Journal_10_09 by Echo

September 2010

A Journal for California Community Association Leaders

echo-ca.org

Ethics for Board Members ALSO INSIDE THIS ISSUE:

• Mandatory Reserve Funding? • Short Sales in HOAs • Roofs and Decks

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Contents Components of an Enforceable Rule —page 20

Ethics for Board Members Providing board members with practical tools to implement ethical values for their association is the purpose of this article. These tools will enable board members to navigate through the complex ethical issues that can occur in the everyday administration and governance of an association.

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 2010 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.

Short Sales In HOAs Much has been written about short sales and what happens to delinquent assessments. The best result is that an escrow demand comes to an association asking how much is owed and the delinquent amount is then considered as part of the settlement. This article answers questions about this increasingly used sales strategy.

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Board of Directors and Officers

Roofs and Decks To get the most out of roofs and decks, an association must implement a preventative maintenance program. If your association is considering replacement, become a vigilant well-informed consumer and ask questions. Steve Saarman discusses how each association is the guardian of its own equity.

Treasurer Diane Rossi

Mandatory or Voluntary Reserve Funding?

Secretary Dorothy Kopczynski

The prediction that reserve accounts would fail to keep pace with growing costs of repair is accurate. Hawaii now has a mandatory reserve funding statute that requires immediate funding of reserve shortfalls. Is it California’s turn to impose funding?

Departments 20 Components of an Enforceable Rule 28 News from ECHO 29 Legislation at a Glimpse

30 Directory Updates 36 ECHO Bookstore 38 Events Calendar

Directors Paul Atkins John Garvic Robert Rosenberg Richard Tippett Steven Weil

Jerry L. Bowles David Levy Kurtis Shenefiel Wanden Treanor

Executive Director Oliver Burford Communications Coordinator Tyler Coffin Legislative Consultant Government Strategies, Inc. Design and Production George O’Hanlon

41 ECHO Marketplace

ECHO Mission Statement

41 Advertiser Index

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.

On the Cover September 2010 | ECHO Journal

Vice President Karl Lofthouse

40 ECHO Volunteers

Ethics for Board Members—page 6 4

President David Hughes

PRESENTING Upcoming ECHO Seminars September 25

October 23

February 5

March 5

March 19

April 16

June 17 & 18

Central Coast Fall Seminar

Half-Day Seminar

Hilton Santa Cruz/Scotts Valley 6001 La Madrona Dr, Santa Cruz

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

Peninsula Seminar

Half-Day Seminar

Crowne Plaza Hotel 1221 Chess Drive, Foster City, CA

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

Marin County Seminar

Half-Day Seminar

Embassy Suites 101 McInnis Dr., San Rafael, CA

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

Central Coast Winter Seminar

Half-Day Seminar

Hilton Santa Cruz, Scotts Valley 6001 La Madrona Dr., Santa Cruz, CA

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

North Counties Seminar

Half-Day Seminar

Sally Tomatoes 1100 Valley House Dr., Rohnert Park, CA

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

South Bay Seminar

Half-Day Seminar

Campbell Community Center 1 W Campbell Ave., Campbell, CA

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

ECHO Annual Seminar

Two-Day Seminar

Santa Clara Convention Center Santa Clara, CA

September 24

Central Coast Fall Seminar

Half-Day Seminar

Hilton Santa Cruz, Scotts Valley 6001 La Madrona Dr., Santa Cruz, CA

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

ECHO Journal | September 2010

September 2010 | ECHO Journal

By Karen D. Conlon, CCAM, and Sandra L. Gottlieb, Esq.

Ethics for Board Members he purpose of this article is to provide community association board members with practical tools designed to identify and implement ethical value systems for their association. These tools will enable board members to navigate through the complex ethical issues that can occur in the everyday administration, management and governance of a condominium project,

planned development or other community association. Ethical Dilemmas—An Introduction Many ethical dilemmas faced by board members on a daily basis are not clear-cut. In fact, there are often no “right” or “wrong” answers to an ethical dilemma. That said, how you deal with an ethical

ECHO Journal | September 2010

dilemma says a lot about you, your board and your association. Ethical dilemmas often fall within a “grey” area. These dilemmas are not “black and white” and can often be argued in multiple ways. According to Kenneth Blanchard and Norman Vincent Peale, authors of ThePower ofEthicalM anagem ent, there are three questions persons should ask themselves when faced with an ethical dilemma: 1. Is it legal? (In other words, will any criminal or civil laws, association governing document provisions or board policies be violated by engaging in an action?) 2. Is it balanced? (Is it fair to all parties concerned both in the short term and the long term? Is it a win-win situation for those directly and indirectly involved?) 3. Is it right? (How does this decision make you feel about yourself? Are you proud you made this decision? Would you like others to know you made this decision? How will this decision look five years from now?)

With the recent highly reported ethical violations in corporate America, today’s ethics landscape is treacherous and complex. Most of the time, when dealing with “grey” decisions, answering just one of these questions is not enough. However, if you take the time to reflect on all three questions, the answer becomes clear as to the most ethical course of action. With the onset of recent visible and highly reported ethical violations in corporate America (think of the decisions made by many people heading companies and agencies leading to the recent sub-prime mortgage meltdown), today’s ethics landscape is treacherous and complex. A common perception today is that businesses of all sizes, types and ownership show little, if any, meaningful reduction in the risk of unethical behavior. Volunteer community association boards have the same fiduciary duties as boards of 8

September 2010 | ECHO Journal

large corporations such as McDonald’s, Intel and Texaco. The difference is that your conduct will be compared to other non-profit mutual benefit corporations’ board members. It may even come under scrutiny in a court of law. To maintain protection from liability as volunteer directors, board members have a fiduciary duty to act (1) in good faith, (2) in the best interests of the association and (3) using such care, including reasonable inquiry, as an ordinarily prudent person would under similar circumstances. This requirement is codified in California Corporations Code §7231.5. It is important for all board members, especially a new board member with no prior director experience, to research and understand their fiduciary duties to ensure that they are acting ethically in order to properly protect their individual actions and the actions of their board and the association. Assume this reasonable inquiry is needed to satisfy number 3 above. While ethical dilemmas will always be present, an association’s board can take actions and create tools to ensure that when an ethical dilemma arises, board members will have a standard to gauge their behavior and decisions. The Practice of Ethics In a nutshell, the practice of ethics by a board member involves knowing what behavior and conduct is right or wrong in the governance of their association and doing what is right. Ethics is what you do when no one else is looking. Ethics are the “moral compass” and standards recognized in the performance of a director’s duties and responsible governance of an association. These standards are established, in part, in the California Corporations and Civil Codes. Boards should adopt a code of ethics, or at a minimum a code of conduct, to establish a standard for how the board conducts itself and the business decisions of the association: • This code defines the value system of the association and how directors must behave. • A code of ethics/conduct clarifies ethical standards regarding loyalty, fidelity, integrity, honesty, confidentiality and competency. • Having established ethical standards will enable board members to avoid some potential “grey” areas.

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• A code of ethics should incorporate preferred business practices, appropriate legal requirements and the expected code of conduct for board members. • The code of conduct should be distributed not only to the board, but also to the homeowners. This will make the board’s actions accountable to each other and the homeowners. This kind of transparency is a win-win for directors and owners. A sample Board Member Code of Ethics is shown on page 14.

Sometimes not doing something can be a breach of a board member’s ethical duties.

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September 2010 | ECHO Journal

In the community association context ethics are involved in a number of relationships and interactions: • Between individual board members • Between the board and the association • Between the board and homeowners/ residents • Between the board and management • Between the board and association experts and consultants (i.e. association legal counsel, financial and tax advisors, reserve study providers, etc.) • Between the board and vendors The board should be focused on the main purposes of the association, namely to: • Protect and preserve the association’s common areas and other real, personal, and intangible assets. • Manage the association’s finances, including meeting statutory budgeting and disclosure requirements, providing for reserve funding and pursuing assessment collections. • Promote the homeowners’ unimpeded and safe use and enjoyment of the association’s common areas, exclusive use common areas and separate interests. • Enforce the association’s governing documents. Sometimes not doing something can be a breach of a board member’s ethical duties. That said, purposefully choosing to not do something for the best interests of the association is different. Board members cannot turn a “blind eye” to matters affecting the well being of the association, or which can

place the board or association at risk. No decision is a decision. Ethical behavior is based on observations and perceptions—board members need to “walk the walk” as well as “talk the talk.” Ethical standards imposed on and expected of the board are only as good as their adherence by board members. It is not sufficient to issue platitudes as to what is and what isn’t ethical behavior. Board members should be held accountable for their actions, and it should be demanded by their peers that they implement ethical behavior. The Business Judgment Rule The Business Judgment Rule is a presumption that directors’ decisions are based on sound business judgment, which can be rebutted only by a factual showing of fraud, bad faith or gross overreaching. Acting in accordance with the Business Judgment Rule is an indication that a board member is likely acting ethically. Application of the Business Judgment Rule in the 1999 California Supreme Court case, Lam den v.La Jolla ShoresClubdom inium H om eownersAssociation (21 Cal.4th 249): • The court held that it will defer to a board’s authority and presumed expertise in discretionary decisions regarding the maintenance and repair of a common interest development, provided the board’s decisions are: • Based upon reasonable investigation; • Made in good faith and with regard to the best interest of the association; and • Within the scope of authority given to the board under the relevant statutes and CC&Rs. • Assuming that a board was found to have acted in accordance with these factors, then the board would seemingly have committed no wrongs in performing whatever action was being questioned. Acting upon/after reasonable investigation and inquiry: • A director should independently investigate and evaluate facts particular to a situation before acting. • A director should consult with experts or consultants (i.e. legal counsel, financial manager, reserve study provider, etc.) when it is prudent to do so. • A director is entitled to rely on information, opinions, reports or statements prepared by experts and consultants. Acting in good faith and in the best interests of the association:

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September 2010 | ECHO Journal

• Directors cannot make decisions that benefit their own self-interests. • Directors must make their decisions ensuring that those decisions do not adversely affect the association financially, legally or otherwise. • Directors cannot act in the best interests of a particular group or minority interest of an association. Directors should also, pursuant to their fiduciary duties under Cal. Corp. Code §7231(a), act as an ordinarily prudent person in a like position would: • Acting with the level of care that persons of ordinary prudence would use in order to avoid injury to themselves or others under similar circumstances. • Acting in a conservative manner, minimizing risks where they can reasonably be avoided in the same manner that a “prudent” person would. • The benchmark is the basic attributes of common sense, practical wisdom and informed judgment. Highlighted Duties of Directors Duty of Knowledge—The board is responsible for enforcing the association’s governing documents, so board members should know the contents and requirements of the association’s governing documents (Articles of Incorporation, CC&Rs, Bylaws, operating rules, architectural guidelines). The board is also responsible for managing the daily affairs of the association, so the board should be continually reviewing and evaluating association business, records and transactions. Duty of Financial Management—The board is responsible for managing the finances of the association, including the levying and collection of homeowner assessments, review of financial records and distribution of required disclosures. Duty of Maintenance—The board is responsible for the maintenance, repair and replacement of the association’s common area components (i.e., exterior and structural portions of the association’s buildings and improvements). The board should be aware of and plan for potential and actual deferred maintenance issues. Duty of Operation—The board is responsible for the operation and management of the common area facilities and amenities, such as pools and clubhouses. The board is also responsible for contracting and paying for services for the association (i.e. janitorial services, landscaping, utilities, etc.). And boards need to deal with foreclosed proper-

ties and abandoned units sitting vacant that the current owners are not properly maintaining. Duty of Enforcement—The board is responsible for enforcing the association’s governing documents, including: enforcement of use restriction violations; delinquent assessment collection (the board should assess late charges, interest and collection costs for the collection of delinquent assessments); and architectural restrictions. The board is also responsible for imposing suspension of voting rights and membership privileges as a disciplinary action against homeowners for violation of the governing documents, if allowed under the governing documents, and this discipline should be applied uniformly and consistently. Directors should be aware of their responsibility in neighbor-to-neighbor nuisance disputes versus association to owner disputes. Duty of Leadership—An effective and ethical board members is: • Future oriented. • A team player. • Self-disciplined. • An active participant. • An appropriate delegator. • Open and willing to learn about the community and their duties. • Connected to the community and its values. • Passionate about the success of the association and its members. Examples of Ethical Dilemmas Unruly board members who are not acting in the best interest of the association: • Not enforcing the association’s governing documents (including not enforcing delinquent assessment collection policies). • Acting in a disparate or discriminatory manner towards certain homeowners. • Advancing self-serving interests to further their own agenda (which would be a conflict of interest). • Improper corporate governance (i.e. not following the requirements of the association’s governing documents or statutory requirements). • Not following the Business Judgment Rule. • Violating the association’s governing documents. Dependant on governing document authority, this can lead to declaring the seat of a director vacant. • Breaking the attorney-client privilege and/or distributing confidential corporate/business records. ECHO Journal | September 2010

SAMPLE

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BOARD MEMBER CODE OF ETHICS As a board member, you need to be aware that more is expected of those in leadership roles. Review the following statements. Signing this Code of Ethics solidifies your commitment to honest board service. As a member of this board, I will: • Focus on governance for and not management of the Association. • Be committed to fulfilling the mission and vision of the XYZ HOA. • Keep all confidential board information confidential. • Focus my efforts on the XYZ HOA and not my personal goals. • Serve on a committee and/or task force in a leadership capacity. • Refrain from using my service on this board for my own personal advantage or for the advantage of my friends or associates. • Respect and support the majority decisions of the board. • Immediately disclose to the board any perceived or real conflict of interest as soon as I have knowledge of the potential conflict.

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• Approach all board issues with an open mind, prepared to make the best decisions for everyone involved. • Do nothing to violate the trust of those who elected or appointed me to the board or of those we serve. • Never exercise authority as a board member except when acting in a board meeting or as delegated by the board or its president. • Continue to maintain the XYZ HOA board member candidate qualifications. • Consider myself a trustee of this organization and do my best to ensure that it is well maintained, financially secure, growing and always operating within the best interests of those we serve—the members.

Order today from ECHO! Call 408-297-3246, fax at 408-297-3517 or email: info@echo-ca.org 14

September 2010 | ECHO Journal

_______________________________________________ BOARD MEMBER SIGNATURE

_________________________ DATE

• Embezzlement—“Borrowing” permanently or temporarily from the association’s funds. The above board members need to be educated on and/or reminded of their fiduciary duties, statutorily required standard of care and the code of ethical conduct adopted by the board. Peer pressure can be an effective tool to curb unethical behavior—other board members should confront the offending board member to address ethical issues. Unruly homeowners who are placing the association at risk: • Harassment of association employees, independent contractors and vendors. The association is in an employer-employee relationship, and that harassment can create a hostile workplace at the association and expose the association to potential legal liability. Board members must make sure that they do not create a hostile work environment. • Damage to the association’s common area. The board has a duty to repair and maintain the common area. • Continued use violations under the governing documents. The board has a duty to enforce the association’s governing documents, and the board should impose discipline as appropriate. • Failure to pay assessments. The board should aggressively follow the association’s collections policy to ensure for the financial viability of the association. Conclusion The principles behind ethical rules are to guide people in the performance of their duties and express the basic tenets of ethical and professional conduct. A code of conduct for a board can be an invaluable tool to ensure that board members are aware of the “line in the sand” when it comes to grey matters and turn an otherwise confusing situation into a clear decision. To ensure that the association and board are protected, a director should act ethically at all times. Ethics are yours to adopt—if you don’t do it for yourself and your board, no one will.

Karen Conlon is the president and CEO at the California Association of Community Managers and Sandra Gottlieb is a principal at Swedelson & Gottlieb and Association Lien Services. Both are regular speakers at ECHO events and contributors to the ECHO Journal. ECHO Journal | September 2010

By Beth A. Grimm, Esq.

Short Sales in HOAs Some Straight Thinking What happens to the delinquent assessments in a short sale situation? here has been much commentary on the web about short sales in homeowner associations lately. What happens to the delinquent assessments in a short sale? Some commentators suggest they never get paid or that the debt is extinguished in the short sale. Not so. Some suggest that the association must have a lien on the property to collect or if the sale goes through without payment of the assessments and there is a lien, that the lien is extinguished. Not so.

September 2010 | ECHO Journal

The best result, of course, is that the bank/seller does things properly, which means that an escrow demand comes to an association asking how much is owed and the HOA responds, telling the parties what is owed. The delinquent amount is then considered as part of what must be settled in the sale. Thatâ&#x20AC;&#x2122;s what should happen. Whether the bank, the seller or the buyer pays the delinquencies is of no particular consequence, if someone agrees and they are paid to assist the sale. I have heard of

ECHO Journal | September 2010

The How-to Guide for Homeowners Associations Hailed as the most complete and useful reference available for homeowners associations, members, officers and directors. If you want to learn how to manage, operate and participate effectively in your association, you will want to read this book.

Order the book today from ECHO Call 408-297-3246, fax 408-297-3517 or email: info@echo-ca.org 18

September 2010 | ECHO Journal

buyers anteing up more $$$ when the bank appraisal came in too high to do the deal and the buyers really want to buy the home. After all, short sales are really good deals for the buyers. The buyer might be willing to throw in some money toward the debt to get the good deal. The realtor might. The bank might. The seller might. There are all kinds of possibilities; so don’t give up too easily. Considerations: When the assessments are not being paid, or when the HOA is being asked to negotiate down what is due, it is important to consider what is happening and whether it makes sense to take a hard line or a soft one. Here are some considerations: 1. The debt is that of the seller and if the debt is not paid, the association still can go after the seller for the accrued debt in a personal debt action. But is it worth it? If the seller is a family that lost its home because the owner lost his or her job or suffered grave financial circumstances, recovery of any money might be unlikely. However, if the seller is an investor who appears to be dumping property to cut losses, maybe there is a chance of recovery there. Maybe the investor does not know you can come after him or her. Maybe once they do, they will start talking settlement. (The same applies to a collection matter that does not involve a short sale; thinking outside the “foreclosure box” and getting after an owner sometimes opens up doors to other possible areas of recovery). 2. If the assessment debt is not paid and the property transfers to a new owner, an association might still be able to put a lien on the property or, if there is a lien, might be able to continue foreclose proceedings (assuming the governing documents provide for it and nothing has happened to extinguish the lien) because the assessment debt is still viable against the property in a volunteer transfer of the property, and it remains so until the lien or debt is “extinguished” by law. If a senior mortgage holder forecloses for its debt and there is a recorded HOA lien, that lien would normally be extinguished as a matter of law. This is not the case in a voluntary sale to a brother, uncle, or kid, or in a short sale. The association cannot pursue a new owner personally for old debt, but the property may be up for grabs. Thus, all parties (lender, seller and buyer) should take heed in settling on a short sale without inquiring about HOA debt. It is risky

business. All might end up in litigation against each other. And an association should get legal advice before releasing any encumbrances voluntarily. 3. If the HOA is being asked to negotiate down the debt, keep in mind the old saying that “a bird in the hand is worth two in the bush.” In case that is not clear, 50 cents on the dollar in hand might be the best deal in town. Getting the unit transferred to a new owner without waiting for the bank to foreclose (many banks are now stalling foreclosures for long periods of time) might be worth $0 return on the outstanding debt, especially if there are bad tenants or the owner continues to live in the property “for free” while it sits in foreclosure with the bank. Entering into an agreement with the seller or buyer to make payments toward the delinquency might be the way to go if they are willing and assuming they are solvent. You would need a written agreement with the buyer for sure because the obligation does not arise in that direction without agreement and with the seller in order to overcome statutory priorities that otherwise require all sums received to be applied to assessments before any other costs such as collection costs. In other words, association boards take note: being ignorant of the rights remaining or being belligerent in your demands might hurt you. Consult with legal counsel to be sure you are knowledgeable about your rights. Be assertive about timing of liens! As many have said, it is doubly important in this economy to have a strict assessment collection policy that allows for recording a lien at the earliest possibility because homeowner association contacts are hard for the lenders and title officers to find. If sellers don’t ante up the information about their debt to the association, a properly recorded lien will. And, a lien offers a point of contact, as well as additional protections in the event of bankruptcy. Yes, it is true that the costs to the owner who is already struggling go up considerably when a lien is recorded, but if that owner has not stepped up and entered into a payment plan that is being honored, there are oh-so-many protections that an association needs. Trying to get the bank’s attention: After an HOA foreclosure, an association might want to contact the bank holding any senior mortgage and try to get it to move its foreclosure along or at least seek information about

a timeline. I have talked about how this might help an HOA that rents out the property and collects rents as a possible defense to any claim the lender might make relating to rent-skimming, especially if a lender delays its foreclosure unreasonably. The HOA may want to inquire as to whether the bank might consider reducing the debt if a buyer is located by listing the property for sale. Keep in mind that any potential buyer would have to take it subject to the senior lien (so there is little point in listing it for sale if it is “under water,” which is likely these days) and the lender will not talk about reducing the mortgage to effect sale of the property. I do not know if this is even an option when the loan is in the former owner’s name and the HOA has taken over ownership. It is hard to imagine what options all lenders have or would consider. I am hearing that some lenders will not even speak with HOAs, and others are willing to talk about various cooperative options. After an HOA foreclosure the HOA receives a Certificate of Sale and when the 90-day redemption period is over, a Trustee’s deed should be issued to the HOA. No transfer of the property should occur during the redemption period since the former owner has the right to pay the HOA all costs and assessments to redeem ownership. A lender could talk to an HOA at any time if the borrower’s deed of trust contains a Condominium Rider allowing the bank to pay past due assessments, as the HOA is a party with an interest in the transaction. However, lenders tend to have their hands full these days and they may just respond like ostriches with their heads in the sand. And there is another potential problem because some title companies won’t issue title insurance in conjunction with the sale of an HOA-foreclosed property. Thus, even if an HOA can get the ear of any bank personnel, there are still hurdles to clear to getting meaningful cooperation or even information.

Beth A. Grimm is an attorney who serves homeowner associations and homeowners alike. She is a frequent contributor to the Echo Journal and other similar publications in the State of California and on a national level. She provides several publications written in plain English to help people who need information about California law as it relates to homeowner associations. She posts a wealth of information on her Web site at CaliforniaCondoGuru.com. ECHO Journal | September 2010

September 2010 | ECHO Journal

Residents are more likely to accept and voluntarily comply with rules having the components outlined in this article.

By Debra J. Oppenheimer, Esq.

Components of an Enforceable Rule hat makes a rule enforceable? An enforceable rule meets the requirements of the law and governing documents. What makes an enforceable rule a good rule? A good rule meets the needs and requirements of the community. When writing rules, boards should make sure the rules are both enforceable and “good.” In general, courts recognize the following characteristics of

enforceable rules. Even better, residents are more likely to accept and voluntarily comply with rules having the following characteristics: • The rule must be reasonable. A reasonable rule is fair, sensible and not excessively punitive or controlling. • The rule must be clear and unambiguous.

ECHO Journal | September 2010

LOCAL SERVICES ı NATIONAL RESOURCES

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• The rule must reasonably relate to the operation and purpose of the association, e.g., a rule should protect, preserve, or enhance the properties within the community. • The rule must be consistent with applicable federal, state and local statutes (such as the Fair Housing Administration Act, the Americans With Disabilities Act, the Civil Rights Act). • The rule must be consistent with the association’s governing documents; i.e., a rule cannot prohibit what the covenants permit and vice versa. • The rule must be uniformly enforced. This means there should be no selective enforcement or exceptions. The following guidelines for drafting good rules will help board members avoid the traps of complexity and misunderstanding: Common sense. Rules should require people to do what the reasonable majority would have done naturally without the rule. Efficient. Good rules accomplish exactly what the board intended them to accomplish. Unfortunately, some associations try to solve a problem by passing rules that are 22

September 2010 | ECHO Journal

either too harsh or too broad. If dogs running loose is the problem, don’t ban dogs— instead require all dogs to be on leashes at all times. Use few rules. Good rules are the minimum necessary to provide for the comfort and safety of the residents, the fair use and enjoyment of facilities, and the equitable burden of responsibility in a community. Easy to comply. When residents understand the need for a rule, they’re more likely to comply with it voluntarily. Vague statements, such as “Loud and boisterous activity should be avoided,” leave unanswered questions, such as “By whom?” “Where?” “When?” “What does avoid mean?” Authorized and enforceable. Make sure the board has authority to enforce a rule before drafting it. If you do not have the ability to determine how long a vehicle has been parked, don’t create a rule that bans parking for more then 8 hours. Beware of unintended consequences. Good rules resolve, rather than create, problems. For example, the board of the ABC Association is concerned about lawn areas being damaged. In an attempt to resolve the

problem, the board prohibits groups of three or more people from playing on the lawn. The residents react by playing on the street or on the lawns of adjacent associations, resulting in complaints from motorists and other association boards. Prevent this type of situation by considering likely consequences of rules. Communicate to residents. Rules should be discussed with residents during the drafting process. Owner involvement helps ensure a desire to comply with the created rules. Also, make sure you follow the association’s policies for adopting rules. Following these guidelines will help ensure your association’s rules are enforceable, effective and work to keep your community running smoothly.

Debra Oppenheimer is a partner at the Law Offices of HindmanSanchez in Arvada, Colorado. Her practice emphasizes creating solutions for the covenant and rule enforcement needs of Colorado homeowner associations. More information is availabe at www.hindmansanchez.com.

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.

By Steven Saarman

Roofs and Decks A Maintenance Perspective or both roofs and decks, semi-annual inspections are the first step in any proactive preventative maintenance program. This allows the ability to identify and solve any problems as they occur with the least cost and consequential damage. The inspections should be scheduled in the spring, after the ravages of winter have passed and again in early fall, after the heat of summer has passed and in anticipation of winter. These are critical periods to “tune-up” both systems. Both roofs and decks are basically horizontal surfaces and, consequently, get more abuse from the elements (i.e. sun and rain) than any other part of the building. The most common roofing materials used locally are: asphalt composition shingles, built-up and modified bitumen, wood shakes and shingles and clay or concrete tiles. There are maintenance elements common to each of these roof types, as well as roof-type specific maintenance procedures. Clean all debris from the roof surface. This includes debris that has accumulated behind HVAC units, skylights, chimneys, pipes, pitch pockets or any other penetrations. Debris has a

tendency to retain moisture and accelerate deterioration of the roofing material, especially if it is asphalt- or wood-based. Check all flashings to make sure they have not deteriorated, there are no holes in them or that joints or seams have not broken loose due to thermal expansion and contraction. If flashings need to be replaced, always have flashings installed with “slope to drain” away from the building, not flat or reversed sloped, which will retain water, push it back towards the building and increase the potential for leaks. Check all caulking and sealants on flashings, caps or copings. Scrape and remove any caulking that is cracked and damaged. Clean thoroughly and replace it with a polyurethane caulking such as NP-1 or Sikaflex 1A. Keep your gutters and downspouts, drains and scuppers clean and free of debris. Test your downspouts before winter to make sure they run free and aren’t clogged. Clogged downspouts cause gutters to fill up in heavy rains and increase the chances of water flowing backwards under the roofing.

September 2010 | ECHO Journal

Trim back any overhanging tree branches that will add to accumulated roof debris and possible abrasion of the roof surface. This is also a good preventative measure from a fire prevention point of view. If you have split level roofs, make sure the siding around the roofing is maintained. This siding is often not looked at, so it has a tendency to fall into disrepair. These side wall leaks are often interpreted as roofing leaks. Keep moss, fungus and algae off your roofs. As the organisms grow, they penetrate the wood or asphaltic surfaces, breaking down the wood, weakening fibers, wearing off the protective granules or coatings and generally accelerating substrate deterioration. Zinc “control strips” along ridges and hips are an effective and proactive control measure and are easy to install. With asphalt composition shingle roofs, replace any weather-damaged shingles (i.e., cracked, curled or missing). As a tune-up, if some of the shingle tabs are loose, apply a dab of roof cement on either side of the tab to reattach. This will help prevent wind blow-off. Remember, a shingle roof is Continued on page 26

Roofs and Decks Continued from page 24

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

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

September 2010 | ECHO Journal

a waterproof plane composed of overlapping layers of shingles like the feathers on the back of a duck. When it is healthy and well maintained, water will always run off. Built-up or modified bitumen roofs consist of multiple layers of felts laminated together with bitumen and are designed for low slope. Low sloped roofs are generally sloped a minimum of 1/4 in. per foot, while sloped roofs generally have a minimum pitch of 1/3 in. Proper substrate sloping with valleys and crickets allow water to be channeled toward drains. Therefore, the condition of the surface is critical. Ponding water over 48 hours accelerates roof deterioration and creates a “reservoir” when the leak occurs. Gravel is applied and imbedded into the top asphalt surface to protect the lower layers from UV penetration and material breakdown. This is why bald spots need to be addressed. Check the edge metal around the perimeter of the roof. Make sure it isn’t separating at the seams where the asphalt overlaps on to the metal. Also, if you detect blisters in the roof, don’t step on or puncture them. Blisters are a sign that moisture has entered between the roofing layers and the warmth of the sun has caused the water to vaporize and expand between the layers, creating the blister. Contact a qualified roofing contractor to repair any of these issues if noticed during one of your semi-annual inspections. As a reference point on what life span one can expect from a built-up roof, under ideal conditions, a 3-ply built-up roof should last at least 15 years, a 4-ply should last at least 20 years and a 5-ply should last at least 25 years. Quality installation and proactive maintenance is key to achieving the full life expectancy of any roof system. Cedar shakes and shingles have been used for hundreds of years because they perform well. Cedar is a wood product, so it needs to breath and therefore the surface must be kept clean of debris. This means both the top surface area and the keyways between the shingles. Attic ventilation is also very important with cedar shakes or shingles, so heat and moisture do not build up in the attic area and detrimentally affect life expectancy of the shingles. Clay and cement tiles are extremely durable, fire resistant and long lasting. If they are being considered as a roof replacement alternative, the roof framing must be ana-

lyzed by a structural engineer because of the added weight of the material. After the semiannual inspection, the roofer should replace any cracked tiles, tune-up any flashings and repoint ridges and hips with mortar to maintain a watertight condition. Decks are built to provide an exterior extension to the interior living space. As an extension, it therefore has a structure for support, a means of attachment to the building and a walking surface. Each of these areas has design and maintenance concerns. What the deck structure is made of is determined by design and building codes. Wood-framed deck structures are built from either Douglas fir framing or pressure treated framing material. If the deck surface is of a membrane type that moves water horizontally and does not allow water to pass through and soak the framing, the framing material is generally of non-pressure treated wood. If the walking surface is open slotted planking where water drains through the surface and wets the framing, pressure treated material must be used by code. There are deck-type specific flashing details for both membrane and open drainage deck systems. Membrane type decks are like roofs and must be constructed to be watertight. Water only touches the top-walking surface; so the waterproofing elements and flashings work together to form a â&#x20AC;&#x153;bath tubâ&#x20AC;? with a drain. With an open drainage deck system, water runs through spaced decking and over the supporting wood structure, the structural metal fasteners, nails and bolts, which then become susceptible to decay and corrosion. When the structural framing material is pressure treated, wood decay is not an issue, but there is a heightened concern with corrosion of the metal fasteners. Standard carbon steel or aluminum should never be in contact with pressure treated material. Even electroplated nails or fasteners do not have a thick enough layer of zinc to provide adequate corrosion protection. Only hot-dipped galvanized or stainless steel nails, screws, bolts and fasteners are recommended. The traditional surface walking material for open drainage decks has been all-heart redwood, which has a service life of 10 to 20 years. Alternate wood products such as mahogany and Ipe have become popular due to the increase in cost and scarcity of all-heart redwood. Ipe is a hardwood requiring moderate maintenance and has a service life of at least 20+ years. Redwood with sap wood (white in color) is inferior for decking

because sapwood has little decay resistance, but it is cheaper and will only provide a service life of 7 to 12 years. Manufactured composite decking materials are also a viable option. They come in various colors and profiles, will not rot, have very low maintenance requirements and generally come with a 10 year warranty, but actually are expected to last 30 to 40 years. When choosing a replacement decking material, consider the cost of material, anticipated service life, maintenance requirements, slickness of the surface when wet and flame spread characteristics. Combustibility of decking materials, both real wood and composite materials, has been tested because decks are often a path of egress during a fire. The decking material that maintained the greatest structural support and also had the lowest flame spread characteristics was 2x redwood! If your deck faces open space, this should be a consideration. Another issue with open drainage decks is the attachment of the deck boards to the framing. Over time, nails that attach the deck boards will channel water down into the center of the structural framing members and cause decay. That is why the code now requires all exposed deck framing to be pressure treated. When replacing decking over existing non-pressure treated material, protect the top of the joists with a strip of flexible membrane, which self-seals around the nails and helps prevent water from being channeled into the center of the framing. Simpson also makes metal strips that allow attachment to both the side of the joist and into the bottom of the deck board, thereby alleviating the need for top nail attachment. Membrane decks are of two types: buried and surface-applied. Buried membrane decks consist of a waterproof membrane integrated with metal flashings installed over a sloped substrate. The membrane is covered with a drainage/protection mat to facilitate movement of water over the membrane and to protect the membrane for the next step. This system is then overlayed with concrete or mortar and tile as the primary wear surface, fully protecting the waterproof membrane below. This is the most costly deck system to install, but it offers tremendous advantages of very low maintenance and a service life of 50+ years. Only poor installation details or application will cause this type of deck to experience problems.

West Management Co., Inc. Lost in the wilderness of accounting, collections, repair and legal matters? Looking for a guide? Weâ&#x20AC;&#x2122;ve been managing HOAs for 25 years. Call us. We can help blaze the trail. 15 Embarcadero Cove Oakland, CA 94606

510.434.7980 www.westmgmt.com

Continued on page 33 ECHO Journal | September 2010

News from ECHO • The rule must be consistent with the association’s governing documents; i.e., a rule cannot prohibit what the covenants permit and vice versa. • The rule must be uniformly enforced. This means there should be no selective enforcement or exceptions. Components of an Enforceable Rule What makes a rule enforceable? An enforceable rule meets the requirements of the law and governing documents. What makes an enforceable rule a good rule? A good rule meets the needs and requirements of the community. When writing rules, boards should make sure the rules are both enforceable and “good.” In general, courts recognize the following characteristics of enforceable rules. Even better, residents are more likely to accept and voluntarily comply with rules having the same characteristics: • The rule must be reasonable. A reasonable rule is fair, sensible and not excessively punitive or controlling. • The rule must be clear and unambiguous. • The rule must reasonably relate to the operation and purpose of the association; i.e., a rule should protect, preserve, or enhance properties within the community. • The rule must be consistent with applicable federal, state and local statutes (such as the Fair Housing Administration Act, the Americans With Disabilities Act, the Civil Rights Act). 28

September 2010 | ECHO Journal

Maintenance of Roofs and Decks For both roofs and decks, semi-annual inspections are the first step in any proactive preventative maintenance program. This allows the ability to identify and solve any problems as they occur with the least cost and consequential damage. The inspections should be scheduled in the spring, after the ravages of winter have passed and again in early fall, after the heat of summer has passed and in anticipation of winter. These are critical periods to “tune-up” both systems. Both roofs and decks are basically horizontal surfaces and, consequently, get more abuse from the elements (i.e. sun and rain) than any other part of the building. The most common roofing materials used locally are asphalt composition shingles, built-up and modified bitumen, wood shakes and shingles and clay or concrete tiles. There are maintenance elements common to each of these

roof types, as well as roof-type specific maintenance procedures. To get the most out of your roofs and decks, an association must develop and implement a preventative maintenance program. An observant eye, and not living in denial, is a large proactive step forward. If you are at the stage to consider replacement of materials, become a vigilant well informed consumer. Utilize the resources around you and ask questions! As is often said, “The only dumb question is the question not asked.” Each association is ultimately the guardian of its own equity and its destiny. Mandatory or Voluntary Reserve Funding? The prognosis issued years ago that association reserve accounts would fail to keep pace with growing costs of repair, has been found to be accurate. It is no longer debatable that the unfunded repair liabilities in many community associations now exceed even the most optimistic balance in the reserve accounts. The experience of the past two decades has given us numerous examples of association inability to raise the necessary funds to properly maintain and repair the buildings. Associations have found it increasingly necessary to rely on bank loans and extraordinary special assessments to fund major rebuilding projects. Many have been unable to overcome these deficits at all with either borrowed or ownercontributed capital, and continue to defer necessary reconstruction projects.

The long-term effect of this phenomenon can be viewed in the present. Failed or failing community associations that are flirting with markedly reduced living conditions and maybe even eventual condemnation are here now. So, if we are faced with the prospect of associations that are financially paralyzed, what do we do about it? The pat answer is: “Do reserve studies religiously; push the inspection of components beyond just the reserve line-items; fund early and often.” The problem is that by the time many of the really expensive repairs are uncovered, it is late in an association’s life and too late to save for them in small increments. There are guidelines to reserve funding. There are also statutory requirements. But the California statute relates only to an association’s obligation to disclose its funding practices; it does not require funding at any level. Hawaii, however, has a mandatory funding statute. The association also must collect each month, all reserve assessments required by the funding plan. It has been suggested that similar legislation in California is necessary to impose discipline on reserve funding to protect owner’s equity and a large inventory of affordable housing. But what would be the consequences of such legislation and would it provide the funding that the present voluntary system has failed to achieve? Important Upcoming Events Saturday, September 25 Central Coast Fall Seminar Hilton Santa Cruz/Scotts Valley

2010 Legislation at a Glimpse As of August 20, 2010 Bill No.

Author

Subject

Status

Position

Summary

AB 1726

Swanson

Voting Quorums Passed. To Governor for signature.

Oppose

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 40 percent, and then to 33 percent of the associationâ&#x20AC;&#x2122;s voting power. Exempts associations whose documents establish a lower quorum requirement.

AB 1793

Saldana

Synthetic Grass Passed. To Governor for signature.

Oppose

Voids provisions in governing documents that prohibit the use of artificial turf or any other synthetic surface that resembles grass. Allows associations to adopt rules that establish design and quality standards.

AB 1927

Knight

Rental Rights

Passed. To Governor for signature.

Oppose

For governing documents initially recorded on or after January 1, 2011, requires that a majority of all owners vote to approve rental or lease restrictions. Requires owners to disclose rental restrictions prior to transfer of title.

AB 1975

Fong

Submetering

Amended Oppose 8/2. unless In Senate amended Appropriations held under submission.

Requires a water purveyor to either adopt a general policy to require the installation of either a water meter, or a submeter, to measure water supplied to each individual dwelling unit, or to inform, on an individual basis, an applicant for new water service as to whether a water meter or submeter is required to be installed for each individual dwelling unit.

AB 2016

Torres

Deed Requests

Signed by Governor.

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

Signed by Governor.

Neutral

Each year, would require that the management provide a copy of the Mobilehome Residency Law to each resident, or send a notice when a significant change is made and inform residents that they can obtain a copy by submitting a request.

AB 2502

Brownley

Delinquency Collection

Amended 5/10. In Assembly Judiciary.

Oppose

Regulates third parties performing collection services for HOAs, as well as the formation of payment plans between associations and delinquent members. Allows members to have counsel present when discussing a payment plan, provided they give 48 hours notice to the association.

SB 995

Strickland

Conversion Plans

In Senate Local Government. Hearing cancelled.

Watch

Provides that a stock cooperative or community apartment project for senior citizens established before the DavisStirling 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

Passed. To Governor for signature.

Support

When a property is purchased at a foreclosure sale and is not being maintained, requires a governmental entity to provide notice of violations to the property owner before imposing fines for nuisance abatement.

ECHO Journal | September 2010

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

New Member Listings Carter Painting 1485 Response Rd., # 100 Sacramento, CA 95815 Contact: Jill Treanor, Dennis Carter Tel: 916-663-0290 Fax: 916-663-0293 Email: jltreanor@aol.com Email: dcarterpainting@aol.com We are a general contractor, painting contractor that has been in business over 40 years in the Sacramento and Bay Area. 6 6(59,1* &20081,7,(6 7+528*+287 1257+(51 &$/,)251,$ 672&.721 +4 Â&#x2021; )5(0217 (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$17$ &/$5$ PLE ASANTON 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

3 3OHDVDQWRQ Â&#x2021; )UHPRQW Â&#x2021; 6DQWD &ODUD OHDVDQWRQ Â&#x2021; )UHPRQW Â&#x2021; 6DQWD &ODUD S Stockton tockton 209.644.4900 209.644.4900 Â&#x2021; Â&#x2021; 0RGHVWR Â&#x2021; &RSSHURSROLV 0RGHVWR Â&#x2021; &RSSHURSROLV For management proposal information, please visit www w.mccommunities.com or email inffo@mccommunities.com 30

September 2010 | ECHO Journal

Home Warranty of America P.O. Box 850 Lincolnshire, IL 60069-0850 Contact: Travis Hardy Tel: 888-492-7359 Fax: 888-492-7360 www.hwahomewarranty.com Email: thardy@hwahomewarranty.com HWA has been in business since 1966, a leader in the home warranty industry. We provide high value and protection against the high cost of home and appliance repair. Special Building Inspections, LLC (SBI, LLC) 180 Second St., #A Los Altos, CA 94022 Contact: Thomas Douma Tel: 650-949-3774 Fax: 650-941-3689 www.sbiusa.net Email: tom@sbiusa.net SBI provides reserve studies and special inspections (mold, drainage, structural) for HOAs and individual condo owners. We are licensed general contractors and licensed professional engineers.

Changes to Member Listings Bay Area Property Services 1661 Tice Valley Blvd., Ste. 200 Walnut Creek, CA 94595 Tel. & Fax remain the same David Stompe Insurance Agency 1127 Grant Avenue, # 1 Novato, CA 94945 Contact: David Stompe Tel. 415-878-1394 Fax: 415-878-1395 www.farmersagent.com/dstompe Change in Tel & Fax only Everything else remains the same Oliver Management 9807 Fair Oaks Blvd., Ste. A Fair Oaks, CA 95628 Tel. & Fax remain the same Pollard Unlimited 40 East Legacy Drive Mountain House, CA 95391 Contact: Roger Pollard Tel: 209-879-9252 Fax: 209-879-9113 Steward Property Services, Inc. 1 Willowbrook Ct., Ste. 105 Petaluma, CA 94954 Tel: 707-285-0600 Fax: 707-285-0601

ECHO Journal | September 2010

ECHO Central Coast Fall Seminar Improving Your Board Member Skills 8:00 a.m. Registration; Continental Breakfast; Visit Sponsor Tables 8:45

Welcome and Introductions Oliver Burford, Moderator