Journal_12_07 by Echo

July 2012

A Journal for California Community Association Leaders

echo-ca.org

War and Peace in HOAs

ALSO INSIDE THIS ISSUE:

• FInancial Reports • Why You Must Fund Reserves • Carbon Monoxide Detectors

Change Service Requested ECHO 1602 The Alameda STE 101 San Jose, CA 95126

PRSRT STD U.S. Postage PAID Sundance Press 85719

Are you fulfilling your fiduciary duties as a board member? Most board members of community associations understand that they owe a “fiduciary duty” to their homeowner members. But did you know that failing to properly follow this standard can result in serious liability to the association and to the board members themselves? Learn how this duty affects your association—and you as a board member—by reading “What does it Mean for a Board Member to be a Fiduciary?” at rocklawcal.com/boardmember

Our Legal Advice is ROCK Solid Ram, Olson, Cereghino & Kopczynski LLP 555 Montgomery Street, Suite 820 San Francisco, California 94111 Phone: 415-433-4949 Fax: 415-433-7311 www.rocklawcal.com

Attorneys at Law

Would You Choose War if You Had a Choice?

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.

Filing a lawsuit is a declaration of war. Dismissal of a lawsuit before it plays out can be the same as losing the case, giving the opposition the right to recover fees and costs, even without a trial.

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.

Contents 6

Financial Reports For a non-profit homeowners association, regular accounting reports provide managers and boards of directors with the information needed to make prudent decisions and control daily activities.

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

Executive Council of Homeowners, Inc.

7 Reasons Why You Must Fund Reserves Again and again, associations are learning that deliberately keeping maintenance and reserve assessments low was a mistake. The result is a lack of ready money when the association is faced with the need to rebuild.

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

Carbon Monoxide Detectors

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

The mandatory compliance date for multi-family dwelling units is January 1, 2013. However, the 2010 California Building Code contains a provision that can activate the need for immediate compliance.

Board of Directors and Officers President David Hughes

Custom-Tailored Management Packages For Smaller Associations

Vice President Karl Lofthouse

Although self-management may be the cheapest option for smaller associations in the short term, the inherent responsibilities involved with self-management can be overwhelming to many boards of directors.

Treasurer Diane Rossi Secretary Jennifer Allivato Directors Paul Atkins John Garvic Robert Rosenberg Brian Seifert Steven Weil

Jerry L. Bowles David Levy Kurtis Shenefiel Wanden Treanor

Executive Director Brian Kidney

Departments 5

News From ECHO

31 Legislation at a Glimpse

34 Directory Updates 35 Events Calendar 36 ECHO Bookstore

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 July 2012 | ECHO Journal

Director of Communications Tyler Coffin

40 ECHO Volunteers

Would You Choose War?—page 6 4

Director of Marketing & Membership Jennifer Allivato

News from ECHO Happy Fourth of July! Officially I have been a member of the ECHO staff team for six months now! This past June at the 40th Annual Seminar I had the pleasure of connecting so many names to faces that have long been a part of the ECHO organization. Thank you so much for welcoming me to the family. ECHO’s 40th Annual Seminar and Trade show at the Santa Clara Convention Center, drew more than 600 homeowner association board members, owners, association managers, and had an exhibit hall featuring more than 125 community professional exhibitors. If you missed the seminar this year, make sure to mark your calendar for next year’s show! Attendees participated in educational sessions that addressed new legal issues, practical HOA maintenance, management/financial topics, and featured a brand new HOA University track! Many of you shared with me that the practical demonstrations were extremely helpful. We hope to have more of these for next year. At this year’s seminar we celebrated two extremely special people in our community and to ECHO: Oliver Burford and Dorothy Kopczynski. Both Oliver and Dorothy retired this year, leaving behind a productive and successful organization. As part of the new ECHO team, we hope to make them proud. All attendees will be receiving an email survey regarding our Annual Seminar. Please take a moment to complete this important short survey. As the Membership & Marketing Director I value your feedback on how we can improve our events for the upcoming years. Please feel free to email me at jallivato@echo-ca.org. From all of us at ECHO, I would like to give a sincere thank you to all of the volunteers, ECHO board members, Resource Panel members, speakers, exhibitors and sponsors who gave their time and effort to make California’s largest homeowner association seminar the best one yet! Best,

Jennifer Allivato

ECHO Journal | July 2012

July 2012 | ECHO Journal

By Beth A. Grimm, Esq.

Would You Choose War If You Had a Choice? iling a lawsuit is a declaration of war! If you are a peace-loving individual, an open mindedboard, or don’t have the resources to fund a war, than you certainly ought to consider all options before issuing your proclamation. It is very difficult to turn back the processes once a lawsuit is filed. You need to know that if you find out sometime during the process that you are done, you don’t want to spend any more money, you find out that your case is not strong, you find out the attorney overestimated your chances of success, or

anything else happens that makes you sorry you jumped into court, dismissing the lawsuit may lead to a request from the other side to reimburse their attorney fees. There is case law that says that dismissal of a lawsuit before it plays out can be considered in the same category as losing the case (not being the prevailing party). This can give the opposition the right to go into court and ask to recover fees and costs, even without a trial! This article is about choosing a process that often proves far superior to suing a party—and

ECHO Journal | July 2012

that is ADR (alternative dispute resolution). ADR processes include mediation and arbitration. And more emphasis is put on mediation than the other ADR processes—because it can be the best forum for any HOA disputes between board members or the board and owners, or owners vs. owners. There are several avenues to ADR: contractual, voluntary, statutory and court-ordered (which occurs after a lawsuit is filed). ADR means exploring alternatives to litigation for resolving disputes. ADR can be a way to avoid war. Yes, Virginia... there is a way to resolve disputes without suing someone. Condominiums, Townhouses, Common Interest Developments and Neighborhood Disputes in California A little history: in 1996 ADR legislation was first drafted and offered to the legislature by James P. Lingl, an attorney active in drafting legislation to solve serious problems in HOAs. The bill passed both the legislative houses that year but was vetoed by the Governor the first time, and many believed the problem was simply “politics.” Then, in 1997, the bill was re-introduced and the California Legislature approved it (with strong encouragement from the industry groups in California including ECHO). This time the Governor signed it. The resulting law does not require, but strongly encourages homeowners associations and homeowners in them to seek resolution of their disputes outside of the courts. You can “Just Say No” to ADR, but you run the risk of having your lawsuit dismissed or having a judge punish you—hitting where it hurts (in the area of attorneys’ fees awarded to the prevailing party) if you refuse to participate. Speaking from experience, (I used to do litigation) homeowner association cases are not always well received by judges. I saw situations where it seemed like the judge was punishing the parties by delay after delay. One time I sat through proceedings all afternoon with a full board of working people who took the afternoon off to seek an injunction relating to a threatening dog, only to have the judge send word out (she never appeared) at 4:30 p.m. that she did not hear requests for injunctions related to dogs because she was on the board of the SPCA! What a waste of time for everyone, not to mention the money aspects. And even besides that kind of risk, the legal mandate to offer ADR is simply a good idea. California law (Civil Code Section 1369.510, etc.) requires homeowner associa8

July 2012 | ECHO Journal

tions and homeowners in them, who have a dispute with each other or their neighbor, to first attempt to engage the other side in ADR before filing a lawsuit by making an offer. The statute says that the homeowner or association that wants to bring a complaint for injunctive relief or declaratory relief, coupled with damages of less than $5,000, has to serve the other party with a “Request for Resolution” prior to filing a lawsuit asking them to participate in an ADR proceeding. There are exceptions if there is a statute of limitations that may expire or a need for immediate relief, but the intent of the statute is to get associations and/or homeowners to try ADR in CC&R disputes, before filing a lawsuit. (CC&Rs is the common name given to the Declarations of Covenants, Conditions and Restrictions that regulate a common interest development). The Request for Resolution should name the parties, state the dispute in simple terms and request that the other side engage in ADR. The opposing party has 30 days to respond to this Request for Resolution, or the offer is deemed rejected and a lawsuit may be filed. If the other party accepts the Request, the parties together have 90 days to resolve the dispute, or they can agree to extend the time.

The legal mandate to offer ADR is simply a good idea. California law requires to first attempt ADR before filing a lawsuit. If it is not resolved in 90 days, then the party wishing to file a lawsuit is entitled to do so, having satisfied the statute. If a party with a claim as described does not send a Request for Resolution to the other party, but files a lawsuit instead, the judge has various options. He or she may dismiss the lawsuit without prejudice to going through the steps again and then filing, or allow it to go forward taking into account the parties’ compliance with the statute (or noncompliance) when it comes time to consider an award of attorney fees. Since the prevailing party in an enforcement action is entitled to recover attorney

fees, the implication is that the judge could base the attorney fees award on a party’s refusal to participate in ADR. Some attorneys (including me) advise associations and homeowners—in preparation and serving the Request for Resolution —to specify the type of dispute resolution process and the entity or ADR provider that the serving party desires (preferring mediation). With this approach, there is less of an opportunity for argument over processes. Certainly, the parties could get into a dispute if the suggested process is not acceptable to the other party, and it is possible they could consume 90 days fighting over a process. However, in the majority of the cases, if the other party is amenable to ADR—or is not really but wants to satisfy the statute and pass judicial scrutiny unscathed—the strategy will work and the matter will be directed to mediation. That is the best forum in my opinion for creative resolution and long-lasting agreements among neighbors and the board. As for choosing an ADR process, mediation involving the use of a trained neutral, a facilitator, is (in my opinion) the better forum for homeowner association, neighborhood and family disputes. It tends to better preserve ongoing relationships, gives the parties more control to formulate their own resolutions to the problems and tends to cost substantially less money than arbitration (and certainly less than court). It provides a forum that is less threatening and allows the parties to release some of the emotional steam, which tends to create the real barriers to settlement. There is much more room for blowing off steam, calming the parties, and brainstorming in the mediation setting (which equates to getting to “tell the story” which is important to individuals) than would occur in an arbitration or court setting. Since mediation is commonly “interest based” as much as or more than fact or issue based, the parties’ interests are better served. Many of the decisions of a board seem to some owners to be subjective and so understanding the interests becomes critically important—and vice versa. To be fair, there are some disputes that are better suited to arbitration or court but most would be better served in mediation with a good mediator (or at least one or more attorneys trained as a mediator who can help balance out or resolve any process issues that might arise). For an example of some issue that might be better suited to arbitration, a board of directors might not want to make the final ECHO Journal | July 2012

• Detailed Financial Reporting • Lender Servicing and Collection • Personal Obligation Program

• Short Sale Negotiations • Bankruptcy Monitoring • Online Case Set Up

decision but rather submit the dispute to a hearing officer and let them decide. Many mediators, myself included, are very distrustful of arbitration as a rule, because an arbitrator can make an awful decision (for any or all of the parties) or a mistake by misunderstanding or ignoring important facts and the decision is essentially irreversible because of existing case law.

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July 2012 | ECHO Journal

Mediators are more inclined to impose a solution that tends to not have the long-term satisfaction of a facilitated agreement. As for choosing a specific process or provider, there are many options. Parties have long been able to engage the services of arbitrators or mediators through private providers such as J.A.M.S. (Judicial Arbitration and Mediation Services) and AAA (American Arbitration Association). These services have high training standards for the mediators and arbitrators they provide (using their own training programs) but they are very expensive. And, my own experience in training for mediation years ago at Pepperdine was that the “judge mediators” tend to have trouble letting the parties participate in figuring out what the solution should be. In other words, judges are more inclined to impose a solution and that tends to not have the long-term satisfaction aspect of a facilitated agreement among the parties. For less expensive processes, all local Bar Associations keep lists of low cost ADR programs or providers with identified expertise. A portion of all litigation-filing fees is set aside and given to low cost mediation services because of the Dispute Resolution Program Act. There is a list of these lower cost services by County available on the California Department of Consumer Affairs webpage found at the following link: www.dca.ca.gov/ consumer/mediation_programs.shtml. And, of course, there are independent providers. Just be sure to get someone experienced in homeowner association disputes. Real estate (or family law or probate) mediators don’t usually have the right kind of experience (in

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my opinion). Mediation training and association expertise comes in very handy when advocating for a “party” with multiple participants that may not be perfectly aligned in their opinions or temperaments, such as an HOA board of directors. Mediation is evolving as a preferable choice in many types of cases. It’s the forum most likely to offer the disputants the chance to tell their story and [really] be heard and acknowledged. And again, it offers the most creative and flexible forum for the parties. So remember—before you issue a declaration of war—you have a choice!

Beth A. Grimm is a CID attorney, a member of ECHO Legal Panel, chair of the ECHO East Bay Resource Panel and 2011 ECHO Volunteer of the Year. See helpful and informative links to her books, blogs, resources, articles, FYIs, free eNewsletter and many other publications at www.californiacondoguru.com.

ECHO Journal | July 2012

By Steven O’Brien

Financial Reports The Need, the Problem and the Solution he oldest surviving form of the Greek language is crude scratchings on clay tablets found buried in the ruins of ancient Greek palaces destroyed 3,200 years ago. Known as Linear B, this primitive script does not recount neither Homeric deeds nor record mythological fables nor preserve primitive philosophy. Translated, these ancient tablets tell us

July 2012 | ECHO Journal

“Kokalos repaid the following quantity of olive oil to Eumedes...648 liters.” Hardly soaring prose, this passage would fit perfectly in your association’s financial reports beside the journal entry “Arthur Koenig/Reimbursement for carport damage...$543.92.” What did these illiterate barbarian kings over

ECHO Journal | July 2012

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July 2012 | ECHO Journal

three thousand years before the California Civil Code have in common with your board of directors? They shared a common need to protect their assets and enumerating them in writing was the most effective way to account for them. Archaeologists believe that these accounts were kept by a small and specially trained class of scribes who alone understood the meaning of the strange ideogrammatic script. Today, we record assets as invisible electromagnetic impulses inside remote computers instead of scratches in clay tablets. This information is then processed and printed out together with your liabilities, income and expenses in your association’s financial reports. Each month that pile of papers with its neatly ordered columns of numbers faithfully reports what your association is worth, how much it owes and is owed, and how well you on the board are managing its financial affairs. Yet, most directors find these documents as difficult to read as ancient Greek tablets. Whether for a business or a nonprofit homeowners association, regular accounting reports provide managers and boards of directors with the information needed to make prudent decisions and control daily activities. Furthermore, they supply legally mandated information to homeowners and government agencies. Recognizing the importance of financial reports, the State of California has legislated their review by boards of directors—in essence, forcing boards to go through the motions of fulfilling their fiduciary responsibilities. Specifically, Civil Code §1365.5 states that the board of directors must: • Review, at least quarterly, current reconciled bank statements of the association’s operating and reserve accounts. • Review, at least quarterly, income and expense statements for the association’s operating and reserve accounts. The need to require this stems from the widespread aversion that board members have to financial reports, which they regard as confusing, cryptic and intended only for highly trained specialists called CPAs. This attitude, coupled with the time constraints most volunteer directors experience, causes them to feel exempt from both understanding financial documents and the responsibility that accompanies them. This is a grave error. While the board may delegate various activities and functions to others, their ultimate legal duty, including the fiduciary

responsibility to preserve and protect the assets of the association, is inalienable. This development is not only unfortunate but also unnecessary. For most laypersons, financial statements can be easy to read and comprehend once their purpose and format is understood. With a brief orientation, the normal human fear of financials can be easily overcome and reviewing the monthly financial reports can be easy, informative, and even (yes!) enjoyable.

COM PA S S

Guiding your HOA in the right direction

Accounting Periods An association’s basic accounting period is its fiscal year. Comprised of 12 calendar months it may be divided into 12 monthly reporting periods or, less often, 4 threemonth “quarters.” Whatever the length of the reporting period, they define the “activity” or “transactions” (assessments charged, payments made, checks disbursed, etc.), which occur between their first and last day. Thus, the “March Financials” are the financial statements containing the accounting activity occurring during the March reporting period in addition to the cumulative year-to-date activity. Often but not always, fiscal years start in January and end in December. Fiscal years may encompass any 12 consecutive months; for example, April to March or June to May. Reconciled Bank Statements State law currently requires that boards review a reconciliation of the association’s operating and reserve accounts quarterly. At the heart of comparing the association’s cash accounts with reconciled bank statements is the test to determine whether your bookkeeper and your banker agree on how much money the association has. Directors often skip this fundamental audit check in their review of the financial reports. Many directors are simply unaware of its importance or do not understand that this check is one of their principal responsibilities pertaining to the protection of the association’s assets. Reconciliation involves comparing the ending balance in the current month’s bank statement with the cash reported in the corresponding account on the Balance Sheet. Bank statement balances often must be adjusted to reflect outstanding checks (checks written in the accounting month which have not yet cleared the bank) or deposits in transit (not yet posted). Conversely, miscellaneous bank charges (e.g. check printing charges, returned check charges, etc.) and unrecorded bank deposits

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(e.g. interest earned) must be reflected in the association’s ledgers. Reconciling the bank and ledger balances with the relevant adjustments is performed on a reconciliation sheet, often attached to a copy of the actual bank statement. The reconciliation sheet will show the beginning balances, adjustments, and matching ending balances. The Balance Sheet The association’s single most important financial report is the balance sheet. It is a concise summary of the association’s financial condition and all other reports are subsidiary to it. For this very reason, it is the report most often requested by mortgage companies and banks when considering loans for homebuyers and associations. Paradoxically, it is the report sometimes not included in the board’s financial packets. Representing the fundamental accounting equation, the balance sheet is divided into two parts: assets on the one hand and liabilities and equity on the other. Its name draws on the fact that total assets must balance to liabilities plus equity. Assets An association’s assets are comprised principally of cash drawn from homeowner 16

July 2012 | ECHO Journal

assessments. On the balance sheet, this cash is represented by the totals in the association’s bank accounts. Cash accounts should be separated into those containing operating cash and those holding cash for replacement reserves. This is because, increasingly, state legislation is restricting the use of replacement reserve cash for nonreserve purposes and requiring separate controls for these funds. Mingling reserve and operating cash in common accounts invites charges of misuse of funds. It is best to represent each separate bank account as a separate balance sheet account, thereby making the task of comparing the association’s reconciled bank statements with the balance sheet easier. In addition to cash, monies or services owed to the association are also considered assets. Therefore, accounts receivable (those assessments, fees, late charges, fines etc.), which have been billed by the association but not paid by homeowners, are considered assets together with prepaid taxes and prepaid insurance premiums. Liabilities Liabilities include all monies or services owed by the association. Included here are accounts payable (bills owed to service

providers, utilities, etc.), bank loans, taxes, insurance premiums, etc. Also included here are prepaid assessments, considered a liability because they represent future services owed by the association to homeowners who have paid assessments in advance. Equity/Funds Those familiar with accounting know that the value of assets remaining after all liabilities have been accounted for represents “equity,” a term often equated with “ownership.” Homeowner associations use what is known as fund accounting, where the value of the assets after liabilities have been deducted represents the fund balances. A “fund” is comprised of the prior year’s ending fund balance plus the net of the current year-todate income and expenses. To facilitate their management and conform to Civil Code requirements, operating and replacement reserve fund balances should be reported separately. The Delinquency Report The list of delinquent homeowners often receives considerable attention from boards of directors. This report is essential to effectively manage your association’s collection policy, a topic that requires a separate article. Strictly as a financial report, the Delinquency Report should provide the following information. First, it should contain a list of all delinquent homeowners and their outstanding assessments on an aged basis, that is, delinquent amounts shown in categories of “30day,” “60-day,” “90+ days,” etc. The sum of all delinquent amounts should match the Accounts Receivable total on the Balance Sheet. Incorporated in or together with the delinquency report should be all the prepaid homeowners and their prepaid amounts. The sum of the prepaid assessments should balance with the Prepaid Assessments account on the Balance Sheet. Income and Expense to Budget This report allows directors to see how much income the association has generated, how much expense it has incurred and to compare these amounts with the corresponding amounts budgeted by the association. With this report, directors can manage their association’s financial operations. So critical is it to the board’s ability to control the association’s profit and loss that the California Civil Code requires that boards review it at least every three months. ECHO Journal | July 2012

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July 2012 | ECHO Journal

As its title suggests, the report lists the associationâ&#x20AC;&#x2122;s income and expense on a monthly as well as a cumulative, year-to-date basis. By convention, income accounts are reported above expense accounts. All income accounts should be listed: assessments, interest, special assessment, etc. Being more numerous, expense information is usually presented by major category, such as â&#x20AC;&#x153;Administration,â&#x20AC;? â&#x20AC;&#x153;Utilities,â&#x20AC;? â&#x20AC;&#x153;Landscape,â&#x20AC;? etc. Corresponding budgeted amounts are typically provided in adjacent columns. Included in the report, often as a summary at the bottom, is a statement of the associationâ&#x20AC;&#x2122;s year-to-date profit or loss. The resulting year-to-date profit or loss figures should balance to the respective Fund Balance on the Balance Sheet. It is important to understand that the statement of profit or loss refers only to the current yearâ&#x20AC;&#x2122;s income and expense and does not reflect balances carried over from the prior year. Since expenses are compared directly with the budget, directors can readily see whether year-to-date expenses are within budget and manage expenses accordingly. It is expenses that must be managed; the budget itself cannot be changed to accommodate expense overruns. Remember that your current budget was formally approved in the prior fiscal year, is tied to the amount of monthly assessments and replacement reserve plan, and has been published to all homeowners as well as prospective buyers, loan officers, etc. It is not to be tampered with! (It is important to note at this point that the Civil Code requires that your budget be prepared on an accrual basis. Under an accrual basis of accounting, cash is posted when it is due whereas under a cash basis, it is posted when it is received. Income and expense reported on a cash basis cannot be compared with a budget prepared on an accrual basis. An accrual basis of accounting is assumed throughout this discussion.) The Cumulative General Ledger Listing A cumulative listing of all general ledger entries from the beginning of the fiscal year, this report is the associationâ&#x20AC;&#x2122;s ultimate accounting reference document. In it, account by account, are shown all the entries that comprise each accountâ&#x20AC;&#x2122;s balance in the associationâ&#x20AC;&#x2122;s financial reports. Virtually any inquiry may be answered with it by locating the account in question and reviewing all entries from the yearâ&#x20AC;&#x2122;s â&#x20AC;&#x153;opening balanceâ&#x20AC;? amount to the current total. It is also a rather bulky report containing a large quantity of

detail. For this reason, it is seldom distributed to all board members. However, it is relied on heavily by treasurers, managers, and accountants. Conclusion With the exception of marauding pirates, many of the financial uncertainties that bedeviled the ancient barbarian princes remain a threat to the modern homeowner association. However, in the intervening millennia, enormous improvements have been made in financial recording and reporting. Understanding those reports is the key, which gives the director access to powerful management tools. By overcoming the dread of financial reports and using them to their fullest advantage, directors can comply with legal requirements, meet their fiduciary responsibilities, manage their association effectively and avoid the fate of those ancient Greek kings.

Steve Oâ&#x20AC;&#x2122;Brien is a principal at Digital Accounting Services a community association financial and bookkeeping service. He was a member of the ECHO board of directors and the North Bay Resource Panel.

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ECHO Journal | July 2012

July 2012 | ECHO Journal

By Richard Tippett

Seven Reasons Why You Must Fund Reserves Funding the increasingly common major maintenance projects such as walkway or balcony replacement repaving or replacing waterlines (to name some typical ones) is becoming more and more important. Again and again, associations are learning that deliberately keeping maintenance and reserve assessments low was a mistake. The result is a lack of ready money when the association is faced with the need to rebuild.

ECHO Journal | July 2012

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July 2012 | ECHO Journal

Professional Service – Competitively Priced

Roger Pollard, President

Office: (209) 879-9113 FAX: (209) 879-9252 Email: pollardunlimited@comcast.net

1. Fiduciary Responsibility Attorneys are better at explaining this little subtlety, but in everyday language it is roughly this. When you bought your unit, you accepted the responsibility for providing a portion of the funds necessary to preserve and protect the value of all parts of the association property held in common, or the common areas, just as did your fellow owners. These areas generally include roofs, walls, paving, water lines and landscaping; it may also include pools, decks, balconies, plazas, walkways, fountains, tennis courts and only God knows what else. All of it needs to be regularly inspected, mowed, washed, cleaned, sealed, painted, replaced, repaired and otherwise be kept in serviceable condition for the good of every member. If these components parts are not regularly cared for on a preplanned schedule, they will and do deteriorate. The more that each component deteriorates, the more costly it is to restore it to serviceable or “like new” condition. Part of fiduciary responsibility is not to waste other people’s money or assets. Failure to properly fund and then spend money on regular maintenance wastes those assets and is therefore considered to be irresponsible. Legislation requires that all new associations receive a complete maintenance manual detailing all of the types of inspections and repairs required for regular maintenance. If the association neglects the maintenance spelled out by the builder/developer in the manual, this neglect can absolve the builder/ developer from responsibility for leaks or deterioration of those areas that weren’t maintained. Say, for example, you have a leak at a wall that causes interior damage (perhaps mold growth). You file a claim with your insurance carrier to repair the problem. If your carrier determines that the leak (and damage) was due to a failure to do maintenance in the form of painting and caulking on a proper schedule, they can deny the claim. The reality is that most owners forget that they have a mutual responsibility. Most boards don’t want to antagonize owners by raising assessments. This leads to all kinds of problems that are easily avoided by facing the responsibility head-on and doing lots of communication.

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2. The Tipping Point There is a point where deferred maintenance and postponed painting begins to detract from the appearance of the complex. At this point the increase in value of your units slows and may even begin to depreciate. The units become harder and harder to sell for what owners believe they are worth. Rather than sell for less than they want, owners move elsewhere to places that better meet their desires, and their units often become rentals. Rent from units becomes income for the owners of the units that allows them to live elsewhere, possibly even to retire. As a result, these absentee owners become more and more reluctant to reduce their income stream by spending money on maintenance because now everything costs more. The maintenance gets “deferred” and the result is higher assessments, because now everything costs more. As the number of rentals increases, it is more and more difficult to get owners to agree to increased maintenance and reserve assessments.

Once several units become rentals, the trend tends to accelerate: more and more units become absentee-owned. When the number of rentals reaches 40 percent, banks become more reluctant to provide new buyers with conventional mortgages. This lack of mortgage money dries up sales, depreciates the property value and further increases the trend towards rental.

Maintenance can’t be avoided—only deferred. At this point, only very assertive action by the remaining resident owners and the board of directors will ensure that enough money is made available to keep the property up. 3. Maintaining Is Cheaper Than Replacing Maintenance can’t be avoided. It can only be deferred. If you don’t change the oil in your auto, the engine will quickly wear out. The same is true for every component of your complex.

It costs $0.15 per square foot to sealcoat a driveway every four years. If the sealcoat work isn’t done, it will cost your association $3.005.00 per square foot to replace that same driveway when parts of it wear out after only fifteen years. That replacement cost is five to ten times the cost of simple maintenance. Similarly, it costs $2.00 per square foot to re-caulk and repaint a plywood or pressed wood wall every four or five years, or $7.00 to replace that same square foot of wall if it is only painted every ten years. Here the replacement cost after 20 years is twice what the cost is to simply keep things looking nice. Gutters can be kept clean at a yearly cost of $.50 per linear foot or can be replaced every 10 to 12 years at a cost of $8.00 per linear foot. Roofs and flashings can be repaired and kept clean at an average cost of $0.10 square foot/year or can be replaced after 15 to 25 years at a cost of over $6.00/square foot— three times the cost of simple maintenance. Decks and balconies can be kept clean, potted plants kept on stands and coated decks can be regularly recoated at nominal ECHO Journal | July 2012

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cost; or the decks can be rebuilt regularly every twelve years at costs of up to $70 per square foot, or $8,000 per deck or balcony. The cost of maintenance deferred is far greater than the interest accrued on money not spent. If adequate amounts of money are not placed in reserve and used to maintain the property, the work will cost still more when interest has to be paid yearly to the bank that may have to eventually fund it. 4. It Takes Money to Borrow Money Let’s say that your association has a need to do roughly $800,000 worth of balcony repairs, siding repairs, rotted wood replacement and painting (a fairly average occurrence). Let’s also say that the need for rotted wood replacement and balcony repairs only became known when your association asked for bids for repainting and one of the painting contractors pointed out the problem. Let’s say further that your association’s reserves for painting and wood replacement are only about $150,000. This creates a budget short fall of, apparently, $650,000. We say apparently, because 30+ years experience tells us that if the cost to correct the visible problems is estimated at $800,000, the cost to correct the damage concealed behind the visible problems will be at least 30 percent more. Add to those costs the cost of a bank loan (roughly 10 percent interest per year), management company and legal costs and, if you’re prudent, the fees of a construction manager to control job costs and quality, and what appeared to be an $800,000 problem turns out in reality to be a problem that will probably cost your association closer to $1,200,000 to correct. Suddenly that $150,000 in reserves isn’t even adequate to attract lender attention. Most banks want to see a commitment on an association’s part of at least 20 percent of the proven cost (based on contractor bids) of the work to be done. Your association, for working purposes, needs to have roughly $250,000 in hand before seeking a loan. Where will your association get the additional $100,000 to start the process?

Order today from ECHO! Call 408-297-3246, fax at 408-297-3517 or order online at store.echo-ca.org

July 2012 | ECHO Journal

5. The Two Percent Rule Private homeowners know that their residences also need regular maintenance and repair. Individual houses need to painted inside and out, driveways coated, roofs replaced, gutters cleaned, waterlines repiped, decks repaired, walkways leveled, trees pruned, the occasional trim board replaced and caulked, carpets replaced, worn out slid-

ing glass doors replaced, damage from any leaks repaired, worn out lighting upgraded, walkways rebuilt, tile replaced, termites dealt with, and on and on and on. All individual homeowners quickly learn what generations before them also learned and that financial talk show hosts are fond of reciting; each year it costs roughly two percent of the value of the home to maintain it and keep it looking good. This two percent maintenance cost is on top of the cost of operating the home; paying for garbage, telephone, electricity, water, lawn mowing, drain cleaning, and so forth. The full two percent isn’t spent every year. Some years, nothing is spent. Other years, major work or painting may be required. Condominium and planned development associations should annually be reserving roughly half that amount for common area maintenance and repairs: at least 1.0% of the value of the property. You won’t spend it every year or even every other year, but when it is needed, it has to be there. Fiduciary responsibility requires it. Clearly a condominium in a high-rise building in San Francisco will have reserve needs very different from a condominium unit in a wooden triplex in the same city. Likewise, condominiums with stucco walls will have different maintenance needs from units with pressed wood siding. Beachfront units will have different needs from units in Sacramento. Still, one percent of the value of the unit, particularly if the units are 15 to 25 years old or older, is a good number to use to begin to weight the adequacy of your present reserve assessment. 6. You Can’t Cover Up the Problem and Avoid Spending Money Forever Water-damaged decking and siding doesn’t go away; it just keeps letting water get through to the framing, which in a short time also becomes water damaged. Putting new caulking over old doesn’t stop the leakage. As the old caulking and old paint age and become brittle and shrink, they pull the newer caulking away from the wood and the leak reopens. Painting over deteriorated wood and caulking only colors the problem. Paint is not waterproofing. It will not stop water from entering joints between boards, or splits in plywood siding veneer, or the joints between wood and windows, or between wood and stucco. If 30+ years in construction have taught us anything, it is this:

• Temporary repairs are only temporary. The second temporary repair of a problem never lasts as long as the first temporary repair. • Poor quality work costs less than good quality work. • There are always two or more ways to do a project correctly, and all the correct ways cost approximately the same. • If you keep making temporary repairs, you will spend more to fix the problem than if you had fixed it correctly when it was first discovered. 7. Community Membership Associations are communities. Most are fairly close-knit groups where residents are more than just neighbors, if less than close friends. The ambience is similar to that of a small village. The problems that each association faces are also similar to those faced by villages and other small communities. When you bought your units, you agreed to accept a share of responsibility for the operation and maintenance of the whole complex. This agreement is enforceable in court. We know of an owner in one complex who repeatedly sued his association over maintenance assessments. He lost every suit. The work he didn’t want to pay for still had to be done. Not only did he have to pay his own legal fees; he had to pay his pro rata share of the association’s cost of defending against his repeated claims and he still had to pay his share of the assessment.

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Worse, because of inflation, the work now costs more to do. More than once we’ve heard, “I don’t care about the maintenance. In ten years I won’t be here.” Consider this—if you don’t maintain the complex as a whole, in a very few years you won’t be able to sell your unit for what it is really worth! Here’s another thought—if you don’t maintain the complex as a whole, you deprive your friends and neighbors as well as yourself. Pride of ownership in a well-maintained complex is a wonderful thing!

Richard Tippett is president of ERTECH, Inc., a construction management and major maintenance planning firm. He was a member of the ECHO board of directors and chair of the Central Coast Resource Panel.

SERVICE Should you need construction help with: Common Development Properties, Single Family Homes, High Rise Building Facilities and Maintenance, CID Repair and Maintenance, Litigation Support, Water Testing, Destructive and Non-destructive Testing utilizing Thermo-Imaging. Give us a call. Estimates always free. 2021 Las Positas Ct. Suite 151 Livermore, CA 94551 Phone: 925-454-0358 ● Fax: 925-271-0210 E-mail: info@btcquality.com

www.btcquality.com ECHO Journal | July 2012

Ask the Maintenance Experts By John Schneider

When Do Common Interest Developments Have to Comply? 26

July 2012 | ECHO Journal

â&#x20AC;&#x2122;m on the board of a community association, and we are currently in the process of replacing damaged sections of siding and trim. The general contractor notified me that

building department wonâ&#x20AC;&#x2122;t final the work unless carbon monoxide detectors have been installed. I thought carbon monoxide detectors were not required for multifamily units until

January 2013. Is this right? How can the association get the individual unit owners to comply?â&#x20AC;&#x201D;J.C., Milpitas

ECHO Journal | July 2012

Your question illustrates the challenges many common interest developments will face as the new requirements for carbon monoxide (CO) detectors are implemented and enforced. There are two separate but related requirements regarding the installation of CO detectors that became effective at the beginning of this year. These requirements are given in the California Carbon Monoxide Poisoning Prevention Act of 2010 (Senate Bill 183, Health and Safety Code 13113.7.) and the 2010 California Building Code. The health and safety code requirements govern existing dwelling units intended for human occupancy, and the building code requirements govern for new construction, remodels and additions. If the dwelling unit has a fuel burning appliance, fireplace or attached garaged, a CO detector is required to be installed. The mandatory dates for compliance for existing structures is July 1, 2011 for all single family residences, and January 1, 2013 for all multi-family dwelling units.

If the dwelling unit has a fuel burning appliance, fireplace or attached garaged, a CO detector is required. However, the 2010 California Building Code contains a provision that can activate the need for immediate compliance. The trigger is “doing work requiring a permit,” whether it’s for maintenance, alterations, or repairs. This new rule has caught a lot of community associations off guard and is creating confusion and concerns for property managers and boards of directors. The specific language regarding the requirements of CO detectors can be found in the 2010 California Building Code Section 420.4.2 that states, “…Where a permit is required for alterations, repairs or additions exceeding one thousand dollars ($1,000), existing dwellings or sleeping units that have attached garages or fuel-burning appliances shall be provided with a carbon monoxide alarm in accordance with Section 420.4.1. Carbon monoxide Continued on page 38 28

July 2012 | ECHO Journal

Legislation at a Glimpse As of June 15, 2012 Bill No.

Author

Subject

Status

Position

Summary

AB 805

Torres

Davis-Stirling Revision Part 1

Amended 6/11. In Senate Judiciary.

Support

This is the first of two bills from the California Law Revision Commission that restate and clarify the Davis-Stirling Act.

AB 806

Torres

Davis-Stirling Revision Part 2

In Senate Judiciary.

Support

This is the second of two bills from the California Law Revision Commission that restate and clarify the Davis-Stirling Act.

AB 1547

Eng

Extend “Blight” Fines

Missed deadline. Dead.

Support

This bill would remove the sunset provision in a law that allows local municipalities to fine owners of foreclosed units for failing to maintain their properties.

AB 1557

Skinner

Extend “Blight” Fines

Missed deadline. Dead.

Support

This bill would extend the sunset provision to 2018 for a law that allows local municipalities to fine owners of foreclosed units for failing to maintain their properties.

AB 1720

Torres

Gated Communities

Passed Assembly. In Senate Judiciary.

Support

This bill would require that gated communities grant access to licensed private detectives for the purpose of service of process, provided they produce required documentation.

AB 1726

Allen

Pool Maintenance

Failed passage. Dead.

Oppose Unless Amended

This bill would require that all public pools (including CID pools) use a “qualified pool operator” as defined by law. The operator must take state-mandated courses.

AB 1745

Torres

Short Sales

In Senate Finance.

Watch

This bill would regulate short sales.

AB 1838

Calderon

Association Records

Amended 5/7. In Senate Housing.

Support as Amended

This bill would require that a financial disclosure form be provided in at least 10-point type. It would also prohibit cancellation fees for document requests under specified circumstances.

AB 1963

Huber

Tax on Services Missed deadline. Dead.

Watch

TThis bill would require the Legislative Analyst’s Office to assess potential changes to the tax code.

AB 2273

Wieckowski

Purchaser Information

Amended 5/14. In Senate Judiciary.

Support

When requested by the association, this bill would require that an owner who is selling his or her unit provide information about the purchasing owner to the association within 15 business days..

SB 1244

Harman

Foreclosure Procedures

Missed deadline. Dead.

Support

This bill eases the notice requirements for units sold in a foreclosure sale. If a unit owner is not able to be served, the bill would, among other requirements, allow the association to post notice in a reasonable location.

ECHO Journal | July 2012

July 2012 | ECHO Journal

By Paul Collins, PCAM, CCAM

Custom-Tailored Management Packages for Smaller Associations LL COMMON INTEREST DEVELOPMENTS ARE UNIQUE. Therefore, most management companies offer a variety of custom service packages to meet the unique needs for each of its clients. Many smaller associations lack the need or the resources for full time management services and opt for self-management. Although self-management may be the cheapest option in the short term, the inherent responsibilities involved with self-management can be overwhelming to many boards of directors. Those responsibilities may include: • Association law • Accounting procedures • Bid development • Vendor relations • Owner relations • Facility management • Risk management • Community leadership In spite of these difficult requirements, many boards have opted for self-management, resulting in overworked (and under-appreciated) directors. Board members are often unaware of the extensive and complex federal and state laws, requirements, accounting procedures, and disclosures with which every association, regardless of its size, must comply. Too often, this can lead to an insolvent association and diminished property values. Further, board members who are operating an association without proper guidance may be vulnerable to personal liability.

The Challenge Community associations with fewer than fifty homeowners often struggle to meet maintenance, insurance and administrative obligations while also paying for the additional cost of professional management. Often, management companies are unable to offer significantly reduced prices to smaller associations due to a workload comparable to that of a medium sized development of 50–100 units. Accordingly, many small associations seek

scaled down or financial-only management packages, which many small communities have found more in line with their restricted financial resources. Note: A small associations is not defined only by number of units. A small budget, regardless of the number of units, is also a defining characteristic of a small association. For example, a housing development may have 150 homes, but very little common area to maintain and, as a result, low assessments and minimal financial resources. It might be difficult for this association to earmark the majority of their dues towards management fees. For the purposes of this discussion, these large membership, small budget associations are considered “small associations.” Consulting Services For this reason, many management companies offer consulting services to associations who want to manage themselves The broad scope of knowledge and experience needed to run a common interest development effectively makes it very important that boards seek some professional guidance and assistance to maneuver through these tricky subjects but wisely seek professional advice for the more technical issues. Associations with 10–50 units may be large enough to afford a regular contract with a management company. The very small associations (10 units or less) may be almost entirely self-managed but still seek professional advice on certain issues, as they arise. The following consulting services offered by management companies can assist Board members to run their homeowner associations effectively: • Initial association evaluation • Assist board to develop a system that will accurately and completely record association business. • Verify that a complete set of governing documents is on file. Continued on page 33

ECHO Journal | July 2012

Nominating Committee Seeks Candidates for ECHO Board of Directors HE NOMINATING COMMITTEE for the ECHO Board of Directors is seeking expressions of interest from persons who are interested in being on the ECHO Board of Directors. Four positions on the board will be up for election at the ECHO annual meeting that will be held in October. These positions are for three-year terms. Current directors whose terms expire in 2012 are Paul Atkins, Jerry Bowles, David Hughes, and Steven Weil. Board members are expected to attend all of approximately six three-hour board meetings held each year, generally at the ECHO office in San Jose. Each board member also

July 2012 | ECHO Journal

serves on one or more committees that hold regular meetings throughout the year. These two activities involve a commitment of four to six hours per month plus travel time. In addition board members are expected to attend the Annual Seminar, Annual Meeting and a two-day board retreat each November. Board members receive no reimbursement for these activities. Nominees will also be expected to have been recent active participants in ECHO activities and to have thorough familiarity with the organization and the CID industry.

Persons interested in being considered for nomination should obtain and complete a nomination and qualifications form, available by request from the ECHO office. Every potential candidate, including incumbents, must submit a full form. All completed forms must be submitted to the ECHO office no later than July 19, 2012, to be considered by the nominating committee. Those requesting nomination may be requested to interview with the nominating committee. The committee will meet in late July to prepare recommendations for board consideration.

Custom Management Packages Continued from page 31

• Verify that vendor contracts and proof of insurance certificates are on file. • Verify that accounting systems and procedures are in compliance with generally accepted accounting procedures. • Verify that your association is carrying required insurance and has copies of all policies and proof of insurance from vendors. Assist the board in limiting their risk exposure. • Verify that association is meeting all owner disclosure requirements including distribution of budgets, year ended financials, and proof of insurance and alternate dispute resolution. • Verify that all required reports (e.g. Reserve Study, Pro Forma Budgets, Yearend Financial statements, etc.) are on file. • If any required materials are not present in association files, assist board in procuring missing documents. • Review internal systems, including contracting, owner relations, declaration enforcement and maintenance programs. • Review internal financial procedures, including assessment collection, disbursements, financial reporting, bankcards, reconciliations and budgeting. • Review delinquent owner collection procedures. • Assist board in conducting board meetings in a business-like manner. The goal of using professional management on a consulting basis is to empower the board with the necessary information to effectively self manage their common interest development. Remember, when you work with a reputable management company you are working with an ensemble of knowledgeable and experienced lawyers, accountants, general contractors and other vendors that have been found to be exceptional in their respective fields.

Find the Answers to your Questions on Condo Ownership

An excellent guide to understanding the rights and responsibilities of condo ownership and homeowner associations operation. The question-and-answer format responds to more than 125 commonly-asked questions in an easy to understand style. A great resource for newcomers and veteran owners. Order today from ECHO! Call 408-297-3246 Fax 408-297-3517 Email: info@echo-ca.org

Economies of Scale and Cutting Costs Because there are usually fewer homeowners in a small association contributing money “into the pot,” there is a higher per unit cost for all goods and services. For example, a $500 per month pool maintenance contract might cost $10 per unit per month in a 50unit complex. However, in a 200 unit complex, the per unit cost drops to $2.50 per month. Whether you are a large community Continued on page 39 ECHO Journal | July 2012

Directory UPDATES Updates for listings in the ECHO Directory of Businesses and Professionals, now available online at www.echo-ca.org.

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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 34

July 2012 | ECHO Journal

Falcon Roofing 990 Terra Bella Ave. Mountain View, CA 94043 Tel: 650-961-3200 Fax: 650-961-3222 www.falcon-roofing.com G.P. Landscape PO Box 22926 Sacramento, CA 95822 Tel: 925-455-4738 Fax: 916-455-5439 www.gplandscape.com Management Resource Center 87 Magnolia Ave, Suite 103-218 Corona, CA 92879 Tel: 877-398-6652 www.trymrc.com SGK Home Solutions Inc. 3801 Charter Park Ct. San Jose, CA 95136 Tel: 408-264-6964 Fax: 408-264-6126 www.sgkhomesolutions.com

Become an ECHO Business and Professional Member and receive the many benefits of membership. To learn more, visit our membership page at www.echo-ca.org

ECHO Events Calendar

Plan on attending... Thursday, July 5 North Bay Resource Panel 11:45 a.m. Contempo Marin Clubhouse 400 Yosemite Rd, San Rafael Monday, July 9 Accountants Resource Panel 6:00 p.m. Francesco’s Restaurant Oakland Tuesday, July 10 Central Coast Resource Panel 12:00 Noon Pasatiempo Inn, Santa Cruz Wednesday, July 18 Wine Country Resource Panel 11:45 a.m. Eugene Burger Mgmnt. Co. Rohnert Park Wednesday, August 1 Maintenance Resource Panel 12:00 Noon ECHO Office, 1602 The Alameda, Suite 101, San Jose

Wednesday, August 8 South Bay Resource Panel 12:00 Noon Buca Di Beppo 1875 S. Bascom Ave., Campbell Wednesday, August 15 Wine Country Resource Panel 11:45 a.m. Eugene Burger Mgmnt. Co. Rohnert Park Thursday, September 6 North Bay Resource Panel 11:45 a.m. Contempo Marin Clubhouse 400 Yosemite Rd, San Rafael Monday, September 10 Accountants Resource Panel 6:00 p.m. Francesco’s Restaurant Oakland Tuesday, September 11 Central Coast Resource Panel 12:00 Noon Pasatiempo Inn, Santa Cruz

Wednesday, September 19 Wine Country Resource Panel 11:45 a.m. Eugene Burger Mgmnt. Co. Rohnert Park

Wednesday, October 17 Wine Country Resource Panel 11:45 a.m. Eugene Burger Mgmnt. Co. Rohnert Park

Saturday, September 22 Central Coast Seminar 8:30 a.m. Hilton Santa Cruz Scotts Valley

October 20, 2012 Peninsula Fall Seminar 8:30 a.m. Crowne Plaza Foster City 1221 Chess Dr., Foster City

Wednesday, October 3 Maintenance Resource Panel 12:00 Noon ECHO Office, 1602 The Alameda, Suite 101, San Jose Wednesday, October 10 South Bay Resource Panel 12:00 Noon Buca Di Beppo 1875 S. Bascom Ave., Campbell Friday, October 12 East Bay Resource Panel 12:00 Noon Massimo Restaurant Walnut Creek

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

Meeting First Wednesday, Even Months First Thursday, Odd Months Second Friday, Even Months 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 Massimo Restaurant, Walnut Creek Francesco’s Restaurant, Oakland Pasatiempo Inn, Santa Cruz Buca Di Beppo, Campbell Eugene Burger Management Co., Rohnert Park Varies ECHO Journal | July 2012

Netwion Edi

Beyond Privatopia $20.00 Non-Member Price: $25.00 The rise of residential private governance may be the most extensive and dramatic privatization of public life in U.S. history. In Beyond Privatopia, attorney and political science scholar Evan McKenzie explores emerging trends in private governments and competing schools of thought on how to operate them, from state oversight to laissez-faire libertarianism.

Condominium Bluebook 2012 Edition $17.00 Non-Member Price: $25.00

Condos, Townhomes and Homeowner Associations Member Price: $29.00 Non-Member Price: $45.00

Community Association Statute Book—2012 Edition Member Price: $15.00 Non-Member Price: $25.00

To make these a sustainable investment, new buyers, owners and board members need to understand “best practices basics” of how this form of housing works and have more realistic expectations of this form of “carefree, maintenance free” living.

Contains the 2011 version of the Davis-Stirling Common Interest Development Act, the Civil Code sections that apply to common interest developments and selected provisions from other 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.

2012 Community Association Treasurer’s Handbook Member Price: $29.00 Non-Member Price: $35.00

This well-known compact guide for operation of common interest develop ments 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.

Netwion Edi

cial e p S rice P

Homeowners Associations— How-to Guide for Leadership Member Price: $15.00 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.

FOR Board Members Reserve Fund Specialists Property Managers Unit-Owners, Accountants Lawyers, Builders

NEW

2 CHAP TERS ON OP ERATI BUDGETS NG

The Handbook is an in-depth guide to all aspects of association finances, including accounting methods, financial statements, reserves, audits, taxes, investments and much more. Not for the accounting novice, this is a tool for the treasurer or professional looking for specific information about association finances.

RESERVE FUND

ESSENTIALS THIRD EDITION FIFTH PRINTING JONATHAN H.

JUFFS Reserve Fund Specialist

Two experts discuss reserve fund planning and control in a refreshingly readable and exceptionally levelheaded style.

GRAHAM D.

OLIVER Board President (ret.), Reserve Fund Aficionado

INCLUDES RESERVE FUNDS FOR CONDOMINIUMS COMMUNITY ASSOCIATIONS HOAs CO-OPS MEMBER-OWNED PROPERTIES MUNICIPAL FACILITIES

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

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 Answer Book $15.00 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.

2012 ECHO Annual Seminar Program Book $15.00 Non-Member Price: $25.00 This 200+ page reference book contains the presentation outlines, text and handouts from the sessions at the 2012 ECHO Annual Seminar held on June 23, 2012. It also contains vital information for association directors, such as assessment collection policies, internal dispute policies, and much more.

Dispute Resolution in Homeowner Associations Member Price: $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 www.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 8.25%) TOTAL AMOUNT

Yes! Place my order for the items above. Board Memberâ&#x20AC;&#x2122;s Guide for Management Interviews Member Price: $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

Find answers to almost any question about CIDs Questions & Answers About Community Associations Member Price: $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. Order today from ECHO! Call 408-297-3246, fax at 408-297-3517 or go online at store.echo-ca.org

Carbon Monoxide Detectors Continued from page 28

alarms shall only be required in the specific dwelling unit or sleeping unit for which the permit was obtained.” This means that any time a permit is obtained for repairs or renovations to an existing multifamily complex, building departments may require the installation of carbon monoxide detectors. The question now, how will your building department be enforcing this requirement? Currently I’m involved in the oversight of two projects for community associations where the local building departments are withholding final approval of the work until they receive a signed form from each unit owner (of the buildings being worked on) stating they are in compliance with this new law. The language in one of the compliance forms provided by the building department has the unit owner certifying that CO detectors and smoke detectors have been installed according to manufacturers’ requirements, and the requirements of the building code. Once this form is returned to the building 38

July 2012 | ECHO Journal

department, it will be kept on file to show compliance with the code. CO detectors are required to be installed outside of each separate sleeping area in the immediate vicinity of the bedroom(s), and on every level of a dwelling unit including basements. For existing buildings where walls and ceilings are not being opened, a “plug in” or battery-only device may be used. How can the association comply with this requirement and get final approval for the permits?. Without a rule or regulation addressing the need for these detectors, an association cannot compel the unit owners to install them or to sign the declarations. Currently, both associations I’m working with are talking with their managers and seeking legal advice on how to proceed. Each has sent out notices to the owners requesting their cooperation in this matter and requesting they install the detectors and sign the compliance form. In a perfect world, all the unit owners would comply in a timely manner and the roof replacements would be signed off and approved. In surveying other building departments in the Bay Area, I found there was no consen-

sus as to how individual municipalities were enforcing this rule. Some are not requiring CO detectors for repairs to existing structures if the repair only involve siding and roofs, some had not yet established a policy. It would be wise for associations considering repairs in the near future to contact their local building departments and find out what the requirements are before beginning any repair or maintenance work. Maintenance and repair projects are difficult enough without having to worry about unit owners signing compliance forms and installing CO detectors at the last minute in order for the work to be approved.

John Schneider is a licensed General Building Contractor and certified Code Specialist. Since 1985, he has been president of All About Homes, Inc., an East Bay consulting company that specializes in the investigation of construction related deficiencies, project management, and the facilitation of disputes between owners, associations, and vendors. Mr. Schneider is a member of the ECHO Maintenance Panel. Questions or comments can be directed to Mr. Schneider at jrschneider@allabouthomes.com.

Custom Management Packages Continued from page 33

or a small community, a standard sized pool will require significant resources to maintain, not to mention heat and saving for its longterm repair. These same economies of scale exist for management firms. Whether it is for a 50 or 100-unit complex, many of the redundant tasks that a management company must perform are identical. Of course there is some correlation between size of community and managerial workload, but often that difference is insignificant. Many management companies will not even consider an association of fewer than 100 units for this very reason! Some management companies will gladly contract with a small community, offer basement prices, and then do one or both of the following: • Completely neglect the community and collect the monthly fee. • Bill a lot of “extras.” In either case, the association is at a disservice, but these conditions occur all too often. It is critical to know the primary cost driver of all management companies—employee salaries. Community association management is part of the service economy. Since management companies do not manufacture a product, their value is not derived from producing and selling widgets. A management company’s value is a function of time (and its efficient use thereof). The management firm must pay its employees to perform a service. The company will be profitable only if the employees create enough value within their allotted time to cover the expenses and generate a profit for the firm. Typically management companies are compensated for their time based on a per unit fee schedule (e.g. $15 per unit). If an association has only 15 units, at $15 per unit, the management firm will generate only $225. This sum is hardly enough to produce a financial statement, much less to pay for other management services. Therefore, the challenge for the smaller association is to prioritize its managerial needs with an emphasis of minimizing the amount of time the manager will need to spend dedicated to the community. All this must be done without a lapse in the level of service the association provides its members. Here are some ways to significantly cut the management company’s time on task:

1. Cut down on the number of meetings that your association conducts or at least the number the manager attends. Consider quarterly or bi-annual meetings. Another option is to schedule meetings during normal business hours at the manager’s offices. 2. Do not require the manager to take minutes at the meeting. 3. Do not require the manager to deal with smaller “low-skill” jobs such as day-to-day landscaping or CC&R enforcement issues. 4. Do not require the manager to perform weekly or monthly site inspections. Quarterly walkthroughs supplemented by an active grounds committee ought to suffice. Just because the management company does not perform a given task should not mean that the task can be left undone. These tasks must be delegated to volunteer board members or committee members. Yes, this does mean more work for volunteer homeowners, but it also means lower monthly fees and lower monthly dues. It also means that the homeowners will be more involved in the day to day operations of the community, which almost always equates to a better-run, more harmonious community; nobody has a better idea of what a community needs that the people that live there! Note: Associations with a high volume of volunteer work may wish to purchase a worker compensation policy with an endorsement for volunteers. Hybrid Management Packages Hybrid Management: “Teaming up board and committee members, professional community association managers and professional financial managers into the overall community association management strategy.” The question arises: What tasks should the board perform and what should be delegated to the management company? A hybrid management package should require your management company to provide a qualified manager to consult with the board, as needed, to oversee large complex projects (e.g. painting or re-roofing) or guidance on managing small day-to-day issues. Meanwhile, the management company will administer your association’s financial and legal obligations. The important thing is having a relationship with a firm that can provide, when needed, a qualified manager (preferably a CCAM or PCAM) to assist the board with more technical issues. With so much regulation coming in from Sacramento every year (e.g. case law,

the Davis-Stirling Act, Corporate Code and other statutes) it may be difficult for a board member to navigate the shark-infested waters of association law and protocols. An example would be administration of annual meetings and elections or special meetings. It is important that an impartial competent party be involved to administer all aspects of an annual meeting to ensure that a fair and legal election is conducted. Having a neutral party convene the annual meeting is critical for associations dealing with controversial issues or a contested election. A second example would be annual disclosures. There are countless documents that must be distributed yearly, or as needed, for a variety of association functions. Note: These requirements change yearly. Thus it will require a professional to keep track of what must be disclosed, when, and to whom. A final example is financial accounting, wherein there are too many requirements, procedures, and pitfalls to begin mentioning in this venue. The following is a list of tasks that a board would be well advised to have handled by a community association management company or a community association financial management company: Fiscal and Accounting Services • Provide owners with dues payment coupons and/or statements. • Set up and maintain a lockbox system for assessment collections. • Offer owners automatic electronic payment of dues. • Assistance in developing an investment strategy of reserve funds. • Reconciliation of all accounts; checking, savings, money market, Etc. • Prepare checks as authorized by board. • Provide board detailed monthly or quarterly financials, using the modified - accrual method of accounting. • Monitor reserve investment rollover dates. • Assist independent auditors with data gathering. • Review financial statements with board. • Assist board with preparation of pro forma operating budget. • Collect and process assessment payments. • Prepare and post accounts receivable. • Prepare and post accounts payable. • Assist board in obtaining and reviewing a current and accurate reserve study and funding study. Continued on page 41 ECHO Journal | July 2012

ECHO Honor Roll

About

ECHO Honors Volunteers

ECHO What is ECHO? Serving Homeowners to Build Strong Community Associations

ECHO Resource Panels Accountant Panel Richard Schneider, CPA 707-576-7070 Central Coast Panel John Allanson 831-685-0101 East Bay Panel Beth Grimm, Esq., 925-746-7177 Mandi Newton, 415-225-9898 Legal Panel Mark Wleklinski, Esq. 925-280-1191 Maintenance Panel Brian Seifert, 831-708-2916 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 Toni Rodriguez, 408-848-8118 George Engurasoff, 408-295-7767 Wine Country Panel Maria Birch, CCAM, 707-584-5123

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

July 2012 | ECHO Journal

Regional Seminar Speakers Marin: David F. Feingold, Esq. Wanden P. Treanor, Esq. Glenn H. Youngling, Esq. Central Coast: John Allanson Sharon Glenn Pratt, Esq. Wanden P. Treanor, Esq. Glenn H. Youngling, Esq. Wine Country: Kirk Denebeim David Hughes Roger Doncaster Mark Dunia Bill Mann Barbara Zimmerman, Esq. Bill Gillis, Esq. South Bay: Sandra Bonato, Esq. Stephanie Hayes, Esq. Rick Coats & Sandra Long Alan Crandall Larry Russell, Esq.

Annual Seminar Speakers June 23, 2012 ECHO Annual Seminar Dawn Anderson, AIA Jeffrey Barnett, Esq. Brad Barroso Tyler Berding, Esq. Sandra Bonato, Esq. Wendy Buller Ian Brown Jeff Draeger Tom Fier, Esq. Kevin Frederick, Esq. John Garvic, Esq. Vic Giacalone Sandra Gottlieb, Esq. Beth Grimm, Esq.

Allan Henderson David Kuivanen David Levy, CPA Helen Loorya Richard Lowenthal Kerry Mazzoni Mike Muilenburg Andrea O’Toole, Esq. Ann Rankin, Esq. Larry Russell, Esq. John Schneider Brian Seifert Jim Shepherd Dean Shibler Richard Tippett Steven Weil, Esq.

Recent ECHO Journal Contributing Authors March 2012 Julie Adamen David L. Hughes John R. Schneider Kevin Scroggins David C. Swedelson, Esq. Steven S. Weil, Esq. April 2012 Kenneth Carlisle Colletta Ellsworth-Wicker, CMCA, AMS, PCAM Graham Oliver Debra A. Warren, CMCA, PCAM May 2012 Tyler P. Berding, J.D., Ph.D. Robert Booty Larry Mesplé Mary Anne Sayler John Schneider June 2012 Tyler P. Berding, J.D., Ph.D. Burt Dean Hilary Lape, CMCA, AMS, PCAM Steven T. O’Brien Daniel E. Villalobos

The Executive Council of Homeowners (ECHO) is a nonprofit membership corporation dedicated to assisting California homeowners associations. ECHO provides help to homeowners associations on many fronts: finances, legal issues, insurance, maintenance and management. Members receive help through conferences, trade shows, seminars, a monthly full-color magazine and discounted publications.

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.

Benefits of ECHO Membership • Subscription to monthly magazine for every board member • Yearly copy of the Association Statute Book for every board member • Frequent educational seminars • Special prices for CID publications • Legislative advocacy in Sacramento

ECHO Membership Dues HOA Size 2 to 25 units 26 to 50 units 51 to 100 units 101 to 150 units 151 to 200 units 201 or more units Business/Professional

Rate $120 $165 $240 $315 $390 $495 $425

ECHO Journal Subscription Rates Members Non-members/Homeowners Businesses & Professionals

$50 $75 $125

How Do You Join ECHO? Over 1,800 members benefit each year from their membership in ECHO. Find out what they’ve known for years by joining ECHO today. To apply for membership, call ECHO at 408-2973246 or visit the ECHO web site (www.echo-ca.org) to obtain an application form and for more information.

ECHO Marketplace

Advertiser Index

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Custom Management Packages Continued from page 39

• Pursue collection of delinquent accounts per association’s Collection Policy. • Keep reserve schedule current.

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• Receive and follow up on maintenance requests and complaints. • Inspect common area property as needed. • Assist with preparation of contract specifications. • Accept bids for board to review. • Monitor contractual agreements of independent contractors or personnel. • Obtain written proposals/contracts when requested by board.

Protection of Property Against Risk • Assist in securing coverage and costs for annual insurance premium(s) including; fire, general liability, fidelity, bonds and other statutory coverages • File insurance claims on behalf of association. • Records and Correspondence • Maintain association financial records and files in safe condition. • Maintain current membership and mailing list. • Maintain membership files on each individual owner. • Provide up-to-date assessment and ownership information to title companies, on request, for use in title transfers and refinancing. • Provide for duplication and mailing of copies of association documents as needed. • Provide for duplication and mailing of correspondence, reports, newsletters, and flyers as required. • The following are other managerial functions that can be selected on an as-needed or consulting basis:

Meetings of Association • Attend Annual Meeting and election • Attend regular meetings. • Arrange for and schedule place, date, and time for general membership meetings. • Prepare and mail meeting notice, proxy, ballot, agenda, etc. • Prepare and present special reports, as requested. • Prepare and present minutes of board meetings. • Attend Annual Meeting Note: All management companies offer different billing structures. It is important to know which services will be performed under the base contract and which services will be billed as extras. A good way to cut down on extra billing is to assume responsibility for duplication and distribution of mailings, storing archived files onsite, and other administrative tasks.

Rules Enforcement, Maintenance, Repairs and Replacements • Enforce Rules and Regulations and Fine Policy

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

Ace Property Management . . . . . . . .18 American Management Services . . . .9 Angius & Terry . . . . . . . . . . . . . . . . .3 A.S.A.P. Collection Services . . . . . . .10 Association Commnications . . . . . .33 Association Reserves . . . . . . . . . . .25 Berding | Weil . . . . . . . . . . . . . . . . .44 BTC Bob Tedrick Construction . . . . .25 Collins Management . . . . . . . . . . . . .8 Common Interest Management . . . .22 Community Management Services . .33 Compass Management . . . . . . . . . .15 Cool Pool Service . . . . . . . . . . . . . . .8 Cornerstone Community Mgmnt. . . .28 Draeger Construction . . . . . . . . . . .14 Ekim Painting . . . . . . . . . . . . . . . . . .8 Eugene Burger Management Co. . . .16 First Bank Association Bank Srvcs . .15 Flores Painting . . . . . . . . . . . . . . . .34 Focus Business Bank . . . . . . . . . . .28 Helsing Group, The . . . . . . . . . . . . .18 M & C Association Services . . . . . . .34 Massingham and Associates . . . . . .23 Mutual of Omaha Bank . . . . . . . . . .19 PML Management Corp. . . . . . . . . .17 Pollard Unlimited . . . . . . . . . . . . . .22 Professional Gutter Services . . . . . .14 R. E. Broocker Co. . . . . . . . . . . . . .17 Ram Olson Cereghino & Kopczynski . .2 Rebello’s Towing Service . . . . . . . . .19 REMI Company . . . . . . . . . . . . . . . .25 Saarman Construction . . . . . . . . . .10 Statcomm . . . . . . . . . . . . . . . . . . .22 Steve Tingley Painting . . . . . . . . . . .43 Varsity Painting . . . . . . . . . . . . . . . .11

ECHO Journal | July 2012

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.

What problems does your association face from hidden damage? Every community association will face a major reconstruction project several times in the life of the development. This may occur because of anticipated problems, such as re-roofing or re-painting, but it can also occur because of completely unanticipated, and unreservedfor, problems, such as dry rot, soil subsidence, or leaks in windows and siding.

The Perils of Hidden Damage

For Community Associations By Tyler P. Berding, J.D., Ph.D. and Steven S. Weil, Esq.

There are two different outcomes to any attempt to repair hidden damage. The first is a predictable project that succeeds in repairing the damage within the association’s financial means. The second part is so unexpected and expensive to repair that it overwhelms the association’s resources. Next to damage from a natural disaster, a big, unexpected construction project is probably one of the most disruptive events in an association’s life. Some associations never recover. So what are your association’s options? Learn what your association can do when facing hidden damage in the booklet, The Perils of Hidden Damage. This 12-page booklet is free simply by calling 800-838-2090.

Visit us at the Annual ECHO Trade Show on June 23 at booth 318/419 and get a free copy of this booklet.

BERDING|WEIL, LLP 2175 N California Blvd, Suite 500 Walnut Creek, CA 94596 www.berding-weil.com www.condoissues.com 800-838-2090

Hear the following presentations in the Seminar Hall: 9:00 Tyler Berding: “Hidden Damage and It’s Threat to Older HOA’s” 1:30 Steve Weil: “Back to the Future: Facing the Email Ban Head-On” 1:30 Sandra Bonato & Andrea O’Toole: “Clean up Your Act: Handling Old CC&R Rules & Violations”