HOA Law Blog

To foreclose or not foreclose, that seems to be the question that many association board members and managers are asking themselves these days. There is no question that the sub-prime meltdown/crisis has increased the number of delinquent homeowners. Data Quick Information Services reports that in the first three months of 2008, 47,171 homes were lost to foreclosure, more than four times as many as a year earlier. In that same period, 110,000 California homeowners received default notices which is a 143% increase from the same period in 2007. Data Quick estimates that only 32% of the properties in default will avoid foreclosure, which is down from 52% a year ago. It is therefore no surprise that Association Lien Services has seen a steep rise in the number of delinquent matters that are being turned over for collection. With the potential lack of equity and the fact that these delinquent homeowners may not have any assets to collect on, making the decision as to how to proceed to collect and whether or not to foreclose are questions that many associations are having to face. Attorneys David Swedelson and Tracy Neal (supervising attorney at Association Lien Services) have written an article that will help board members and managers answer these questions. Download a PDF copy of the article To Foreclose or Not Foreclose.

Prepared by Sandra L. Gottlieb, Esq.
Swedelson & Gottlieb

In the mid-90’s, The Federal Communications Commission (“FCC”) established rules known as the Over the Air Reception Devices, known by the acronym OTARD, which preempts provisions in many governing documents that require an owner to obtain approval before installing a satellite dish. The public policy part of the Telecommunications Act of 1996 (the “Act”) was the vehicle by which the FCC guaranteed that homeowners had reasonable access to new communication technology available to American consumers and provided that such access takes priority over private restrictions based on aesthetics. That said, however, the Act did not require associations to allow access to association common areas, but rather left the decisions concerning associations’ common areas, subject to statutory and governing document requirements, to the boards of directors of those associations. The common area at a condominium association is likely any area outside of the airspace of an owner’s unit or their exclusive use patio or balcony.

Community association boards usually have the discretion to enter into an exclusive cable service contract with a particular telecommunications provider in order to provide that programming to the residents at a volume discount price. Cable providers often insist on exclusivity (meaning that no other providers are permitted to offer programming to residents) prior to committing to make upgrades at an association.

On November 13, 2007, the FCC issued an order banning exclusivity contracts between cable operators (and other multi-channel video programming distributors) and multiple dwelling unit developments.
The definition of multiple dwelling units developments includes condominiums, cooperatives, and communities of single family homes. The order from the FCC has not become a published federal regulation as it is still being considered whether it should apply to direct broadcast satellite services and private cable operators, not using local rights of way. This action by the FCC is consistent with its belief that communication providers (internet, wireless and cable) should be subject to the greatest possible competition in providing their services, and that consumers generally benefit from that competition.

If you have an exclusivity clause in your cable or video programming distribution contract, this ban will not necessarily terminate the contract, but it may make certain (exclusivity) provisions of that agreement unenforceable. The impact of this ban on community associations is not certain at this point. The benefit of an exclusivity provision in the contract is that it sometimes enabled the association to obtain a better rate for the cable/video programming services, installation of fiber optics, cabling, free receivers, etc. Without an exclusivity clause, however, it is likely that any discounts will expire with contract renewals.

We will keep you advised of any new developments about this new FCC order. If your association is under contract with a video programming provider or distributor, you should review the provisions of the contract to determine if there is an exclusivity clause and, if so, what the effect on the contract will be once the FCC order becomes an effective federal rule published in the Code of Federal Regulations. If you require our assistance, please contact our office. In addition, for more information please see CAI's political information web site.

It comes up all the time. A resident wants to attend and participate at a board meeting or wants to serve on the board of directors. That resident may be a tenant or the significant other of an actual owner of that property, or perhaps the beneficiary of a trust or shareholder of a corporation that owns the property. Often, governing documents state that only an "owner of record" can serve on the board, and the Open Meeting Act states that "any member of the association may attend a meeting of the board of directors of the association." Electing a non-owner to the board of directors, when the governing documents require ownership as a qualification, could jeopardize the legality of the board's decisions, and perhaps even insurance coverage.

Black’s Law Dictionary defines an "owner" of real property as a person who is vested with title to property and has a right to enjoy that property and do with it as he or she pleases. The "Record Owner" is usually defined in the CC&Rs as the "owner of the Title" at the time of notice. But does this mean that the association is required to go out and check Title? Not necessarily. Typically, the owner of record at a community association is the owner on the association's records based on the information that was provided, perhaps through escrow, when the unit was sold. Some management company agreements obligate the manager to a higher level of record keeping by requiring that the manager keep not only a list of the homeowners, but rather a "current list." This rather innocuous phrase could actually place an ongoing obligation on the manager to verify correct ownership. If that's your intention, great; if not, contracts should be rephrased. The association is entitled to rely on its records, unless it is provided proof by way of a recorded deed, that ownership (in whole or in part) has been transferred to someone new. A resident may present the association with a copy of a quit claim deed, showing that he or she may own all or a portion of the property, but that deed may not have been recorded. Then that person would not necessarily be the "owner of record," at least not recognized by the County Recorder's Office as the owner, and thus should not be considered by the association to be an owner.

Record Owner

It is important to determine who the owner of the property is because many activities (read most) at common interest developments require the owner to be the Record Owner of the property. Only a Record Owner can make decisions on behalf of a unit/lot as it relates to association matters. Association disputes over ownership generally arise over the issue of "legal ownership" and are usually easily resolved by determining identity of the property owner as listed on the recorded grant deed.

Prior planning and organization should allow a board or manager to ascertain who the true Record Owner of the property is prior to mailing ballots or holding official meetings of the members. Most CC&Rs require homeowners to provide the association with the names and addresses of the Record Owners. In fact, Corporation Code Section 8320 places the obligation on the corporation or unincorporated non-profit association to maintain a list of all homeowners and their addresses. It is the association's obligation, even prior to an annual meeting, to ascertain who is the record owner for the purpose of collecting assessments and enforcing the governing documents. Because state statute provides that the levy of assessments is a debt of the owner at the time the assessment was levied, going after the correct owner for payment is important, not only to the association's financial health, but also to limit the association's liability for proceeding against the wrong person or entity for a debt.

Under California law, a recorded interest has priority over an unrecorded interest. That means if two owners claim a right of ownership to a piece of property, the association should treat the Record Owner, the person listed on the recorded grant deed, as the true owner. The same holds true even where a homeowner acquires title to their unit/lot by a quit claim deed, provided, of course, that the deed is recorded. When an unrecorded grant deed is involved or if more than one person claims a right of ownership under a separate recorded grant deed or a representative of a trust claims the ownership, the issue can become murky. If no recorded deed exists or more than one recorded deed is discovered. Management should, based on the Davis-Stirling Common Interest Development Act, refer to recorded interests only. Other statutes, not specific to homeowner associations, provide that a grant deed is valid and enforceable even if not recorded as long as the grant deed gives notice to all. However, what is more commonly found is that the notice of ownership has not been given to all prospective buyers and does not provide legal notice as required by law.

First In Time, First In Right

If there is an ownership dispute between record owners and management does not know who to allow to vote (who gets the ballot), management should rely on Civil Code Sections 1213 through 1220, which provide, when more than one grant deed exists, the "Record Owner" will be the person(s) whose grant deed was recorded first. For example, if a homeowner were to record her or his deed to a unit/lot in 2002 and a subsequent grant deed for that same unit/lot was recorded by another person in 2003, without there being a chain of title that satisfies the transfer of property, the Record Owner would be the homeowner who recorded first.

Trust Ownership

A problem occurring more and more frequently arises when property is owned in trust. When conducting check in at an official meeting or sending out a written ballot, if a trust ownership is presented, the association should require official verification that the person who wants to vote on behalf of the trust is authorized to do so. The individual is usually the trustee of the trust. Interestingly, although the trustee does not own the property, the trustee has the same legal rights to act on behalf of the property as those that would be afforded any other ownership rights of the association. It is incumbent upon associations to advise homeowners that, if they are a trustee of a trust, they need to provide trust documentation to establish that they have the authority as referenced above.

Most times it seems the ownership issue is a problem only in contested elections or when certain members of the association have an agenda. Management's agenda is to make sure the right owners are representing the memberships in the association. Following the above guidelines will guarantee your success.

Click here to download the Annual Disclosure Checklist.

Once again, it’s time for community managers and board members to begin preparing association budgets as well as preparing to distribute other required disclosure documents. As we do each year, Swedelson & Gottlieb is pleased to provide you with our updated Annual Budget and Disclosure Checklist.

The provisions of the California Civil Code governing community associations require that you provide members with an ever-growing list of disclosure information, including the “pro forma operating budget,” which must include, among other things, information regarding the association’s expenses, income and reserves.

Other required disclosures include information concerning owners’ rights as members of the association. Much of the information required by the Civil Code must be distributed to homeowners within a 60-day window “not less than 30 days nor more than 90 days” prior to the beginning of the association’s fiscal year.

For those community associations operating under a fiscal year that coincides with the calendar year, the disclosures must be distributed not later than December 1, 2006. For those community associations whose fiscal year commences on a date other than January 1, 2007, the information in this newsletter should be utilized by calculating the appropriate calendar deadlines prior to the commencement of the new fiscal year. Keep in mind that there are important legislative changes effective in 2007, some of which will affect what disclosures are required.

BUDGETING FOR BAD DEBT

As indicated in last year’s Annual Budget and Disclosure Checklist, we advised that real estate experts expected real estate sales and price increases to slow down and foreclosure activity to rise in 2006 due to the large number of risky 100% financed “interest-only” and variable interest rate mortgages retained by buyers, and we advised you to consider budgeting for the likelihood that some owners would not pay their assessments. Indeed, the California real estate market is in a slowdown and foreclosures have tripled from September 2005 to September 2006, which includes a 19% increase from August to September alone. We are optimistic that our Association Lien Services company will continue to successfully collect delinquent assessments, but if a home is foreclosed on by a senior trust deed, it is not always possible to collect assessments. Do the words “upside down” mean anything to you? For those of us who have been around awhile, back in the old days (before 1995), many owners found that they had no equity as the value of their homes were less than their loans. Many let their homes go as they were “upside down.”

As this trend shows few signs of weakening and there are still a large number of high-risk mortgages encumbering California real estate, we continue to advise you to allow for a reasonable amount of bad debt in your 2007 budgets.

BUDGETING FOR COST OF DOCUMENT INSPECTION BY OWNERS

As of July 1, 2006, new Civil Code Section 1365.2 greatly expanded the types of documents homeowners are entitled to inspect. Now, homeowners are not limited merely to inspecting financial reports, but are able to see bank statements, cancelled checks, contracts and other financial documents. An association has an obligation to redact, which means to edit a document to omit confidential and/or privileged information, such as information relating to the names of employees, social security numbers, account numbers, etc. Unfortunately, the legislature only allows an association to charge a homeowner $10 per hour and a maximum of $200 for preparing and providing the requested documents. It is expected that some associations will require an attorney’s assistance in the proper preparation of confidential and/or privileged documents that may be requested by a homeowner.

Although associations are only allowed to charge homeowners $10 per hour (up to $200 total) to prepare requested documents, which costs include attorney services, management companies may charge the associations their extra hourly fees for their services, if required. Additional fees charged by management for these services are probably justified, and associations are encouraged to add additional monies into their budgets for these additional management services. The amount that should be budgeted depends on the size of the association and the history of the association’s homeowner requests for documents.

ANTICIPATING SPECIAL ASSESSMENTS

The California Civil Code also details what is required to be stated or presented in an association’s budget and financial reports. In addition to the budget and other required financial disclosures, the Code requires that associations, through their boards of directors, prepare a statement as to whether “the association has determined or anticipates that the levy of one or more special assessments will be required to repair, replace or restore any major component or to provide adequate reserves therefore.” The Civil Code now imposes greater disclosure obligations regarding reserves and the precise amount of increased assessments for the association’s fiscal year.

Associations need to take a good, hard look at their proposed budgets and anticipated expenses for the new fiscal year and determine whether any special assessments will be required.

This has been an issue with several associations where the board knew, or should have known, of the need for a special assessment to fund the cost of a common area repair, or replacement project, for which there were no monies in reserve, but failed to advise the members.

Some associations are purposefully choosing to under-fund reserves and rely on special assessments for common area repair or replacement projects under the theory that the homeowners who will benefit immediately from the repair should pay for it. While such a practice may be in technical compliance with Civil Code requirements because an association is not required to establish reserves, the 2005 changes to the Civil Code require that the board of directors carefully review what projects it believes will need to be undertaken and determine whether the association has sufficient funds or will require a special assessment and make the appropriate disclosure.

Some associations are disguising assessment increases by calling them “special assessments.” Rather than increase the regular assessment, some associations are levying special assessments of a set amount, per month, to fund repair programs or reserves when, in reality, this money should be part of the regular assessments. Such a practice could be challenged by homeowners. In order to be in compliance with Civil Code mandates, it is appropriate to present this information in the budget.

DISCLOSURE OF ALLEGED VIOLATIONS OF GOVERNING DOCUMENTS

There is another important disclosure that some association boards are failing to make: escrow notification of alleged violations of association governing documents. Although not part of the annual disclosure obligations, not only can this disclosure assist the association in CC&R and Rules and Regulation enforcement, but the association’s failure to make such a disclosure may adversely effect an association’s enforcement rights.

Along with all other documents delivered to escrow on behalf of an owner, the California Civil Code requires associations to provide a copy or summary of any notice previously sent to an owner that sets forth any alleged violations of the governing documents which remain unresolved at the time of the request. This means that associations are obligated to disclose to prospective owners any CC&Rs or Rules and Regulation violations alleged to have occurred on a homeowner’s property. Disclosure may compel the seller to correct the violation, as the prospective buyer will not want to inherit the problem.

THE NEW ELECTION LAW AND ITS IMPACT ON ASSOCIATION BUDGETS AND DISCLOSURES

As you hopefully are aware, as of July 1, 2006, California Civil Code Section 1363.03 sets forth the requirements that community associations are required to follow for association elections and certain other votes by association members (if this is news to you, please visit our blog and see our updates at www.hoalawblog.com). Some associations can expect to incur additional costs relating to printing of envelopes, ballots, election materials and potentially fees to retain an independent third party as inspector of election, such as an accountant, to provide the services needed during a membership vote. While you may avoid some of these expenses by finding a willing volunteer to serve as inspector of election, associations should examine their alternatives and budget accordingly.

The new election law creates additional disclosure responsibilities for associations. Election rules adopted pursuant to Civil Code Section 1363.03 are operating rules and must be sent to the members for a 30-day review period prior to adopting or changing the election rules. Associations must also give notice that the board has adopted the election rules within 15 days of their vote to adopt the rules (the procedure described in Civil Code Section 1357.130 for operating rules listed in Civil Code Section 1357.120). Additionally, within 15 days of an election, the board must publicize the tabulated results of the election in a communication directed to all members.

NEW REQUIREMENTS REGARDING INITIATION OF FORECLOSURE

The changes to California Civil Code §1365.1 and §1367.4 now require that delinquent assessments amount to at least $1,800 or are one (1) year delinquent prior to initiating foreclosure.

Associations are prohibited from foreclosing on an assessment lien unless either: (1) The amount of the assessments owed (not including costs, interest, or accelerated assessments) is $1,800 or (2) one (1) year of delinquency has passed on any unpaid assessments.

Note that payment plans do not stay the running of the one (1) year of delinquency. Here’s a tip - when levying a large special assessment, do not levy with monthly payments. Instead, have the whole amount of the special assessment due in thirty (30) days, or offer a payment plan as an accommodation. This protects the Association against an owner that sells, allows for acceleration if there is a default, and provides other benefits.

BOARD OF DIRECTORS MUST VOTE TO RECORD A LIEN

California Civil Code §1367.1(c)(B)(2) now requires that a majority of the Board of Directors must vote to decide to record a lien at an open Meeting (not Executive Session). The decision of the Board must then be recorded in the minutes of the meeting.

Note that there is no language in the statute that requires that the owner remain anonymous at this point in the proceeding, but there are requirements that the owner’s information be kept confidential in the minutes of the Executive Meeting that votes on whether to notice the sale. There is, however, the potential liability for slander (spoken) or libel (written in the minutes). Do not use the owner’s name.

David C. Swedelson
Sandra L. Gottlieb

Click here to download the Annual Disclosure Checklist.

As you hopefully know by now, as of July 1, 2006, the way all California community associations conduct elections and membership votes was changed. Among the major changes is the requirement that all elections and certain other membership votes be held by secret ballot pursuant to operating rules. This includes votes for the selection and removal of members of the board, amendments to the governing documents, votes regarding assessments, and the grant of exclusive use common area. In addition, the role of the inspectors of election has grown significantly, and the use of proxies, while still permitted, may not be as prevalent as in the past. This new law affects all community associations, irrespective of their size. Failure to comply with the new law could subject an association to a challenge in small claims court. Because this new law is so complex, we are receiving a lot of questions. In response, we present the following frequently asked questions:

1. Our Association has always had secret ballots; can't we just keep on holding our annual elections as we have been doing for years?

The simple answer is no. The new election law was adopted because Senator Battin from the Coachella Valley somehow came to believe that fraud was rampant within association elections. This was news to us. If an association does not comply with the new law, which includes, among other things, the adoption of election rules and procedures, which specify procedures for voting by secret ballot, designating and detailing the responsibilities of the inspector(s) of election, the voting results can be challenged and a fine imposed on the association. We do not believe that the new election law is required as we certainly do not see rampant fraud at associations, but it is the law and if you do not fully comply, there are potential serious consequences.

2. What is required for the election rules and procedures - do they need to be approved by the members?

New Civil Code Section 1363.03 provides that the new election rules and procedures must provide, among other things, that the association allow for equal access for all candidates or members to advocate their point of view in all association media (via newsletter, websites, etc.); that the association provide access to common area meeting space at no cost to all candidates and members who advocate a point of view during a campaign; set forth the qualifications of candidates for the board; set procedures for the nomination of candidates; set qualifications for voting; establish a method for selecting the inpector(s) of election and who can serve as an inspector of election. This new law specifically provides that these rules must be treated like other "operating" rules and sent out to the members for their comment thirty (30) days before being adopted by the board of directors. However, regardless of member comment, it is the board's decision whether to adopt the rules; the members do not vote on them.

3. What happens if we don't have election rules and procedures?

The failure to adopt election rules and procedures means that actual results of the voting can be contested in small claims court.

4. Do these voting rules and procedures only apply to the election of board members or to voting on other matters as well?

The new law provides a list of different votes that are taken by the members in accordance with the election rules - the election or removal of the board members, voting regarding assessments, amendment of the governing documents, and the grant of exclusive use common area.

5. We are a small association of only 10 units. My board does not want to have to make rules or follow the new law regarding secret ballots. Can a majority of the homeowners decide that we don't want to follow this new law?

Unfortunately, Senator Battin (and the California legislature) did not believe that there was any need to differentiate between larger and smaller associations; all community associations subject to the Davis-Stirling Act must follow the new election law. Any homeowner that wants to challenge the results of an election may do so by going to small claims court, and a small claims judge not only has the power to invalidate the election results, but also has the power to impose a fine of up to $500 per violation. Although there may not be any homeowners today that even know about these new election laws, it only takes one disgruntled homeowner to file a small claims action involving the results of your election. This does not even take into consideration the question that if the results of the election are invalidated, is there a board of directors in place to make decisions, sign checks, etc.?

6. What exactly has to be provided in the upper left hand corner of the outer secret ballot envelope?

The following must appear in the upper-left hand corner of the outer secret ballot envelope:

• Written or pre-printed voter’s name
• Written or pre-printed voter’s address or separate interest identifier that entitles him or her to vote (such as parcel, unit or lot number - can simply be the voter's full address)
• Voter’s signature

7. What if a homeowner doesn't know their parcel or lot number?

By recent amendments to Civil Code Section 1363.03 (effective 7/1/06), it is no longer necessary that an owner place their parcel or lot number as long as the voter can be identified from the information provided (address and unit number may be sufficient).

8. Does everyone need to fill out a candidacy notice, including existing Board members who are running for reelection?

Some election rules provide for candidacy notices to be sent out to the membership, and the answer would depend on how your election rules are drafted since the code does not address candidacy notices. Candidacy notices are just one way to provide equal access for those persons running for election. It is a good idea to provide in your election rules that all candidates, regardless of whether they are running for reelection, must fill out a candidacy notice.

9. Should the inner envelope say only "SECRET BALLOT" or does it also need to include an address?

The inner envelope should say no more than: "Secret Ballot, to be opened by the Inspector of Election only." It should not be marked with any identifying information by anyone.

10. Do we need to send homeowners a proxy? How do we let homeowners know that they can give a proxy to someone and what needs to be on it?

If the governing documents don’t require the Association to send a proxy, you are not obligated to do so. The requirements for proxies are set forth in the Corporations Code and should be addressed in the election rules. The Inspector(s) of Election validates proxies. All proxies must be exchanged for Secret Ballots because the proxy itself can’t be voted.

11. Is it 1 Inspector under 100 units and 3 for 100 + units?

No, it's one or three at the Board’s discretion. If the Board fails to designate the Inspector(s), the members may vote on the appointment.

12. What if five members are up for election, all five want to run again and no candidacy notices are received by the deadline? What is the use of having nominations from the floor if a member can't change their vote once it has been mailed?

Recently amended Civil Code Section 1363.03 makes clear that nominations may be allowed from the floor if provided for in the rules and not prohibited by the governing documents. This helps in cases where nominations are not received in advance of the meeting. A member may wish to refrain from voting until the meeting itself in order to ensure the member knows all of the choices available. The member shouldn't mail their ballot unless they are sure of their vote. Another option is to write in a candidate that is not yet nominated, mail the ballot, and then nominate that candidate from the floor at the meeting. It is obviously an advantage for a candidate to return the candidacy notice within the time provided so that candidate is on the ballot. Also, elections by acclamation are no longer allowed (a vote must still be taken where the number of candidates is equal to the number of open board positions).

13. Do only members not planning on attending the meeting need to mail in their secret ballots? The members attending can bring them in but they must be in the 2 sealed envelopes...correct?

Yes. But mailing in your ballot does not mean you cannot attend the meeting. Members can complete their secret ballots and seal them at the meeting. We recommend the board, manager or Inspector(s) bring extra blank secret ballots and envelopes to the meeting in case someone lost their voting materials, etc. and needs a replacement.

14. What if quorum is not achieved?

Remember that even secret ballots received by mail count as members present at the meeting for quorum purposes, so be sure to count them towards quorum. Also, the Inspector(s) should not open any envelopes until quorum is satisfied (if quorum is not satisfied, move to adjourn the meeting and check to see if your governing documents have a provision for reduced quorum at an adjourned meeting).



We encourage all associations to comply with the new law. If you would like more information, there are additional articles on this blog and our website, or you may e-mail our office and we will be glad to forward you additional documents.

Please do not shoot the messenger as we are only reporting the news. On September 18, 2006, the Governor signed S.B. 1560 (the “Amendment”), which modifies recently enacted Civil Code Section 1363.03. This “cleanup bill” clarifies some troublesome issues, which will hopefully allow associations to get through the election process more efficiently.

• §1363.03(e)(1)

One of the provisions in 1363.03 required homeowners, when voting by secret ballot, to write his or her name in their own hand on the exterior envelope sent to the inspector(s) of election and state their unit, lot or tract number. The Amendment allows an owner to sign the exterior envelope and indicate the owner’s name or address or separate interest identifier that entitles that owner to vote. Therefore, the homeowner will no longer have to print their name, unit, lot and tract number in their own hand but may instead utilize a label. However, the member is still required to sign his or her name.

• §1363.03(f)

The changes to Civil Code Section 1363.03 now confirm what we already knew to be the case, that once the inspector receives the ballot, it is not revocable. This change can be found at 1363.03(f). An additional change to 1363.03(f) allows the inspector or the inspector’s third party designee to verify members’ information and signature on the outer envelope of the secret ballot prior to the meeting at which the ballots are tabulated. We had been very concerned that only the inspector(s) of election could perform this job and only perform it at the meeting. Now, the inspector(s) can designate third parties to help perform some of the work and allows for the signature on the outer envelope to be verified (this will help with reaching quorum) prior to the meeting.

• §1363.03(m)

1363.03(m) has been added to confirm that the secret ballot procedure is not required for votes cast by delegates or other elected representatives, but only for votes cast directly by members of the association.

• §1363.03(d)(1)(A)

Another important change defines a proxy (this is a new definition for the code) as “a written authorization signed by a member or the authorized representative of the member that gives another member or members the power to vote on behalf of that member.” (Emphasis added.) In the past, a proxy could be given to any third party whether they were the member, the member’s attorney or a family member unrelated to the association. Now, a proxy can only be given to a member.

• §1363.03(d)(1)(B)

The word “signed” is now defined as “the placing of the member’s name on the proxy, whether by manual signature, typewriting, telegraphic transmission or otherwise by the member or authorized representative of the member.” This is important because it clarifies whether faxed signatures count; they do.

• §1363.03(d)(2)

The cleanup legislation clarifies that proxies may not be construed or used in lieu of a ballot. The modifications to the Civil Code provide that if proxies are permitted or required by an association’s bylaws, and if the proxy meets the statutory requirements, they shall be used. However, associations are not required to prepare or distribute proxies pursuant to Section 1363.03. A member may revoke his or her proxy prior to the receipt of the secret ballot by the inspector(s) of election pursuant to Section 1363.03(d)(3).

• §1363.03(b)

An important concern has been the quorum requirement. The Amendment provides that if quorum is required for elections in the governing documents or other provisions of law, each secret ballot received by the inspector(s) shall be treated as a member present at a meeting for purposes of establishing a quorum (1363.03(b)). We believe that since the ballot is contained within the first and second envelope referenced above, when the envelope is received, it can be used for establishing quorum. Since quorum is determined by ballots, if an envelope is received without a ballot enclosed, then the empty envelope would not count toward quorum.

Additionally, this same subparagraph adds to the already designated four issues for which secret ballots must be utilized to include the removal (recall) of directors.

Unfortunately, these changes did not go as far as we would have liked. However, the changes are significant and clarify many unanswered questions that followed the enactment of Civil Code Section 1363.03.

Wondering where you can find sample annual meeting and secret ballot forms? Look no further. Click on the links below to find some handy reference.

These forms are provided as reference only and do not constitute legal advice. Swedelson and Gottlieb makes no representations as to whether these forms are suitable for any purpose. Consult an attorney before using any of these forms.

Download Secret Ballot Form

Download Secret Ballot Instructions

Download Candidacy Notice

Download Notice of Annual Meeting

On July 1st, 2006, the way community associations have traditionally conducted annual meetings and/or taken votes will be history. This new law, set out in new Civil Code Section 1363.03, will affect how all homeowners associations in California will conduct most of their voting and elections, including the election of directors, a vote by the membership for assessment increases, amendments to the governing documents, and grant of exclusive use common area (subject to the limitations of Civil Code Section 1363.07). This new law was premised on what we believe is the mistaken opinion that association elections and balloting are “fraught with fraud.” The big change is that all voting will be by secret ballot. There is cleanup legislation that has been proposed, which expands the secret ballot process to all association votes. Failure to comply with these new rules could, by court order, set aside the results of an election or vote taken by an association and/or could subject an association to a penalty of five hundred dollars ($500.00) for each violation.

The newly required Election Rules and Regulations (Rules) are considered “operating” rules under the Civil Code, which will require that they first be sent out to the owners for comment. The Rules should set forth the process by which membership meetings are to be conducted, how voting is to occur and who is in charge. No longer may the association’s managing agent (unless your Rules provide otherwise) be in charge of the registration process nor may they assist the inspector(s) of election (“inspector(s)”) with the vote tally. While the number of inspector(s) has not changed (either one (1) or three (3)), the new law requires associations to specify how they are going to select the inspector(s), requires the inspector(s) to be independent third parties which include, but are not limited to, volunteer poll workers with the county registrar of voters, a licensed CPA, or a notary public. Although inspector(s) may be a member of the association, that member cannot be related to a board member, nor a candidate for election to the board of directors, a member related to the candidate, or be a person that is currently employed by or under contract to the association unless expressly authorized by the Rules. The inspector(s) must be selected prior to the vote or election as the inspector(s)’ role and responsibilities have been expanded.

If an association’s governing documents require an annual meeting to elect the board of directors (“board”), you will still be required to follow the Civil Code-mandated process. Cumulative voting and quorum requirements set forth in the governing documents remain controlling. The association or its managing agent will be obligated to provide information to the inspector(s) so that the inspector(s) can determine which members are in good standing and have a right to vote, notify members that they have a right to run for the board, the right to submit a candidacy statement, the right to utilize the association’s media in the same manner that any other candidate is utilizing an association’s media, which includes (by way of example) the association’s website or newsletter, if applicable. The board must be consistent with the procedures as they are to be applied to all members. Further, associations must provide access for all members to the association’s common area meeting space (or spaces) so that the member/candidate can have a forum to discuss their candidacy or anything reasonably related to the election.

The code provides a comprehensive list of inspectors' obligations, which include the designation of a location for the homeowners to mail their secret ballots, determination of the good standing status of the member as referenced above, the counting of the secret ballots (more on that in a moment), the designation of mailing address (referenced above), notification to the homeowners of when the voting will commence and when it will conclude (referred in the code as a polling place, which would make that consistent with municipal elections), request for candidacy statements, etc. Because the legislature apparently believed that community associations were not allowing for secret voting, the underlying process is to secure confidentiality in all votes by homeowners for the elections referenced above.

The Rules must provide procedures that the inspector(s) can utilize at the annual meeting, if applicable. This is important because the association’s managing agent (unless authorized in the Rules) will not be able to provide information and direction to the inspector(s) as to how they should handle any issues or problems that arise.

The secret ballot referenced above requires that associations send to the homeowners (and for the homeowner to return) two (2) envelopes, one that will fit inside the other. The “secret” ballot will go inside the smaller inner envelope. The secret ballot, which requires the homeowner’s vote, may not be signed by the homeowner or have any other documentation on the ballot that would identify the homeowner. That ballot will be placed into the inner envelope, which will be, on its face, designated as the envelope for the secret ballot. That envelope will be placed into another envelope that will be pre-addressed to a location specified by the inspector(s). On the exterior envelope the homeowner, must in their own hand, print and sign his or her name, address, and lot or parcel or unit number that entitles him or her to vote. Owners will likely need some help with this as they likely will not know their parcel number. The homeowner is required to, where referenced, sign their name on that envelope. Although the cleanup legislation referenced above would allow for that information, other than the signature, to be provided not in the homeowner’s own hand, currently that is not the law. Managing agents and boards of directors are rightfully concerned that homeowners will have difficulty understanding that if they do not fill out all of the information, the ballot inside the envelopes will not count towards the election. Not only is the board obligated to prepare the Rules, they should carefully set forth instructions to the homeowner as to how to fill out the envelope.

Counting of the ballots is also going to be an issue. How long will it take to register the members and then count the secret ballots? Will this interfere with the inspector(s) noticing when the polls will close? Members of the association are entitled to watch the counting of the votes. However, no one except the inspector(s), including members of the association, the board of directors or the association’s managing agent, may review or open any secret ballot prior to the time and place where the secret ballots are counted and tabulated. When completed, the inspector(s) are required to provide the board with the results of the election and the association is required to advise the homeowners, in writing, within fifteen (15) days of the election by publicizing the results.

If a member requests a recount and challenges the election results, the association shall make the ballots available for inspection and review by the members or their representatives. The association has an ongoing obligation to preserve the confidentiality of the vote and that includes the recount. Any member may bring a lawsuit against the association in small claims court (within a one-year period from the date of the election or vote) contesting the results. The small claims judge now has the power to void the results of the election upon finding that the election procedures required by law or the rules were not followed. If the member prevails in a lawsuit contesting the vote, under the new law they will be entitled to reasonable attorneys’ fees and costs and the Court may impose a penalty of up to $500 for each violation. On the other hand, if the association prevails in that lawsuit, assuming the small claims court judge’s decision to void the results of an election or vote has been appealed to the Superior Court, it shall not be entitled to its attorneys’ fees and costs unless the Court finds that the homeowner’s action was frivolous, unreasonable, or without foundation.

While the voting and elections procedures have changed, boards of directors still have an obligation to enforce the governing documents while complying with civil code obligations. The State Legislature has enacted a very complicated new law designed to ensure elections and voting are secret. It remains to be seen how well this new law will work. Good Luck! And if you need help, contact our office!

© Swedelson & Gottlieb

Download owner_of_recordarticlefnl.pdf

I noticed this article in a local paper. Casa Gateway had been a client several years ago. Does not appear that they are working with an attorney. Not often that such a dispute ends up in the newspaper. David Swedelson

Casa Gateway Residents Organize to Halt Sale of Valuable Easement

February 09, 2006

Some residents of Casa Gateway at the base of the Palisades Highlands are circulating a petition this week to stop a ballot measure initiated by the board of directors of Casa Gateway Homeowners Association in January.

The petition is a demand that the association immediately stop spending any more time or money on the ballot, which could potentially grant an easement to a Palisades developer. Apparently, the petition arose from a raucous meeting last Saturday when a straw vote overwhelmingly opposed granting the easement to Kaya Tuncer, who owns the land on the hillside above the affordable housing complex.

While those in favor of the plan saw it as a 'win-win' situation for the homeowners, who stand to gain financially from the deal (a minimum of $350,000 to the association), those opposed argued that no amount of money could compensate for the potential fallout from such an agreement. They worry about the liability ('Who's responsible if there's a landslide?') to the eventual possible threat to Casa Gateway's low-cost housing status.

The straw vote came after considerable disagreement over exactly what was being asked on the ballot, which was sent to all 100 Casa Gateway residents and is due tomorrow. To pass, the ballot requires 51 percent of the vote.

'It is not clear whether we are being asked to actually grant the easement or whether we are being asked to simply enter into negotiations to grant the easement,' complained one resident who contacted the Palisadian-Post last week. 'Also, the attorney's letter we received with the ballot refers to Tuncer 'purchasing' the easement, which is quite different from us simply 'granting' him access.'

The January 20 letter also states that the board of directors has the right to accept Tuncer's proposal without the membership's approval, which is apparently not the case, according to the association's CC&R's (4.2).

'The reason the board is coming to us now is because they don't want the liability down the road,' the disgruntled resident continued. 'I do believe that if we agree to this easement, it will affect our affordable housing status. Once we give up our right to part of that land, what's next? The attorney said he has the city's verbal permission to grant this easement, but we haven't seen anything in writing.'

Casa Gateway, located at the corner of Palisades Drive and Sunset, was built in 1987 as HUD (U.S. Department of Housing and Urban Development) low-cost housing.

While there are 100 units in the complex, 68 are reserved exclusively for seniors (62 and older). These senior apartments'all one-bedroom, one-bath in approximately 500 sq. ft.'rarely come on the market. When they do, they are often sold through word-of-mouth to family and/or friends of existing owners. The remaining 32 units are reserved for families who qualify for affordable housing. The three-bedroom, two-bath condos sell for approximately $200,000 to qualified buyers'well below market value for comparable condos in the Palisades. All sales are subject to approval by the Los Angeles Housing Department.

Residents at Casa Gateway, which has several landscaped common areas for recreation and socializing, pay a monthly fee of $215 to the CGHA to cover dues and general maintenance.

Tuncer has been negotiating with the association on-and-off for the last five years to allow access to his property. In a meeting with residents last year, the developer indicated that he intended to built either two large single-family homes on his property, or if he can get the land re-zoned, he would build up to 30 multi-family units. While Tuncer had originally offered to buy the easement, but the association's CC&R's prohibit such a sale.

What Tuncer is now asking for is an easement 'in perpetuity' which would give him permission to build a roadway in an approximately 8,000 sq. ft. rectangular plot of land between Casa Gateway and Calvary Church. The easement would not only provide vehicle access to his property but would also allow for the installation of any utilities. What the residents would get in return would be an initial $350,000 payment, plus more if the multi-family units are built. The residents are also being promised indemnity from any ensuing litigation.

The board of directors, made up of six residents, initiated the ballot measure in January to finally prompt some action on the Tuncer proposal. Whether the funds would go to the individual homeowners or into the association's general fund is not clear.

The developer has let it be known that if the association does not allow the easement, he will develop Via Lucia in Paseo Miramar, currently an abandoned city road to the west of the rectangular area, which he said would provide the access he needs (but with greater topography challenges).

How much such a road would cost to develop is not known.

The new laws affecting collection of delinquent assessments now require the Board of Directors of an Association to vote during an open meeting of the Board to make the decision to record a lien. S&G and Association Lien Services has developed a simple Resolution Document that details all of the steps that need to be taken during that Board meeting to ensure compliance with the California Civil Code. Just click on the link below to download the Resolution Document (REVISED January 2006)

Download bod_lien_resolution_final.pdf

Missed the recent teleconference but still want to hear what Sandra Gottlieb and David Swedelson had to say about SB 137 and the new assessment collection law and procedures? You are in luck. Download this MP3 file to your IPOD, computer or other device that will allow you to listen to this important seminar. If you want a CD with this MP3, contact jennie@sghoalaw.com.

Download sg_sb_137_teleconference.mp3