HOA Law Blog

Our country and most of the rest of the world are in an economic recession, and we are all suffering the fallout from the most significant and severe economic crisis since the Great Depression. Major corporations are filing bankruptcy and are going out of business, banks are being taken over by the government and record numbers of homeowners are losing their homes through foreclosure. It is no surprise that we are also seeing a steep rise in the number of delinquent homeowner’s assessment accounts and the loss of assessment income among California community associations.

While it is a fact of life that many community associations will not collect the unpaid assessments from those homeowners that cannot afford to keep their homes, or recover assessments from homeowners that have already lost their homes to foreclosure, there are some things that associations can and should do to maximize their chances of collecting and/or addressing the loss of that income.

First, act quickly. Review your collection policy and perhaps consider revising it if it allows too much time after a homeowner becomes delinquent before collection action can be taken. Start the collection process after the homeowner is delinquent one month (which is forty-five (45) days from the date the assessment was levied). That means sending out a courtesy letter reminding the homeowner that they are delinquent and encouraging the homeowner to contact the association if they are going to have trouble paying their assessments. Give the owner no more than fourteen (14) days to respond, and if they do not respond, start the collection process.

Second, offer a payment plan. Do what you can to assist the homeowner that is serious about home ownership in your community association but is experiencing temporary financial hardship. This does not mean giving them a permanent discount on the assessments owed, as that is just not something the association can or should do. On the other hand, if the homeowner says they can pay what they owe but needs some time, work with them.

Third, record a lien. Secure the association’s interest by recording an assessment lien, even if the association approves a payment plan. The recordation of a lien puts the association in the position of a secured creditor in the event there is a bankruptcy and in line to receive surplus funds, if any are available in the event of a bank foreclosure.

A lien will also put a foreclosing bank or lender on notice that the real property is located in a community association. Often, a bank or lender will foreclose and have no idea that the property is located in a community association and that it owes assessments from the date of the foreclosure sale. Associations and/or their managing agents must be proactive in identifying the bank or lender and enforcing the assessment obligation against them as it would for any owner. The banks and lenders do pay assessments either upon their own volition or with a bit of prodding by the association and/or its managing agent. It is not uncommon to receive a request for an escrow demand months into the delinquent assessment collection process and for the association to receive delinquent assessments, late fees, interest and collection costs from the date of the bank’s or lender’s foreclosure sale. In fact, we are seeing some foreclosing lenders paying the assessments that were owed prior to their foreclosure, so do not hesitate to make the demand.

In some instances, associations may have to consider compromising the amount due by negotiating settlement where appropriate, in order to collect some, even if less than all, money from delinquent homeowners. This evaluation will require that the board consider the owner’s equity (if any) and other financial matters.

Fourth, be prepared to foreclose. Unfortunately, a lot of banks and mortgage lenders made a lot of money giving loans to people who were not required to put any money down and could not afford those mortgages, much less homeowners association assessments, when they were made. As a result, many associations are going to face financial problems from the loss of this budgeted income. Association Boards of Directors need to be prepared for this situation, as it may very likely happen to your association. If a homeowner has negative equity and cannot afford to pay the assessments, they will likely allow the unit or home to be lost to foreclosure. If that occurs, the association will have to move quickly in an effort to get someone into the unit that can pay. This means that the association may have to invoke the power-of-sale contained in most CC&Rs and initiate foreclosure of its recorded liens. You cannot afford to sit back and wait, as that is not going to get the association the money it needs to pay its bills. Accept the loss and move on.

A homeowners association foreclosure sale is not as onerous as it sounds. Unlike a bank or lender foreclosure, the homeowner may redeem the property for up to 90 days following the homeowners association foreclosure sale. And, although a homeowners association foreclosure sale may result in the association’s acquiring title to the property, the association is not responsible for payments on the senior obligations. If the association does not intend to retain title to the property, it does not become obligated for the mortgage or loan payments, nor is it responsible for property taxes, or any other obligations associated with the property. After the Association’s foreclosure sale, the association can take no action and allow the bank to foreclose; the association’s credit is not impaired, since the mortgage is in the homeowner’s name.

The bottom line is that associations cannot and should not expect to collect all assessments that are owed and delinquent. Be prepared to take action as recommended in this article. And when in doubt, consult with an attorney who is experienced in assessment collection matters.

Posted by David C. Swedelson | Permalink | Email This Post | Print this Post

Posted In: Assessment Collection

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Community Associations Institute (CAI) has weighed in on the side of a Vail, Colorado condominium owner who won a costly and contentious, seven-year court battle with his association over who was responsible for resolving a water-intrusion issue. The court determined that the association should pay $550,000 in attorneys' fees and related costs in light of what the trial judge called the association's "stubborn refusal" to address the problem. What was that board thinking? To read the entire article click here.

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Posted In: 1364 - Responsibility Of Maintenance of Common Interest Development; Access to Telephone Wiring.

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July’s 5.4-magnitude Chino Hills Earthquake was a jolting reminder that we all need to prepare for the “big one”. It is no secret that California is riddled with earthquake faults. Click here for a map which shows seven of the faults with the probability of a magnitude 6.7 earthquake. Scientists have been reporting to us for some time now that we are due for a significant (big) earthquake. The southernmost section of the San Andreas Fault, which is just east of downtown Los Angeles, undergoes a major shift every hundred and fifty years or so. The last serious earthquake was about 100 years before Los Angeles was founded. So, Los Angeles is approximately 178 years overdue for the “big one”.

There is no doubt that when a serious earthquake strikes, and it is only a matter of time, millions of California citizens will be left without tap water, freeways and bridges will crumble and fall and hundreds of fires will likely break out. The 1994 Northridge earthquake registered a magnitude of 6.7, killed 57 people and caused over 20 billion dollars in damage.

To get our attention, geologists and others have developed the Great Southern California Shakeout, which is taking place this week.

As reported in the Wall Street Journal, at 10:00 a.m. on Thursday, November 13, 2008, geologists hope that more than five million people around Los Angeles will participate in a disaster drill built around a mock 7.8 magnitude earthquake along the San Andreas fault. The Great Southern California Shakeout is being billed as the largest earthquake preparedness event in U.S. history. For more information, go to Shakeout.org. The big question is whether or not your homeowner association(s) are prepared for the big one.

We really do not recommend that associations get in the position of taking responsibility for storing emergency supplies, etc. More likely then not, those supplies will not be available when the earthquake actually hits, and the association will likely be blamed for not making sure that things were taken care of.

There are other things that associations can do to be prepared for a major earthquake. Members of the board of directors and others at the association can make sure that they know where the gas turn off is, for example. This would apply to other utilities as well.

Someone at the association should know how to manually open any gates that are operated mechanically as there is a big possibility there will be no power to operate those gates.

Apartment style condominium associations and especially highrises can make sure that they have clearly marked where emergency exists are located, that fire sprinklers are working, etc.

And then there is the earthquake insurance issue!

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http://timothycline.com/As part of an association’s preparation for an earthquake, inevitably there is the “issue” of earthquake insurance. In 1994, at the time of the Northridge quake, less than half of all associations had earthquake insurance. I do not believe the statistics have changed much since 1994.

Earthquake insurance is not required or mandated by any associations’ governing documents or California Law. After the 1994 earthquake, it was not available and/or was too expensive. Many associations say they are relying on their homeowners to obtain their own earthquake insurance. However, homeowners cannot buy insurance to cover the damage to the common area. While they can obtain earthquake loss assessment coverage and other earthquake coverage that will cover their personal property, the reality is that community associations need to seriously consider whether earthquake insurance makes sense for their association.

Continue reading "EARTHQUAKE INSURANCE; ARE YOU COVERED?" »

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I, along with over 70% of other California citizens, have or will vote today (11/4/08). And then, not wanting to pass up a good deal, I went to my local Starbucks for my free cup of joe. That's right, Starbucks offered a free cup of coffee to anyone that came in with proof that they voted. Then I saw an article on the Internet indicating that the prize offer was a violation of federal election laws and I had a brainstorm. While it may be a violation of federal law to give someone a gift or prize for voting, it is not a violation of law for a community association to offer free food or some other incentive to get owners to vote. However, unless written into your governing documents (and even then I question whether it's enforceable), community associations cannot fine or penalize a homeowner for not turning in their ballot or voting. Why? Because most CC&Rs provide associations with the power to make rules regarding use of a common area and there is nothing in California law or in any governing documents I've seen which would give a Board of Directors the power or authority to penalize a homeowner for not voting. If you are having difficulty getting owners to vote and cannot make a quorum, offer free food or maybe even a certificate for a free cup of copy at a local coffee house (and make sure it is in the budget).

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Posted In: Elections

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As a reminder, Tuesday, November 4th is Election Day, and it is important that you exercise your right and duty as a citizen to vote. We are not voting on just who will be our next President, but there are a number of other initiatives on the ballot that are worthy of your consideration.

The polls will be open from 7 a.m. to 8 p.m. Despite the unprecedented number of voters who cast their ballots early, experts are forecasting long lines.

Employees are entitled to take off two hours (under California law) to vote, without losing any pay if they are working during that time period and will not have sufficient time outside of working hours to vote. Employees may take off as much time as they need to vote, but only two hours of that time will be paid. An employee can take time off for voting only at the beginning or end of their regular work shift, unless they make other arrangements with their employer. If an employee believes that they will need time off to vote, they must have notified their employer at least two working days prior to the election (California Elections Code Section 14000).

How Does the Electoral College Affect Voting Results?

While community associations don't have an Electoral College, they often have cumulative voting. Cumulative voting is not the same as the Electoral College, but sometimes it is just as complicated. Cumulative voting is designed to allow the minority in a community association the opportunity to place their candidate on the Board of Directors.

The Electoral College was established to maintain each individual state's power. This means that the President of our country, as in 2004, is elected by the Electoral College of State Representatives, rather than a direct vote by all of the individual citizens.

I read an interesting article on the Electoral College. California is not a battleground state. It is considered a "blue" state, and even though it is projected that a significant majority of California voters will vote for the "blue" candidate, the Electoral College has rendered those votes almost meaningless.

Even though California has more electoral votes than any other state, 55, and even though our 36 million population is by far the largest, about 12% of the entire country (or almost 1 out of every 8 Americans), California is considered a nonentity in this Presidential election. Texas has the second-highest population, with almost 8% of the country's population and 34 Electoral College votes. It is considered a "red" state.

The article by California attorney Mark Neubauer states that this election, "like so many before, will be decided by a handful of far smaller states, such as Missouri, which has less than 6 million inhabitants, under 2% of the population, and only 11 electoral votes."

He goes on to state, "the reason for this undemocratic election of a democratic President lies in a system designed more than two centuries ago. In its infancy, the United States was a collection of separate state governments, each jealous of the other. To maintain each individual state's power, they set up a system where the President of our country is elected by an Electoral College of State Representatives, rather than a direct vote by all of the individual citizens. Only Nebraska and Maine divide their Electoral College delegates between the candidates. Margins of victory in individual states become irrelevant if the state is already clearly predicted in one political camp or the other."

This means that despite California's millions of voters who will likely vote overwhelmingly for the "blue" candidate, that margin of victory will have no impact on the final decision "compared to the close races in the Midwest and Southeast." California, Texas and "blue" state New York, with approximately 25% of the nation's population, are effectively watching this election from the sidelines.

You may download Mr. Neubauer's full article here.

And all this time you thought that the 2006 amendments to the Civil Code changing the way associations held elections was complicated.

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Posted In: Current Affairs

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Early voting is underway and, as expected, we have received calls complaining about political signs. You may be getting questions or comments about sign regulation in your communities, so we thought it would be a good idea to let you know what goes, and what does not, in community associations with regard to political signs. Some people assume that there is no way that community associations can regulate political signs because prohibiting signs would violate a resident's right of free speech under the First Amendment to the Constitution. While there is some validity to this assumption, it is not entirely correct in the community association context.

It is common to have sign regulation in community associations, particularly with respect to “For Sale” signs. Civil Code sections 712 and 713 make any blanket prohibitions void. While owners can have these signs on their property, they are not entitled, for example, to post these signs on the common area.

The question, then, is whether there is a distinction between “For Sale” signs and political signs, considering the fact that political signs seem to have more to do with free speech than "For Sale" signs. When analyzing government regulation of speech, the courts often distinguish between "commercial speech" and other types of speech, and find that commercial speech is not entitled to the same level of protection as other types of speech. But does that matter in a community association?

The answer is that pursuant to Civil Code Section 1353.6: The governing documents, including the operating rules,
 may not prohibit posting or displaying of noncommercial signs, 
posters, flags, or banners on or in an owner's separate interest,
except as required for the protection of public health or safety or 
if the posting or display would violate a local, state, or federal 
law.

Follow this link to see the entire code section, including what constitutes a sign.

While there are no court decisions in California on this issue, it is interesting to see what court decisions have come down in other states.

In Kansas, the legislature passed legislation which makes it illegal for neighborhoods to adopt restrictive covenants prohibiting political yard signs. David Hudson, a First Amendment scholar at Vanderbilt University, has done research to cast doubt on the legitimacy of such laws. He states: “The First Amendment generally protects people only from government interference with speech.” Mr Hudson cited a Pennsylvania court ruling which stated that an association did not violate the First Amendment by removing political signs in accordance with the association’s declaration prohibiting the posting of signs at the individual units. The judge included the following statement in the ruling:

“The courts of the Commonwealth have vigorously defended the rights which are guaranteed to our citizens by both the Federal and our Commonwealth’s constitutions. One of the fundamental precepts which we recognize, however, is the individual freedom to contractually restrict, or even give up those rights. The homeowners challenging the sign prohibition contractually agreed by the provisions in the Declaration at the time of purchase, thereby relinquishing their freedom of speech concerns regarding placing signs on their property.”

Another significant case was decided in New Jersey. In a ruling that could have implications beyond New Jersey, in 2007 the New Jersey Supreme Court upheld the right of homeowners’ associations to restrict the posting of political signs and other forms of constitutionally protected speech, as long as the restrictions are not “unreasonable or oppressive.”

In a unanimous decision, the Court ruled:

“We conclude that in balancing plaintiffs’ expressional rights against he association’s private property rights, the association’s policies do not violate the free-speech and right-of-assembly clauses of the New Jersey Constitution.”

So, what’s the best way to deal with the issue?

We advise that when dealing with any signs, consider the Civil Code as to size, etc. and location, and if the sign is placed in their window or on their property, then it must likely be permitted.

On the other hand, a mannequin dressed to look like a political candidate hanging from a noose (as was the case in West Hollywood until governmental pressure convinced the owner that it should be removed) is not a “sign” that must be permitted.

In the meantime, we urge you all to exercise your right to vote and let your preferences be known in order to fully participate in the electoral process.

Posted by David C. Swedelson | Permalink | Email This Post | Print this Post

Posted In: CC&R and Rule Enforcement , Current Affairs

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For those California community associations that have a calendar fiscal year, they are likely in the process of developing their 2009 budget. Pursuant to California Civil Code Section 1365, “[n]otwithstanding a contrary position in the governing documents, a copy of the operating budget shall be annually distributed not less than 30 days and no more than 90 days prior to the beginning of the association’s fiscal year.”

However, it is important to keep in mind that the budget is not the only disclosure California community associations are required to make. Swedelson & Gottlieb’s Annual Disclosure Checklist sets out the additional information and disclosures associations are required to distribute to the owners on an annual basis. Typically, the disclosures are made as part of the budget package.

For those of you that are wondering what happens if you don’t get the budget out timely, Civil Code Section 1366 states that the board loses the ability to increase the amount of assessments without the approval of the homeowners.

There are other required disclosures that if not made could have a negative impact on the association. For example, the failure to distribute the insurance disclosures and to provide for the appropriate level of insurance could impose personal liability on board members and/or homeowners. We encourage all Board members and association managers to review the checklist to make sure that their associations are fully complying with the disclosure requirements under California Law.

Download Swedelson & Gottlieb's 2008-2009 Disclosure Checklist

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Posted In: Disclosure/Civil Code Compliance

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For the last two years, we have been recommending that California community associations add a bad debt allowance in their budgets. Since about 2000, rising home prices and the level of equity in those homes meant that few homeowners were willing to lose their homes through foreclosure for non-payment of their assessments. As a result, community associations were, for the most part, able to collect delinquent assessments and the fees and costs incurred in collecting same, and as a result, they did not see a disruption in the flow of income. Over the last year, we have seen a significant change in the economy. Many homeowners who could not really afford to buy their homes were able to purchase them with little or no money down and finance them with either subprime or Alt-A loans. They are now losing their condominiums, townhomes, and single family homes in planned developments in record numbers, as they cannot afford the increased costs of their loan and their association’s levied assessments. As a consequence, many community associations are not receiving the income that they expected when they distributed their budget for 2008. This shortfall has resulted in many associations not funding reserves. We are advised that some are not making all of the appropriate repairs and are deferring renovation and maintenance of the common area. This is NOT a good idea and could subject an association to liability if, for example, that failure to maintain or repair caused damage or injury.

The point is that if you have not yet distributed your 2009 budget, the board and management need to seriously consider adding what most businesses call a “bad debt allowance” in their budgets to compensate for the income that the association may likely not receive.

Having been in the community association business as attorneys for more than twenty (20) years, this is not the first time that we have seen an increase in homeowner defaults. We saw it in the eighties and again in the nineties, when homeowners were “upside down” on their mortgages. Now they call it “negative equity,” and already one million homes have been foreclosed on nationwide, with another one and a half million other homeowners potentially losing their homes in 2009.

Experts forecast a slow recovery through 2009. It is likely that many more owners who have negative equity will let their homes go to foreclosure. Associations need to collect as much income as necessary to carry out all of the association’s responsibilities; it is most likely the association’s only source of income. It is just not appropriate for associations to scrimp on important common area maintenance and repairs. While it might hurt financially, especially because there are so many homeowners that are seeing cutbacks or actual job losses, associations must be run like businesses and must have sufficient income to carry out the appropriate level of maintenance and repair. So, consider increasing assessments sufficient to meet an expected deficit in income from assessments.

Posted by David C. Swedelson | Permalink | Email This Post | Print this Post

Posted In: Assessment Collection

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Associations Must Act Timely and Decisively to Enforce Covenants

This summary of a recent Court of Appeals decision was published in the October 2008 edition of the Community Association Law Reporter published by Community Associations institute. What do you think of the Court's decision?

Pacific Hills Homeowners Association v. Prun, No. G038244, Cal. App. Ct., March 20, 2008

Covenants Enforcement: If an association does not act timely and decisively in enforcing covenants, then the association may face penalties if the dispute goes to court.

Jon and Linda Prun live in a planned community in Mission Viejo, Calif. Their property is subject to a declaration of covenants, conditions, and restrictions, which is enforced by the Pacific Hills Homeowners Association ("association"). The declaration requires that prior written approval from the association's architectural committee is needed before construction of any improvement, including a fence or wall, can commence. The association also adopted architectural guidelines that limit fences to six feet in height unless the fence is within 20 feet of the front property line, in which case the maximum height is three feet.

Continue reading "Associations Must Act Timely and Decisively to Enforce Covenants " »

Posted by David C. Swedelson | Permalink | Email This Post | Print this Post

Posted In: CC&R and Rule Enforcement

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New Procedures Apply To The Adoption Of "Operating Rules"

The Davis-Stirling Common Interest Development Act was amended effective January 2003 by adding Civil Code Sections 1357.100 through 1357.150 which require that certain rules and regulations of an association defined in the Civil Code as "operating rules" satisfy specified criteria before that operating rule becomes effective. For certain categories of rule changes listed in the Civil Code, the board of directors of an association must give its members at least 30 days’ notice of a proposed rule change prior to adopting the rule change. The notice must include the text of the rule change and a description of the purpose and effect of the rule chan; however, rules adopted for emergency purposes are exempt from the notice requirements. Once the 30 day notice period expires, the Board may adopt the proposed rule change. The Board must notify the members soon as possible after the rule has been and no more than 15 days after making the rule change. Once enacted, operating rules subject to the requirements of Civil Code § 1357.100 may be reversed by a majority of a quorum of the members if at least 5% or more of the voting power of the association petitions the board for a special meeting for the purpose of reversing an operating rule (distinguished from a common area maintenance or repair policy, for example) within 30 days after the members are notified of the enactment of the rule change. This 30 days period was adopted to allow the homeowners to challenge the rule change, but there is no requirement that the owners be told that they have the right to challenge the proposed rule.

Currently, under Section 1357.120, a rule that governs one or more of the following subjects is subject to the above procedure:

1. Use of the common area or of an exclusive use common area.
2. Use of a separate interest, including any aesthetic or architectural standards that govern alteration of a separate interest.
3. Member discipline, including any schedule of monetary penalties for violation of the governing documents and any procedure for the imposition of penalties.
4. Any standards for delinquent assessment payment plans.
5. Any procedures adopted by the association for resolution of assessment disputes.

Beginning January 1, 2005, AB 2376 adds an additional category of rules subject to the above described rule adoption procedure.  Specifically, any procedures for reviewing and approving or disapproving a proposed physical change to a member’s separate interest or to the common area will now be subject to the rule-adoption procedures set forth in Sections 1357.130 and 1357.140 of the Civil Code.

In addition, if an association’s governing documents require that an owner obtain the approval of the association before making a physical change to the owner’s separate interest or to the common area, the association must now satisfy the following requirements in reviewing and approving or disapproving a proposed change.  The requirements are set forth in newly added Civil Code Section 1378.  The minimum requirements that an association must satisfy are as follows:

1. The association shall provide a fair, reasonable, and expeditious procedure for making its decision.  The procedure shall be included in the association’s governing documents, such as the association’s rules and regulations or CC&Rs.  (Remember, pursuant to the amendment to Civil Code Section 1357.120, if this procedure is adopted as an operating rule, the procedure will be subject to Civil Code Section 1357.130 and 1357.140).  The procedure shall provide for prompt deadlines and shall state the maximum time for response to an application or an owner’s request for reconsideration by the board of directors.
2. A decision on a proposed change shall be made in good faith and may not be unreasonable, arbitrary, or capricious.
3. A decision on a proposed change shall be consistent with any governing provision of law, including, but not limited to, the Fair Employment and Housing Act, commencing with Section 12900, of Division 3 of Title 2 of the California Government Code.
4. The decision on a proposed change shall be in writing.  If an application for a proposed change is disapproved, the written decision must include both an explanation of why the proposed change is disapproved and a description of the procedure for reconsideration of the decision by the board.
5. If a proposed change is disapproved, the applicant is entitled to reconsideration by the board of the association that made the decision, at an open board meeting.  Section 1378 provides that  reconsideration of a decision is not required if the decision is made by the board of directors or a body that has the same membership as the board, at a meeting that satisfies the requirements of Civil Code Section 1363.05 (the Common Interest Development Open Meeting Act).  Section 1378 also provides that reconsideration by the board shall not require dispute resolution within the meaning of the new Civil Code Section 1363.820, described below.

New Civil Code Section 1378 is not intended to authorize a physical change that is prohibited by an association’s governing documents or governing law.

Section 1378 also requires that an association provide its members with notice of any requirements for association approval of physical changes to property on an annual basis.  The notice must describe the types of changes that would require the association’s approval and shall include a copy of the procedure used by the association to review and approve or disapprove a proposed change.

AB 2376 also amends Civil Code Section 1373 pertaining to common interest developments that are limited to industrial or commercial uses by zoning or by a declaration of covenants, conditions and restrictions.  Section 1373 exempts these types of common interest developments from compliance with certain provisions of the Davis-Stirling Common Interest Development Act such as the requirement to distribute to the members on an annual basis a pro forma operating budget.  The amendment to Civil Code Section 1373 will exempt common interest developments limited to industrial or commercial uses from compliance with Section 1378, described above. 

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Posted In: Davis-Stirling Act , Disclosure/Civil Code Compliance

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Effective January 1, 2005, Assembly Bill 1836 changes the current requirements and process for Alternative Dispute Resolution,  by amending the existing provisions of the Davis-Stirling Common Interest Development Act (“Act) and adding additional provisions to the Act.  This Bill was introduced to enact recommendations made by the California Law Review Commission (CLRC). This new legislation requires that associations adopt some form of Internal Dispute Resolution process, as discussed below, and it also expands the scope of the disputes to which the Alternative Dispute Resolution processes must or can be applied within community associations.

Existing law requires that certain disputes be submitted to Alternative Dispute Resolution prior to a lawsuit being filed, either by a homeowner or by the association.  This Bill establishes a two-tier process to address disputes prior to enforcement through the court system.  As of 2005, associations are required to implement an informal process by which homeowners and boards "meet and confer" to discuss their disputes.  The CLRC came to the conclusion that some association boards were not talking with homeowners regarding their disputes, and felt that by encouraging personal communication that many disputes would be resolved without court intervention.

If the dispute is not resolved through the informal “meet and confer” process, either the owner/member or the association must still submit the dispute to some form of formal Alternative Dispute Resolution (ADR) prior to filing a lawsuit in the Superior Court.

Assembly Bill 1836 amends Section 1354 of the Davis-Stirling Act to clarify that all governing documents, which include rules and regulations, Articles, Bylaws, as well as CC&Rs, may be enforced by any owner of a separate interest or by the association, or both.  This change reinforces the concept  recognized by the California Court of appeals in Beehan v Lido Isle Community Association that not all association disputes have to be enforced or resolved by the association.

As was the case prior to enactment of Assembly Bill 1836, neither associations nor homeowners are obligated to use the mandatory “meet and confer” and the ADR process for disputes involving a claim for monetary damages in excess of $5,000.00, Small Claims actions, or, except as provided in the Davis-Stirling Act, to assessment disputes.

This Bill also defines ADR as including mediation, arbitration, conciliation, or any other non-judicial procedure involving a neutral party in the decision-making process.

This new legislation also changes the requirements on how a Request for Resolution may be served.  Previously, there was some ambiguity in the law regarding whether a Request for Resolution had to be personally served.  The Court of Appeals addressed this ambiguity in the Cabrini Villas HOA case.  Realizing that it was becoming difficult for associations to comply with the ADR service requirements, the new law states that the Request for Resolution may be made by personal delivery, first class mail, express mail, fax, or any other means that would reasonably be assumed to notify the receiving party.

AB 1836 also repeals the provisions of Court of Civil Procedure 383, and adds Section 1368.3 to the Civil Code in its place.  Section 1368.3 provides that an association is entitled to institute, defend, settle, or intervene in litigation, arbitration, mediation, or administrative proceedings in its own name as the real party interest without joining the individual owners in certain disputes.

AB 1836 also amends Civil Code Section 1357.120 to reflect that associations are required to adopt an internal procedure for dispute resolution and that any procedures to be adopted by the Board are subject to the notice and rule change requirements of Civil Code Sections 1357.130 and 1357.140.  This Bill also adds two new requirements to Sections 1357.130 and 1357.140 (which are the sections adopted last year which require notice to members before the Board makes a rule change and allow members of an Association to reverse a rule change, respectively.  Essentially, the amendments to Sections 1357.130 and 1357.140 require that the Internal Dispute Resolution process adopted by an association must comply with the requirements of Section 1357.100 et seq, which means that before it becomes the law of an association, it must first be distributed to the members, to allow them an opportunity to oppose the new procedure.

Associations Must Adopt a Procedure for Internal Dispute Resolution

AB 1836 requires that associations either establish their own procedures for Internal Dispute Resolution or use the procedure set forth in new Civil Code Section 1363.840.  The procedures set forth in Section 1363.840 are as follows:

1. Either the association or a homeowner may request that the other meet and confer in an effort to resolve a dispute involving their rights, duties or liabilities under the Davis-Stirling Common Interest Development Act, the Nonprofit Mutual Benefit Corporation law, or the governing documents of the common interest development.  The request must be in writing.
2. Either the homeowner receiving such a request from the association may refuse to meet and confer.  However, if the association receives such a request from a homeowner, the association must accept the homeowner’s request to meet and confer.
3. The association’s board of directors must designate a member of the board to meet and confer with the homeowner.
4. The designated member of the board of directors and the homeowner shall meet promptly at a mutually convenient time and place; explain their positions to each other and confer in good faith in an effort to resolve this dispute.
5. Any resolution of the dispute agreed to by the designated member of the board of directors and the homeowner must be memorialized in writing and signed by the designated member of the board of directors and the homeowner.

The association has the option of using the above procedure or may adopt its own process.  If the board of directors chooses to adopt its own process, the process is subject to the following:

1. The meet and confer process must be “fair and reasonable.”
2. The process must provide the right for either the association or a homeowner to invoke the process in writing.
3. The procedure must provide prompt deadlines.
4. The procedure must allow for the homeowner and the association to explain their positions and provide the right of appeal by the homeowner to the board of the association.

This new requirement of “a meet and confer” process is intended to foster communication, and that communication will not be binding on either the association or the disgruntled or rule-violating homeowner.  Assuming the agreement made through the meet and confer process is in writing, that resolution may be judicially enforceable, as long as the resolution is not in conflict with the law or the governing documents of the community association, and the agreement is either consistent with the authority granted by the Board of Directors to its designated representative or is ratified by the Board of Directors.

In developing an Internal Dispute Resolution process, Civil Code Section 1363.820(b) requires associations to “make maximum, reasonable use of available local Dispute Resolution programs involving a neutral third party, including low-cost mediation programs, such as those listed on the internet web sites of the Department of Consumer Affairs, and the United States Department of Housing and Urban Development.”

Conceivably, the meet and confer process implemented by a Board of Directors could include use of a mediation service.  However, this new law specifically states that no fee can be charged to the member for participating in the Board’s informal meet and confer process.  Should the dispute not be resolved and be subject to the formal ADR process, the cost of the ADR will be shared equally by the association and the homeowner.

AB 1836 requires that associations annually provide the members with a summary that specifically states:

Failure of a member of the association to comply with the alternative dispute resolution requirements of Section 1369.520 of the Civil Code may result in the loss of your right to sue the association or another member of the association regarding enforcement of the governing documents or the applicable law.

The summary must be provided “either at the time the pro forma budget required by Civil Code Section 1365 is distributed, or in the manner prescribed in Section 5016 of the Corporations Code.  The summary shall include a description of the association’s Internal Dispute Resolution process as required by Section 1363.850.”

Any new procedures adopted by the Board of Directors related to the Resolution of Disputes must comply with Civil Code Section 1357.130 and 1357.140, the procedure for enacting new rules (which, among other things, requires that the new rule or procedure be distributed to the members prior to becoming enforceable and allows members to vote to reverse a rule change).

Posted by David Swedelson | Permalink | Email This Post | Comments (1) | Print this Post

Posted In: Davis-Stirling Act , Disclosure/Civil Code Compliance

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