When an association discovers that an owner has made substantial alterations or modifications to their home that were not approved (often after the work has been done and a neighbor complains), we often hear board members or community association managers suggest that a judge is not going to make the homeowner remove an extensive modification of a home just because that modification violates the Association’s Governing Documents. While that is certainly a consideration that a court must make, we received a report (in the Daily Journal legal newspaper) that one judge did the right thing and ruled in favor of the Association under these circumstances.
2008 was remarkable for the fact that the California Legislature did not pass much in the way of new legislation impacting or affecting California Community Associations. We are providing a summary of two changes to the California Civil Code regarding fines/assessments and solar energy that became effective as of January 1, 2009.
2008 was a banner year and for all of the wrong reasons. Foreclosure activity was way up, and the experts project that we will not see a decline in foreclosures in the near future.
RealtyTrac® (realtytrac.com), the leading online marketplace for foreclosure properties, released its 2008 U.S. Foreclosure Market Report™, which shows a total of 3,157,806 foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 2,330,483 U.S. properties during the year, an 81 percent increase in total properties from 2007 and a 225 percent increase in total properties from 2006. The report also shows that 1.84 percent of all U.S. housing units (one in 54) received at least one foreclosure filing during the year, up from 1.03 percent in 2007.
Foreclosure filings were reported on 303,410 U.S. properties in December, up 17 percent from the previous month and up nearly 41 percent from December 2007. Despite the spike in December, foreclosure activity for the fourth quarter was down nearly 4 percent from the previous quarter but still up nearly 40 percent from the fourth quarter of 2007.
Nevada is ranked #1 in foreclosure filings per household and California is now ranked #4 on a per household rate.
James J. Saccacio, chief executive officer of RealtyTrac, had the following to say regarding December foreclosure activity: “State legislation that slowed down the onset of new foreclosure activity clearly had an effect on fourth quarter numbers overall, but that effect appears to have worn off by December. The big jump in December foreclosure activity was somewhat surprising given the moratoria enacted by both Freddie Mac and Fannie Mae, along with programs from some of the major lenders and loan servicers aimed at delaying foreclosure actions against distressed homeowners. Clearly the foreclosure prevention programs implemented to-date have not had any real success in slowing down this foreclosure tsunami. And the recent California law, much like its predecessors in Massachusetts and Maryland, appears to have done little more than delay the inevitable foreclosure proceedings for thousands of homeowners.”
RealtyTrac believes the foreclosure numbers will go higher due to the 7% of loans that are now delinquent (per the Mortgage Bankers Association as of November) and due to the fact that more than half of the homeowners who received a loan modification in the first half of 2008 are already delinquent on their loans (per the U.S. Office of Thrift Supervision). In addition to the above reasons, more than 500,000 jobs have been lost over November and December.
Click here for more of the article and charts showing U.S. Foreclosure Market Data by state and to see how the top 100 Metropolitan Statistical Areas (MSAs) are fairing with foreclosures (for 2008).
This information means that California Community Associations should anticipate another year of delinquent owners abandoning their property with associations and the other members having to absorb this uncollectible bad debt.
On December 16th, we posted a blog entry regarding the new the Virginia Graeme Baker Pool and Spa Safety Act ("Act"). The Act is a federal law that took effect December 20, 2008. It requires owners of “public” pools (the Act refers to spas as well) with submerged suction drains to retrofit the drains in order to limit and prevent drowning deaths caused by people becoming ensnared in a pool’s drain.
The Act defines “public” to include multi-family residential dwelling common areas and their (community) associations.
This new law has created a lot of controversy as many California community associations debate whether compliance is required or not, as this is a federal and not state law. Perhaps the real issues here are the potential risk of injury to children and others that use the pool or spa and potential exposure to the Association. As this new law impacts community associations, it is a big issue. It was the subject of a January 20, 2009 article in the Wall Street Journal. It has been reported that some boards of directors at community associations are delaying the appropriate retrofits because they believe that no one is really going to penalize their association for not taking the appropriate action. While it is true that no governmental authorities are (at least as of going to cite or penalize an association for not complying with the new law, and while it is likely that most associations' insurance carriers will defend and indemnify associations from injury claims, those insurance carriers will not indemnify the association or the individual board members if they are sued for intentional wrongdoing (knowing of the danger and the new law and intentionally deciding not to take action). As the Wall Street Journal article points out (quoting an official with State Farm insurance): (community associations that keep their pools open and do not retrofit) "will probably have a more difficult time proving they are not liable."
Our advice: retrofit as soon as possible and in the meantime, either close (empty?) the pool. It may be appropriate to post notices and disclose the issue and potential danger to the owners and residents. And just so we are clear, posting notices and disclosing the situation may not necessarily insulate the board or the association for potential liability if the pool remains open. Be careful out there!