Our friend Dan Nakari, manager of our long-time client Century Park Place HOA, was also nominated under this category for a program he participated in, entitled Where Can I Run To... Who Can I Turn To?
We are also pleased to announce that Jeanne Michel, former board member and president of our client Sky Community Association was awarded the Excellence in Community Leadership Award for going above and beyond the call of duty to improve her community.
In addition, we are also very pleased to announce that Katie Marcoe, from Seabreeze Management Company, and Meigan Everett, from Power Property Management, were nominated for the Rising Star Award, given to an individual whose leadership
abilities and professional contributions have earmarked them for greater accomplishments in the future. Congratulations to Meigan Everett for winning that award.
Owners will often insist that their association is responsible for maintaining or repairing a building improvement or component that would normally be their responsibility merely because of where it is located. Nathan Chen found out the hard way that where the component is located is not the criteria.
Chen contended that the Association must maintain the fence because it is in the common area. He claimed that the fence became part of the common area because it was located on the common area. The Association argued that had the fence been placed on the boundary line as intended, Chen would be responsible for its maintenance. The fact that an error had benefitted Chen by providing him with additional space on his lot should not relieve him of his maintenance responsibility.
The trial court ruled in the Association's favor, also awarding it attorneys' fees and costs. Chen appealed. The Court of Appeal affirmed the trial court's decision.
In reaching its decision, the Court of Appeal examined California Civil Code Section 1364 and the Association's CC&Rs to determine who was responsible for the fence's maintenance. Civil Code § 1364 states that the Association is responsible for maintaining the common area, and the owner of a separate interest is responsible for maintenance of that separate interest and any appurtenant exclusive use common area, unless the CC&Rs provide otherwise. Chen argued that since the fence in question was undeniably in the common area, it was common area and thus the Association was responsible for maintenance pursuant to Civil Code § 1364.
However, the court considered the CC&Rs, which supported the Association's position and specifically stated that lot owners are responsible for maintaining fences and all other improvements on their lots. Therefore, the court of appeal reasoned that had the fence been placed on the boundary line as the developer had intended, Chen would have unequivocally been responsible for its maintenance.
The appellate court next addressed whether the developer's mistake in placing the fence on the common area relieved Chen of what would otherwise have been his maintenance responsibility. The court noted that while the CC&Rs granted Chen an easement for encroachments that occur as a result of construction errors, "the rights and obligations of owners shall not be altered in any way by such encroachments ..."
Therefore, the court ruled that the CC&Rs did not support Chen's argument. The court also held that making the Association maintain Chen's fence would simply be unfair,
... nor do equitable considerations support such a conclusion. Due to an error, Chen has been given the exclusive use of additional space in his yard, and he apparently has no complaint about the extra square footage. To grant him the benefit of the error while relieving him of a responsibility that would otherwise be his would contradict logic, equity, and common sense.
The court upheld the award of attorneys' fees and costs to the Association based upon Civil Code § 1354(f), which states that in any action "to enforce the governing documents, the prevailing party shall be awarded reasonable attorney's fees and costs."
Most planned developments have fences and walls which are often located in places other than the actual boundary line between the lots or the common area. It is not uncommon to find encroachments which extend into an association's common areas.
In addition, we find situations where owners, over time, have modified their homes, lots or units and have added fences, decks, additions and other builiding components on the common area. Just because they may have built on the common area does not make them common area and/or the association’s maintenance and repair responsibility. And this is true even if the current owner did not make the addition or encroachment. The mere encroachment of an owner's improvement into the common area will not change the maintenance responsibilities from the then owner to the association.
(Note: The California Appellate Court issued this as an “unpublished” decision in this case. This means that this case cannot be relied upon or used as precedent in any other court case, although it is binding upon the parties to the case. We nonetheless believe that the case reflects how a court would likely decide other cases with similar facts.)
If you are discussing confidential matters, it is best to make sure that you keep it confidential. Be careful out there.
Click here to read the article
Community managers have been telling us over the last year that much of their time has been consumed by matters relating to delinquent assessments. And they are not just referring to the basic mechanics of the collection process. They are also referring to the many questions that come up, the calls and emails from owners and board members, the foreclosure notices, the bankruptcies, and the list goes on. They lament that this is taking them away from doing their core responsibilities relating to maintenance and repair, etc.
Managers and board members alike are concerned about the impact that this recession is having on the communities they govern or manage. They are concerned about the deficit in the budget that is caused by their associations not receiving all of the revenue that was expected when the annual budget was prepared and the resulting lack of money to do all of the maintenance and repair that is required.
Because of the impact the recession is having on our client base, I have been monitoring articles and reports from experts regarding when we might reach the end of what is now being called the “Great Recession.”
]]> Over the last several months, many economists have reported that the United States economy has bottomed out and that we are at or near the end of the recession that has so severely and pervasively impacted our country over the last year. Several months ago, Newsweek magazine featured a cover story suggesting that the recession was over. However, while certain sectors of the economy had by that time begun to see some improvement, it has become clear that this is not the case for most of us, as evidenced by the wave of articles on the subject that have since been published and the steady flow of owners losing their homes through foreclosure.Many thought that the foreclosure problem was limited to the subprime morgages. They were wrong as reported in a July 4, 2009 article the Los Angeles Times published entitled “Another Wave of Foreclosures is Poised to Strike.” That article reported that mortgage defaults had by June surged to record levels amid rising unemployment and falling home prices. The article went on to state that lenders are expected to move quickly to clear up backlogs as moratoriums on foreclosures expire. That did not happen. Click Here for the article.
The July 4, 2009 Los Angeles Times article also reported that all of these foreclosures will further decrease home values, pushing more homeowners under water. At the time that article was published, it reported that one in five of those homeowners with first mortgages owed more than their homes were worth. While this does not necessarily mean that all of those homeowners have or will let their properties be sold through foreclosure, it does mean that those homeowners will be more inclined to let their properties go. This is especially true if these owners are also unemployed.
On July 31, 2009, the Los Angeles Times reported, in an article entitled “California’s Default Rate Soars to 9.5%,” that about “1 in 10 Californians with a home loan was in default, and there’s growing evidence that the mortgage meltdown is spreading to commercial real estate.” The article went on to state that:
[t]he staggering number of home mortgage defaults probably will lead to large numbers of foreclosures through at least this year, housing experts say. ‘It is probably a given we’ll see a high number of foreclosures in the next couple of quarters due to the level of defaults plus the recession and jobs lost. There’s plenty more pain to come,’ said Andrew LePage, an analyst for real estate research firm MDA DataQuick of San Diego. Click here to read the article.
LePage was further quoted as stating that in the first part of the year, “about 60% of California mortgages in default ended up foreclosed.” This is important information. It means that not every delinquent homeowner who is upside down or under water on their mortgage (meaning that they paid more for their homes then they are currently worth) are going to let their homes be lost to foreclosure. Many of these homeowners know that with their credit tarnished by the foreclosure default notice, it is unlikely that they will be able to obtain credit for a new home in the near future. Many of these owners will try to keep their homes in the hope that they will increase in value over time. But this is not going to be possible if they are unemployed and cannot pay their bills!
The number of properties going into foreclosure continued to increase. On August 13, 2009, CNNMoney.com published an article entitled “Foreclosure Plague: No Cure Yet.” The article stated that “the housing market is still sick, with a record number of foreclosure filings posted in July.” That article (Click Here to read more) reported that there were more than 360,000 foreclosure filings in July 2009 (which included default notices, scheduled foreclosure sales and/or bank repossessions), which was an increase of 7% from June and a 32% increase from July of 2008 (relying on records from RealtyTrac). “In fact, one in every 355 U.S. homes had at least one filing in July.” RealtyTrac was further quoted as saying that “July marks the third time in the last five months where we’ve seen a new record set for foreclosure activity…. Despite continued efforts by the federal government and state governments to patch together a safety net for distressed homeowners, we’re seeing a significant growth in both the initial notices of default and in the bank repossessions.”
Then on August 21, 2009, the Los Angeles Times published another article with the headline “Mortgage Defaults Soared to Record 13%”. That article reports that:
[i]n the second quarter, the number of homeowners behind on payments or in foreclosure rose along with the jobless rate, with California among states leading the way.
Widespread joblessness is causing more Americans to fall behind on their house payments, triggering a new round of foreclosures that some analysts fear could delay the nation’s economic recovery.
That article went on to report that:
…more than 13% of the nation’s mortgage holders were delinquent on their mortgages or in the process of having their homes repossessed during the second quarter this year. That’s the highest figure since the tracking began in 1972. California’s rate, 15.2% was among the highest of all states.
The numbers underscore a worrisome trend. A spate of foreclosures – which began with speculators who walked away from their souring investments, then spread to high-risk [subprime] borrowers who couldn’t make their payments when their low-interest mortgages reset – is now hitting unemployed homeowners with good credit scores, clean financial histories and conventional home loans.
The Los Angeles Times article (Click Here to read the entire article) further stated that “[t]he U.S. has shed 6.7 million jobs since the recession began, employment losses that have left even high-quality borrowers struggling. One in three new foreclosures from April to June was from a prime, fixed-rate loan, up from 1 in 5 a year earlier.”
The LA Times article quoted Mark Zandi, co-founder and chief economist of Moody’s Economy.com, as forecasting that, “[t]he broadening of the foreclosure crisis to include prime loans due to high and rising unemployment will delay a bottom in the housing market and threatens the economic recovery.” Additionally, this article quoted a spokesman for the Mortgage Bankers Association, who predicted that U.S. job losses would continue at least until the middle of 2010, saying “[W]e would expect delinquencies and foreclosures to peak sometime after that, probably at the end of next year [2010].”
On August 22, 2009, the Los Angeles Times published an article “Unemployment in California Hits Post-WWII High” where it reported that the state’s unemployment rate jumped to 11.9% in July, even as the rate throughout the U.S. declined to 9.4%. (Click Here to read the entire article). These statistics seem to show that while the recession may be nearing its end in some parts of the country, California’s “employment woes are far from over”. These numbers are apparently worse than analysts had expected, rising from 11.6% in June.
The news did not get any better in August, with the unemployment rate moving up to 12.2% (Click Here for the LA Times article). The Los Angeles Times reported that “though the state may be in the early states of an economic rebound, the latest figures underscore what many economists fear: there is no obvious engine of job growth to put California’s more than 2.2 million unemployed residents back to work quickly.” Experts also say that the 12.2% unemployment rate is deceiving as it does not include those that are under employed, those that may be working part time but seeking full time work, etc. The real unemployment rate is probably closer to 17% or more!
On September 16, 2009, Federal Reserve Chairman Ben Bernanke said that the recession was “very likely over” in response to reports that consumers were spending again. But he went on to say that “[e]ven though from a technical perspective the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time as many people will still find that their job security and their employment status is not what they wish it was.” Click Here to read the Wall Street Journal article. While certain sectors of the economy may be improving, foreclosures and unemployment (and the combination of the two) continue to impact the economy and in particular California community associations. This statement further indicated that it is certain that California community associations will continue to experience assessment collection problems in 2010.
In November, Nouriel Roubini's Global EconoMonitor published (for the Daily News) a news article entitled “The Worst is yet to Come: Unemployed Americans Should Hunker Down for More Job Losses.” The article stated, “Think the worst is over? Wrong. Conditions in the U.S. Labor markets are awful and worsening. While the official unemployment rate is already 10.2% and another 200,000 jobs were lost in October, when you include discouraged workers and partially employed workers, the figure is a whopping 17.5%.” The article also went on to state that we should remember that “the last recession ended in November 2001, but job losses continued for more than a year and a half until June of 2003; ditto for the 1990-91 recession.” Click Here to read that article.
On November 19, 2009, the Huffington Post published an article by Alan Zibel (AP Real Estate Writer) which stated, “The foreclosure crisis likely will persist well into next year as high unemployment pushes people out of homes, pulls down housing costs and raises concerns about the broader economic recovery.” The article went on to say, “[T]he latest evidence was a report … that a rising proportion of fixed rate home loans made to people with good credit are sinking into foreclosure. That is a shift from last year, when riskier subprime loans drove the housing crisis.” Click Here to read that article.
Many people were thinking that the Federal Government’s Loan Modification Program would curtail some of the foreclosures. The problem is that there is no loan modification that can be made which will address the fact that one or more of the wage earners in a household is unemployed and therefore unable to pay even a modified mortgage.
The LA Times reported that on December 5, 2009 that about 25% of borrowers helped by the “foreclosure prevention plan” have already fallen behind on their new mortgage payments.
On December 9, 2009, USA Today published a report by Alan Zibel, AP Real Estate Writer, that stated that only 10,000 homeowners had received permanent loan modifications, which was “harsh proof of the continual woes of the government’s efforts to stem the foreclosure crisis….” The article reported that only 2% of the 650,000 homeowners enrolled in the program had their mortgage payments permanently lowered to more affordable levels. And only one in three homeowners who had signed up for the modification program had actually sent back the necessary paperwork. Many of these homeowners have purposely defaulted on their home loans and are failing to pay their homeowner assessments because unless they are in default, they cannot be considered for the modification program. As a consequence, these owners are going into collection and are incurring fees and costs. Click here to read the article.
Until recently, as James R. Hagerty recently wrote in the Wall Street Journal, “the supply of foreclosed homes listed for sale has dwindled largely because of government-mandated efforts to save as many borrowers as possible from losing their home. That campaign has gummed up the foreclosure process, slowing the flow of houses into bank ownership - but only temporarily.” Hagerty reported that it is expected that millions of homes will find their way into foreclosure in the coming years. Statewide, the percentage of homes on which notices of default have been recorded, which is the first step in the foreclosure process, is 18.5%. But that is deceiving in that the rate across much of southern California is much higher. In Los Angeles County, it is currently 28%, 30.60% in Orange County, 23.20% in San Diego County and 28% in Ventura County.
What does all of this mean for California community associations? Clearly, the worst is not over yet and many (if not most) associations will have some sort of bad debt, meaning that they will not be able to collect all of the assessments that are due. As a consequence, these associations will not be recovering all of the assessments that were calculated as part of the association’s income when it distributed its last annual budget. In addition, the boards and managers will continue to be distracted by delinquent owners, foreclosures, payment plans, short sales, etc.
It is important that associations now factor in potential bad debt in their budgets (we have been suggesting a bad debt allowance in the budget for more then two years), of perhaps as much as 10% or more depending on many factors including historical data, location, the date most units were sold, etc. While the increase in the rate of assessments to address bad debt will not go over well with the owners who are timely paying their assessments, there is no other choice. It is a fact that associations will not be receiving as much income as they expect and this will likely continue through at least 2010.
As stated in the title, for California community associations, the Great Recession continues and won’t likely let up until unemployment subsides.
David C. Swedelson, Esq., can be reached at dcs@sghoalaw.com.
For those community associations whose CC&Rs provide for assignment of rents from a tenant in the event an association owner who is renting their unit or home is delinquent in the payment of assessments, an association may collect the rent directly from the tenant to pay delinquent assessments.
If done properly, this can be done without a court order or the expense of a court appointed receiver. In order to do this, the following is required: 1) the CC&Rs must have an assignment of rents clause; 2) a lien for the delinquent assessments should be recorded to secure the debt; and 3) a statutory Demand to Pay Rent to a Party Other than Landlord, pursuant to Section 2938 of the Civil Code, is required to be delivered by mail or by hand to each tenant of the property and the landlord/owner. Follow this link for the required text of the demand to pay rent to party other than landlord.
]]> It is an important part of the process for the association to take all of the steps necessary to record a Notice of Delinquent Assessment (Lien). Once the Lien is recorded, this gives the Association “secured party” status and hence, the Association would be considered the “secured party” pursuant to the Lien and the “assignee” pursuant to the assignment of rents provision in the CC&Rs.Throughout the process, it is most important that close attention is paid to: 1) statutory obligations; 2) the association’s CC&Rs assignment of rents provision; 3) securing the indebtedness, i.e., by recording a Lien should your association’s CC&Rs allow same; and 4) by making sure that both the tenant and landlord/owner are notified when the assessments are brought current such that the assignment of rents should no longer be in effect.
Further, pursuant to Civil Code Section 2938(g), if the association enforces the assignment by way of a Demand to Pay Rent (without the appointment of a receiver) and the tenant complies, the delinquent landlord/owner may make written demand upon the association to pay the reasonable costs of protecting and preserving the property, including payment of taxes and insurance and compliance with Building and Safety codes, if any. The association’s obligations under this provision cannot exceed the amount of rents received pursuant to the assignment. Therefore, the association’s obligation to protect the property by payment of taxes and insurance, etc. does not exceed the amount that it actually receives pursuant to the assignment of rents.
It is important for an association, prior to the time a landlord/owner becomes delinquent, to obtain a copy of the lease agreements landlord/owners have with their tenants. As an aside, it is important that the lease agreement generally incorporate the association’s governing documents and that the tenant agrees to abide by same. More importantly with respect to an assignment of rents, the association would have no real way of knowing how much rent to expect in the event of an assignment of rents if the association does not have a copy of the lease agreement. For instance, the tenant could say “I’m just paying $200 in rent,” when in actuality they are paying $2,000 in rent, still paying $1,800 to the landlord/owner and only paying $200 to the association pursuant to the assignment.
Bottom line, the procedure is properly completed, the assignment of rents provision, if contained in the CC&Rs, is a powerful tool to collect past-due assessments without the need for court intervention. However, if not done properly, it can raise threats of tort liability against the association by the landlord/owner such as interference with contract, etc. While threats of legal action and actual legal action may still be the result even if the assignment of rents is done properly, the association would have an appropriate defense to that action and the appropriate legal grounds upon which to have a court order the assignment of rents pursuant to Civil Code Section 2938.
If your CC&Rs do not have an assignment of rents provision, you may want to consider amending your CC&Rs.
For help with the assignment of rents procedure, contact Joan Lewis-Heard at Swedelson & Gottlieb at 800-372-2207; and ask for Alex Noland or Mark Petrie if you need assistance amending CC&Rs.
]]>I recently read an article on the internet that addressed this very phenomena, calling it webtribution. Click here to read the article.
The author comments on people who write nasty reviews for a restaurant or book, “not because they dislike the product, but because they dislike the person who created it. Or signing up an acquaintance for email advertising lists. (I can assure you that if your inbox suddenly fills up with ads for male-enhancement treatments, someone is out to get you.)”
The author asks why we are not mature enough to “resist the temptation to seek Webtribution—even if it seems easy and (we hope) untraceable?
It's simple: The Internet turns us into a mob.“
The author quotes the director of the Massachusetts Aggression Reduction Center (who knew there was such a Center) and professor of psychology at Bridgewater State College in Bridgewater, Mass. "We know that in a mob people will do socially unacceptable things they would never otherwise do." Her answer: "They feel invisible, so they cede responsibility."
The article states that psychologists have actually coined a term for this: the "online disinhibition effect," suggesting that they divide this type of behavior into two categories: "benign disinhibition" (which is what happens when someone says something private they might not have shared publicly with many people offline) and "toxic disinhibition" (expressing rudeness, anger, criticism or hate).
And, the author suggests that we need not look further than the websites that cater to retribution “if you want to see what toxic disinhibition looks like.”
Toxic disinhibition. . .Who knew?!
Such was the case involving an association in Orange County, California, where the board decided they were not going to make homeowners “trim” their palm trees to eliminate a view obstruction and made a rule regarding this even though the association’s CC&Rs prohibited any view obstructions from landscaping. Firm attorneys David C. Swedelson and Stephanie M. Rohde have prepared an article entitled “Decisions of Boards of Directors Regarding Enforcement of Governing Documents Cannot Usually Be Second Guessed Unless the Decision is More Restrictive than the CC&Rs.” Click here for a PDF copy of this important and timely article.
]]>If you would like to learn more about Community Associations Institute, visit them at www.cai-online.org
The Channel Islands Chapter has its own website at www.cai-channelislands.org
]]>Here are the facts: The California legislature recently passed Assembly Bill 1328, which is now on the Governor’s desk, awaiting his approval or veto. AB 1328, if enacted, would allow an association to enter into a contract for a water or energy efficiency program for a term of up to five (5) years, if the board reasonably anticipates that the contract will result in savings to the association. The members would not have the right to vote on the contract, but would be given notice of the proposed duration of the contract on the agenda for any meeting at which the contract will be discussed or voted on.
]]> The full text of AB 1328 and the legislative summary can be found by clicking here.This new legislation would add Section 1353.9 to the Civil Code.
The Legislative Counsel’s Digest on this bill is very clear as to what this legislation is all about:
The Davis-Stirling Common Interest Development Act provides for the creation and regulation of common interest developments. Under existing law, a common interest development is managed by an association pursuant to the provisions of the governing documents of the development.
This bill would provide that, notwithstanding any provision of the governing documents to the contrary, an association may enter into a contract for a water or energy efficiency program, not to exceed 5 years in duration, if the board of directors reasonably anticipates that the contract will result in verifiable savings to the association and the supplier is not an entity that the subdivider has a direct or indirect interest in, as provided. This bill would also provide that, prior to approving a multiyear contract, the board shall provide notice of the proposed duration of the contract on the agenda for any meeting at which the contract will be discussed or voted on.
There has been some controversy regarding whether this bill will benefit homeowners by allowing the boards to enter into beneficial contracts, or whether it will provide boards too much unchecked freedom to bind the association to long-term obligations. You may have received emails asking that you tell the Governor that this is bad legislation and that he should veto. We really do not understand why anyone who works with, lives at, manages or represents a condominium or homeowners association would not support this proposed new law. We support AB 1328, and believe that its enactment will benefit California community associations.
We have attached a copy of a letter that was sent to the Governor by CAI’s California Legislative Action Committee (CLAC) with rebuttal and comments from the California Association Community Managers (CACM) which proposed this new legislation. Click here to read this letter with CACM’s comments.
In the interest of full disclosure, David Swedelson was a long time delegate to and officer of CLAC. David is currently a member of CACM’s Legislation Committee and has evaluated this proposed new legislation from all perspectives.
Typically, most associations are only permitted to enter into contracts with a term of one year or less without member approval. However, current Department of Real Estate Guidelines now allow for CC&Rs to permit Boards to enter into some contracts for longer periods of time (this applies to newer associations). There is a reason for this; there are times when it makes economic sense to allow for longer contracts when it is not economically feasible for a contractor to install a system for a period of only a year.
Many contracts that are considered to be water or energy efficient (i.e. solar panels, water monitoring systems, and other “green” technologies) require at least a five-year term. Upon approval of this legislation, association boards will be able to enter into such contracts when they determine that the contracts will result in savings for the association, which could be in the form of lower assessments, reduced utility bills, or other savings. Although a member vote will not be required, and therefore the association will not incur the expense of distributing ballots or encounter the difficulty of fighting member apathy, discussion of such contracts will be included on board meeting agendas, and members will have the opportunity to voice their opinions. AB 1328, if enacted, would give the Board some additional authority, however the scope of the legislation is extremely limited and the board’s fiduciary duties to act in the best interests of the Association still apply. We believe that associations would benefit from the easier access to green technology that this bill would provide.
We have reviewed and considered the requests made by one legislative action committee in an email that you may have received asking that you urge the Governor to veto this bill. We very much disagree with that recommendation and instead urge you to let the Governor know that he should support this important legislation. Do this today. You can let the Governor know how you feel by leaving him an email comment supporting AB 1328, and you can do this through his web site. Click here.
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