Seminar 8:00 a.m. to 1:00 p.m. Campbell Community Center 1 East Campbell Ave., Campbell

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

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

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

Wednesday, April 21 Wine Country Resource Panel 11:45 a.m. Eugene Burger Mgmt. Co. 6600 Hunter Dr., Rohnert Park

Friday, May 14 East Bay Resource Panel 9:30 a.m. Angius & Terry 1990 N. California Blvd., Suite 950, Walnut Creek

Wednesday, June 16 Wine Country Resource Panel 11:45 a.m. Eugene Burger Mgmt. Co. 6600 Hunter Dr, Rohnert Park Friday and Saturday June 18 & 19, 2010 ECHO Annual Seminar Santa Clara Convention Center Santa Clara Thursday, July 15 San Francisco Luncheon 11:45 a.m. St. Francis Yacht Club San Francisco Thursday, September 16 San Francisco Luncheon 11:45 a.m. St. Francis Yacht Club San Francisco

Friday, June 11 East Bay Resource Panel 9:30 a.m. Angius & Terry 1990 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

April 2010 | 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

408-295-7767 or 877-295-FLOW

www.aquatekplumbing.com Fire Alarm Systems Fire Sprinkler Systems Testing, Service, Design & Installation

Tele-Entry & Access Control Emergency Exit Lighting Automated Gates Fire-Rated & Rollup Doors

Complete Service and Repair Plumbing Copper and CPVC Repipes AquaTek Plumbing, Inc. has been servicing residential and commercial customers faithfully since 1982. Call us today for more information about AquaTek and the full spectrum of plumbing services we provide.

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 | April 2010

Facilities Management

By Burt Dean

How to Select a Towing Company his guide is written to assist managers and boards with investigation and selection of qualified private property towing companies. What is required to perform private property towing (PPT)? Following are the qualifications that need to verified before allowing tow companies to provide private property towing (PPT) services for a property: Licenses: These are local government jurisdictional requirements that must be verified with copies of the licenses or permits: • Tow Permits for each tow company, each driver, and/or each property: CA law allows each city or county to regulate PPT in its jurisdiction; i.e., the city of San Jose issues permits to tow companies to perform PPT services; drivers are issued a wallet photo permit after a criminal background investigation and should be required to show this permit to an authorized property representative at the time they sign for any tow; and, each property requesting private property towing services must be inspected by the City of San Jose for correct signage and fire lane markings before the property ownership will be issued a Private Property Towing Permit for a specific San Jose permitted tow company.

April 2010 | ECHO Journal

We believe San Jose is the strictest city in the U.S. and is probably the safest; the laws protect the property owner and the public. The San Jose Private Property Tow Permit Application can be copied from the San Jose Police Permits Unit, at sjpd.org/PDF_Forms/PrivatePropertyTow.pdf. All city police departments will have their requirements, and each county sheriff can inform you of county requirements when a property is not in a city. • Business License: Issued annually to each tow company by their local jurisdiction • Motor Carrier Permit: Issued by DMV after proof of insurance and can be verified on the DMV web site: www.dmv.ca.gov/vehindustry/mcp/ mcp_actve_carrier.htm Conditional, or a Special Use Permit, would be verified by a copy of the permit from the local zoning jurisdiction, governing the tow and storage facilities for the purpose of holding a “public lien sale,” for disposition of unclaimed vehicles pursuant to the California Department of Motor Vehicles (DMV): www.dmv.ca.gov/pubs/brochures/howto/htvr7.htm

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plus CCC 3070, CCC 3071, and CCC 3072. The San Jose Web site pages for the San Jose Municipal Code Section 20.50.100 for the Zoning Ordinances is: www.sanjoseca.gov/planning/applications/ dev_cp_app.pdf Certifications of Insurance indemnities; this professional business requirement must be verified annually for: â&#x20AC;˘ Workers Compensation â&#x20AC;˘ Commercial General Liability Insurance â&#x20AC;˘ On-Hook Insurance â&#x20AC;˘ Garagekeepers Authorization from the property owner (property management or licensed security) in lawful possession of private property for each tow. â&#x20AC;˘ Vehicle removal must meet â&#x20AC;&#x153;any of the following circumstances:â&#x20AC;? [CVC 22658(a)(1)(2)(3)(4)] â&#x20AC;˘ Signage is the responsibility of the property per CA State law, [CVC 22658(a)(f)] or â&#x20AC;˘ 96 hour notice of parking violation, or â&#x20AC;˘ Hazardous vehicle lacks engine, transmission, wheels, doors, windshield or any other major part for safe operation after 24 hours notification to police, or

â&#x20AC;˘ Zoning for property as a single-family dwelling. â&#x20AC;˘ General Authorization (Fire Lanes): A contract is required between the tow company and the property for authorization to tow vehicles without first obtaining a signature for vehicles unlawfully parked in the fire lane, parked within 15 feet of a fire hydrant, or blocking an entrance. [CVC 22658(l)(1)(E)(i), CVC 22658l)(1)(E)(ii) and CVC 22658(l)(2)] â&#x20AC;˘ Specific Authorization (Enforcement of Parking Rules): An authorized representative of the property must sign for each and every vehicle towed, at the time of the tow, witnessing the violation, and describing the vehicle. [CVC 22658(l)(1)(A), CVC 22658 (l)(1)(B), and CVC 22658 (l)(1)] â&#x20AC;˘ The person authorizing the tow is not required to be present within the tow arena (but they are required to be on the property) or allow their name disclosed in only residential properties (signers named redacted). [CVC 22658(l)(C)(ii)] â&#x20AC;˘ Commercial properties must wait one hour before authorizing tow. [CVC 22658(i)(1)(D) and CVC 22953]

Limitations of Area of Operation: Vehicles shall be stored within a 10-mile radius from where they were towed. [CVC22658(n)(1)(A), and CVC 22658 (n)(1)(B)] Towing and Storage Fees: Maximum towing or storage fees are regulated by local law enforcement rates, [CVC 22658(i), CVC 22658(k)(5)] â&#x20AC;˘ Credit cards must be acceptable for payment in full. [CVC 22658(k)(1), CVC 22658(k)(2), and CCC 1747.02] â&#x20AC;˘ Public Pay Phone must be available in the tow facilities office area. [CVC 22658(n)(3)] Penalties for violation of many PPT codes are criminal misdemeanors with up to $2,500 fines. [CVC 22658(l)(4), CVC 22658(l)(5), 22658(k)(3), CCC 22658(k)(4), CVC 22658(j)(2), and CVC 22658(j)(1)] This guide for selection of a qualified tow company recommends inspection of the tow yard, copies of herein listed documents, with annual updates, for current and annual evaluation. Although Compliance Depot and Continued on page 41 ECHO Journal | April 2010

ECHO Honor Roll

About

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, 650-543-5619 Beth Grimm, 925-746-7177 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 Barnett, Esq. Sandra Bonato, Esq. Jerry Bowles Joelyn Carr-Fingerle, CPA John Garvic, Esq., Chair Geri Kennedy, CCAM Wanden Treanor, Esq.

April 2010 | ECHO Journal

SF Luncheon Speakers John Allanson Jeffrey Barnett, Esq. Tyler 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 Pothast Larry Russell, Esq. Steve Saarman Nathaniel Sterling, Esq. Debra Warren, PCAM, CCAM Steven Weil, Esq. Mark Wleklinski, Esq. Glenn Youngling, Esq.

Seminar Speakers January 30, 2010 Marin Seminar Sandra Bonato, Esq. David Feingold, Esq. Wanden Treanor, Esq. Glenn Youngling, Esq. February 2010 Central Coast Seminar Speakers Sandra Bonato, Esq. Beth Grimm, Esq.

Stephanie Hayes, Esq. Donald Odell, Esq. John Schneider March 2010 Wine Country Seminar Speakers Carra Clampett, CCAM Bill Gillis, Esq. Darryl Orr Zeke Ortiz Barbara Zimmerman, Esq.

Recent ECHO Journal Contributing Authors November 2009 Ken Bade, PCAM Matt Malone, Esq. Ann Rankin, Esq. December 2009 Sandra Bonato, Esq. William Erlanger, CPA Lucinda Hoe Marilyn Lincoln Steven Weil, Esq. January 2010 Tyler Berding, Esq. Carl Brown Beth Grimm, Esq. Lise Ström, Esq. Richard Tippett February 2010 Beth A. Grimm, Esq. Ann Rankin, Esq. Brian Seifert

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.

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?

March 2010 Jeffrey A. Barnett, Esq. Ed Edrosa Sharon Glenn Pratt, Esq. Lise K. Ström, Esq. Richard Tippet

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.

ECHO Marketplace

Adver tiser Index

The place to find business and professionals for your association Affirmative Management . . . . . . . . .18 American Asphalt . . . . . . . . . . . . . .30

2 months management fee for FREE!* We’ll beat any competitors price by 25%. More Service: calls & emails returned same day. Work completed by deadline. *Prorated Neighborhood Association Management, Inc. (800) 811-0841 x22 Dee@Neighborhoodam.com www.Neighborhoodam.com

How to Select a Towing Company Continued from page 39

Registry Monitoring are companies that perform limited vendor review, the following list is minimally recommended before approving any tow company for PPT services. Tow Company Requirements • Copies of current required licenses and permits, as above listed (updated annually). • Certificate of Insurance with the property indemnified for both liability (with acceptable limits) and workers compensation. • Copy of the Special (or Conditional) Use Permit (or confirmed alternative) conforming to DMV “public lien sales” requirements for disposition of unclaimed vehicles. Inspection of Tow Yard (Agenda) This is where you send your residents and their guests to claim their vehicles: • Is the tow yard clean, cars parked with 2 feet clearance around, no hazards or oil spills, paved without pot-holes or puddles, ADA compliant access and bathrooms, uniformed personnel, indoor waiting area, • Posted tow rates in one-inch letters, • Posted current permits and licenses as required above, • Public pay phone available to the public (if they cannot pick up the vehicle, they can call for help as required by law), and

• Vehicles stored within 10-mile radius from private property. Inspection of Private Property Requirements (Agenda) • Signage on all property entrances and exits in compliance with local and state code. • Enforceable Parking Rules and Regulations endorsing Specific and/or General Authorization services. • List of authorized persons to sign for Specific Authorization tows delivered to tow company. • Review of Fire Lanes and other restricted parking areas for commonsense vehicledriver instruction. • Service contract for PPT services with indemnity from the tow company. This synopsis of laws is limited as an outline format to assist in the selection of a qualified PPT service; it is not intended as an outline for performing PPT services. Please refer to the complete text of CVC 22658, your local codes, and other referenced laws above for precise language.

American Management Services . . .10 Angius & Terry . . . . . . . . . . . . . . . . .3 AquaTek Plumbing . . . . . . . . . . . . .37 A.S.A.P. Collection Services . . . . . . . .9 Association Reserves . . . . . . . . . . .15 Bayridge Group . . . . . . . . . . . . . . . .12 Berding | Weil . . . . . . . . . . . . . . . . .44 Collins Management . . . . . . . . . . . .37 CAB/Mutual of Omaha . . . . . . . . . .14 Community Management Services . .30 Compass Management . . . . . . . . . .11 Cool Pool Service . . . . . . . . . . . . . .20 Cornerstone Community Mgmnt . . . . .8 Draeger . . . . . . . . . . . . . . . . . . . . .11 Ekim Painting . . . . . . . . . . . . . . . . .33 First Bank Association Bank Srvcs . .32 Flores Painting . . . . . . . . . . . . . . . .31 Focus Business Bank . . . . . . . . . . .10 Gachina Landscaping . . . . . . . . . . .15 Helsing Group . . . . . . . . . . . . . . . .15 Hill & Company. . . . . . . . . . . . . . . .20 M&C Association Services . . . . . . . .31 M. L. Nielsen Construction . . . . . . .32 Massingham and Associates . . . . . .33 Pelican Management Group . . . . . . .20 PML Management Corp. . . . . . . . . .14 Pollard Unlimited . . . . . . . . . . . . . .33 Pro-Craft Builders . . . . . . . . . . . . . .18 Professional Association Service . . .18 R. E. Broocker Co. . . . . . . . . . . . . .22 Real Estate Property Management . .12 RealManage . . . . . . . . . . . . . . . . . .22 Rebello’s Towing Service . . . . . . . . .39 REMI . . . . . . . . . . . . . . . . . . . . . . .19 Saarman Construction . . . . . . . . . . .9 Scuba Pool Rerpair . . . . . . . . . . . . . .8 Statcomm . . . . . . . . . . . . . . . . . . .37 Steve Tingley Painting . . . . . . . . . . . .2 Steve’s Painting Services . . . . . . . .19 Union Bank . . . . . . . . . . . . . . . . . .27

Burt Dean is the owner of Rebello’s Towing Service and is a member of the California Tow Truck Association Legislative Committee that was active in rewriting the California Vehicles Code sections relating to private property towing that became effective January 2007. He was previously a community association manager for 25 years; he was a Certified Property Manager and a member of California Association of Community Managers. ECHO Journal | April 2010

Saturday, June 19, 2010 8:00 a.m.–4:30 p.m. Santa Clara Convention Center Santa Clara, California 125 Booths in Trade Show, Hundreds of Prizes, New CACM Course, Buffet Luncheon, Ice Cream Social and more! Join the Friday Night Gala! Annual Seminar Reception Friday, June 18, 5:00–7:30 p.m. Food, Music, Socializing, Prizes Cost: $40—See Registration Form

Special Hotel Rates Don’t miss out on the special room rate of $89 single or double at the Hyatt Regency adjacent to the Santa Clara Convention Center. Call the Hyatt Regency at 800-233-1234 and mention the Executive Council of Homeowners. The special rate is available until June 1.

CACM Course: Reserves—What, Why and How Friday, June 18, 2010 The legislature has put a microscope on reserve studies during the past couple of years, and we expect more attention to be placed on the process. You may not need to be a reserve specialist but you do need to know when to call in a specialist, what information to gather, and what to expect. How do you use a

reserve study as a planning tool? How does it drive the association's budget? What if the association does not have reserves needed for a project? These questions and much more are discussed. (3 CACM CE hours) Instructor: Ken Kosloff Tuition: $110 Call the ECHO Office to register.

Be an HOA Survivor ECHO Annual Seminar June 19, 2010

Educational Program Session Tracks

Saturday Morning 9:00 to 10:10

Saturday Morning 10:50 to 12:00

Saturday Afternoon 1:30 to 2:40

Saturday Afternoon 3:20 to 4:30

HOA UNIVERSITY Rooms 209 and 210

Administration Dianne Rossi, CCAM

Legal Deon Stein, Esq.

Finance Linnea Juarez, PCAM, CCAM

Insurance Garth Leone

LEGAL Rooms 203 and 204

Legislative Update John Garvic, Esq. Kerry Mazzoni

Board Hearings: A Valuable Tool Glenn Youngling, Esq.

Budgeting and Disclosures in Lean Times Rob Rosenberg, CCAM

Ask the Attorneys Steven Weil, Esq. Jeffrey Barnett, Esq.

MANAGEMENT & FINANCIAL Ballroom H

Top Traits of Great Managers and Boards Julie Adaman

Association Financial Survival in Tough Times Tyler Berding, Esq. David Levy, CPA

So You Think You Have a Problem Katharine Rosenberry, Esq.

Investing Reserve Funds in Troubled Times Alan Crandall

MAJOR MAINTENANCE Ballroom G

Solar Energy: It’s Hot! Wanden Treanor, Esq.

Green Construction Ken Kosloff Steven Saarman David Kuivanen, AIA

Understanding Your Reserves Study Report Roy Helsing

Assessment Collection, Foreclosure and Bankruptcy Sandra Gottlieb, Esq.

REGI S TRATI ON FORM Yes! Please reserve my space at the 2010 ECHO Annual Seminar. Name ___________________________________________________________________ Association/Organization __________________________________________________ Address _________________________________________________________________ City __________________________________________ State _____ Zip____________ Daytime Phone ___________________________________________________________ Names of Additional Attendees: 1. _________________________________________ 2. ________________________________________ Please reserve tickets for: No. Amount $___________ $75 ___________ Seminar Only (members) Seminar Only (non-members) $90 ___________ $___________ Seminar Buffet Lunch $40 ___________ $___________ $___________ $40 ___________ Friday Reception TOTAL $___________ Visa/MasterCard No. ______________________________________________________ Expiration Date ___________________________________________________________ Cardholder’s Signature ____________________________________________________

Reserve Now Tickets are non-refundable Order will not be processed without full payment Return with payment to: ECHO 1602 The Alameda, Ste. 101 San Jose, CA 95126 Tel: 408-297-3246 Fax: 408-297-3517

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