By David Swedelson and Sandra Gottlieb, Senior Partners at SwedelsonGottlieb, Community Association Attorneys
We are often asked if a condo or homeowners association is required to obtain FHA certification. And unless the CC&Rs make such a requirement (most do not), we generally respond with a resounding “NO!” But what has not been considered, at least until now, is whether a community association is required to even consider the matter. The answer is maybe.
Some may be asking what the heck “FHA certification” means. In 2010, the Federal Housing Association (FHA) stopped giving spot loan approval and has been requiring that condominium developments themselves become approved if the FHA is to provide mortgage insurance within the development. The FHA, a government-owned loan/mortgage insurer, does not loan money; it insures loans made for buyers who cannot afford a conventional down payment. FHA insured loans now account for more than half of all new home loans. With an FHA insured loan, buyers can purchase a condo unit with a lower down payment (3.5% of the purchase price vs. 20% for conventional loans), lower closing costs, easier credit qualifying, with loans up to $625,500 (depending on the county where the unit is located). So FHA insured loans appeal to lower income buyers.
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We recently attended a very informative program put on by Community Association Institute’s Greater Los Angeles Chapter titled The Service-Oriented Manager, and we were reflecting on all of the amazing services that many community managers provide for their community association owners and residents. Of course, as attorneys, we considered the potential liability to which some of these services can expose an association. For example, the speakers were talking about car washing, driver services and faxing documents for residents. And we questioned whether the manager (or the board for that matter) of an association that, for example, provides fax service for the residents, would allow the residents to receive faxes or other personal services without a signed Release and Indemnity Agreement. 
SB 298, which adds Section 53069.81 to the Government Code, is an unusual piece of legislation that provides community associations in one county of California with the ability to contract with local law enforcement agencies to provide Vehicle Code enforcement services at the association. We had not heard about this bill until now and do not know why it was limited to Orange County community associations as we know that associations in other parts of the State have a need for help with enforcement of the Vehicle Code on their private streets. 
Consider the following, a somewhat typical scenario: your association has been sued by an owner who claims the board failed to maintain the common area that resulted in water leaking into that homeowner’s unit, causing damage. The board tenders the claim to the association’s insurance carrier. The claim is not resolved, or it may not even be a covered claim under the association’s insurance policy, and the owner files a lawsuit. The lawsuit is tendered to the association’s insurance carrier with a request that the carrier defend the lawsuit and indemnify the association from any damages. The insurance carrier accepts the tender with limited reservations of rights (insurance carriers always reserve rights to deny coverage if it later determines or discovers there is no coverage). 
In 2012, many managers were concerned when the California legislature enacted AB 2237, amending Business and Professions (B&P) Code Section 7026.1 relating to contractors, which became effective at the beginning of this year. The amendments to AB 2237 mandated required “consultants” overseeing some construction projects to be licensed “contractors”. This caused some managers to be concerned as to whether they were considered “consultants” and therefore required to be licensed contractors when performing management services for condo and homeowner associations. Specifically, there was concern that doing typical management functions such as bid solicitation, bid management and/or oversight of common area maintenance projects would require a contractor’s license. 
Unfortunately, there is fraud and embezzlement being committed at community associations throughout California as well as across the country every day. We have written about this issue in the past; 
You may have heard an attorney refer to the “SB800 process” and not really understood what it was all about. SB800 refers to a California Senate Bill that became law about ten years ago, requiring and setting out a new procedure that had to be followed for construction defect claims and lawsuits against the builders and developers of condominium and homeowner associations. SB800, which was codified in Civil Code § 875 et seq., applies to homes and condominiums and provides the procedure for instituting construction defect claims for new residential property “sold” on or after January 1, 2003. Although the express legislative intent of SB800 was to improve standards and procedures for the administration of civil justice and early resolution of construction defects, according to the California Building Industry Association, SB800 would lead to increased production of affordable condominiums and townhouses. Not sure if that actually happened. But it is clear that a lot of condos have been built in the last ten years. This bill significantly changed the way defect cases were being handled. 
The Court of Appeal recently came down with a decision regarding a lawsuit filed by several condominium owners who bought units in the Hard Rock Hotel San Diego, a mixed-use development with 420 condominium units. The Court of Appeal’s decision indicates that when these owners bought their units, they not only entered into purchase agreements, they also signed rental management agreements eight to fifteen months later. Does this mean that they get to sue for securities violations? Relating to a condo association? The following is a good definition of “Securities Fraud”.