2012 CHANGES IN THE LAW

2012 STATUTES

SB 880. Electric Charging Stations. Last year the Legislature rushed through SB 209 and Governor Brown signed it knowing the bill had a number of serious flaws. The legislation allowed the taking of common areas for a homeowner's private use in violation of California’s Constitution and the Davis-Stirling Act (which requires approval of 2/3 of the membership before an owner can exclusively use common areas). The revised statute gives boards authority to grant exclusive use of common areas to members who run utility lines and install meters in the common areas for charging stations in an owner’s garage or parking space. It also authorizes “private” charging stations in the common areas but only if installing it in an owner’s exclusive use common area is impossible or unreasonably expensive.

AB 341. Recycling. It requires multifamily residential dwellings of 5 units or more to arrange for recycling services by July 1, 2012. The bill requires local jurisdictions to oversee the recycling programs and to recover their costs from solid waste generators.

AB 1720. Service of Process. Existing law gives a process server access to a gated community upon display of a current driver’s license or other identification and specified documentation to show the person is a sheriff or marshal or is a registered process server. This bill adds licensed private investigators to the list. The statute applies only to staffed gated communities with controlled access.

AB 1838. Cancellation Fee. Existing law specifies documents HOAs must provide to escrows and requires a specified form that estimates the cost of providing the documents. This bill prohibits a cancellation fee for the documents if the cancellation is requested in writing by the same person who placed the order and if work on the order had not yet been performed or if the work had been compensated. The bill requires associations to refund all fees for documents if the request was canceled in writing and work on the order had not yet been performed. HOAs must refund the share of fees collected for documents that represents the portion of the work not performed on the order.

AB 2273. Bank Foreclosures. The bill requires lenders to record foreclosure sales within 30 days of the foreclosure. It makes banks accountable for the properties they acquire, i.e., once the sale is recorded, the lender must begin paying HOA dues and special assessments as they are levied. To receive maximum benefit from the new law, associations must record a blanket "Request for Notice" which would obligate the foreclosing party to give the HOA notice of the new owner within 15 days of the sale.

AB 2314. Real Property Blight. This bill deletes the sunset provision contained in Civil Code 2929.3, thereby extending the statute indefinitely. The statute requires owners to maintain vacant property purchased via foreclosure and allows governmental entities to impose fines and penalties if they do not.

AB 2114. Swimming Pool Safety. This bill requires a swimming pool, spa, or public wading pool to have at least 2 circulation suction outlets per pump and be separated by a distance of at least 3 feet in any dimension between the suction outlets, or be designed to use alternatives to suction outlets, including, but not limited to, skimmers or perimeter overflow systems to conduct water to the recirculation pump. The bill also requires the circulation system to have the capacity to provide a complete turnover of pool water.

AB 2697. Teleconference Meetings & Rent Restrictions. Civil Code §1363.05 defines “meeting” to include a teleconference in which a majority of the members of the board, in different locations are connected by electronic means but requires at least one member of the board of directors to be present at a physical location where members can attend. This bill would instead require that at least one member of the board of directors or a person designated by the board be present at that location.

Civil Code §1368 requires that an owner provide a prospective purchaser a statement describing any prohibition, and its applicability, contained in the governing documents against the rental or leasing of any separate interest. This bill eliminates the requirement to describe the applicability of the prohibition.

AB 805. Davis-Stirling Rewrite. The bill reorganizes and renumbers the Davis-Stirling Act to make it more user-friendly. The rewrite does the following:

• Groups provisions by subject matter in a logical order;
• Divides longer sections into shorter, simpler sections;
• Clarifies the meaning of provisions;
• Standardizes terminology; and
• Replaces outdated references to the Corporations Code.

The reorganized Davis-Stirling Act takes effect January 1, 2014. In addition to renumbering all sections of the Act, the rewrite does the following:

• Groups provisions by subject matter in a logical order;
• Divides longer sections into shorter, simpler sections;
• Clarifies the meaning of provisions;
• Standardizes terminology; and
• Replaces outdated references to the Corporations Code.

Following are significant changes to the Act:

1. Civil Code §4205. Hierarchy of Documents. When conflicts exist between documents and between documents and the law, the following hierarchy will be used: law, CC&Rs, articles of incorporation, bylaws, rules & regulations.

2.  Civil Code §4235. Update Reference in Documents. Boards can update statutory references without need for membership vote.

3.  Civil Code §4600. Granting Exclusive Use. Exempts 67% requirement to:

• Accommodate disability,
• Comply with governing law,
• Assign parking space, storage unit designated in CC&Rs but not assigned to a specific unit.

4.  Civil Code §5115. Amendments with Ballots. Previously, a proposed amendment could be distributed to all owners not less than 15 days and not more than 60 days prior to voting on the amendment. Now the text of the proposed amendment shall be delivered to the members with the ballot.

5.  Civil Code §5125. Custody of Ballots. Custody by the Inspector of Elections was extended to one year (from nine months in current Code).

6.  Civil Code §5200. Inspection of Governing Docs. Governing documents added to inspection rights.

7.  Civil Code §5260. Written Requests. The following requests by members must be in writing to:

• Change info in membership list,
• Add or remove 2nd address for delivery of notices to the member,
• Request individual delivery of general notices (or cancel prior request),
• Opt out of the membership list or to cancel prior request, and
• Receive all reports in full or to cancel a prior request for same.

8.  Civil Code §5300. Annual Budget Report. Consolidates financial disclosure requirements under this new term:

• Budget,
• Reserve summary,
• Reserve funding plan,
• Statement of deferral or non-repair major components,
• Statement as to whether special assessment anticipated,
• Procedures used to calculate reserves,
• Outstanding loans longer than one year, and
• Summary of insurance.

9.  Civil Code §5310. Annual Policy Statement. Consolidates policy disclosures:

• Name & address of designated person to receive notices,
• Right to request to have notices sent to 2 different addresses,
• Posting locations for general notices,
• Right to receive general notices individually,
• Right to receive minutes,
• Assessment collection policies,
• Policies in enforcing lien rights,
• Discipline policies including schedule of fines,
• Summary of dispute resolution procedures,
• Summary of architectural application procedure,
• Mailing address for overnight payment of assessments, and
• Any other information required by law or the governing documents.

10.  Civil Code §5350. Conflicts of Interest. Forbids directors from voting on matters affecting their own:

• Discipline
• Damage assessments
• Payment plans
• Foreclosure
• Remodel applications
• Exclusive use application

11.  Civil Code §5850. Fine Schedule. The new Davis-Stirling Act requires annual distribution of the association’s fine schedule as part of its annual policy statement. Previously, notice was required only upon adoption or revision.

12.  Civil Code §5855. Reimbursement Assessments. Boards must give notice of a hearing and an opportunity to be heard before imposing reimbursement assessments on an owner.

The new Davis-Stirling Act goes into effect January 1, 2014. See Conversion Chart.

2012 CASE LAW

Pinnacle Museum Tower Assn v. Pinnacle Market Development (2012) 55 Cal.4th 223. The California Supreme Court reversed direction from prior decisions and held that homeowner associations are bound by developer-imposed arbitration provisions in their CC&Rs, even though those provisions were written and recorded by the developer. The Pinnacle decision eliminates the right by associations to go to court for a trial before a judge and a jury.

Cathedral Hill Tower v. Garbar. In an unpublished decision, the court discussed the issue of damage caused by balcony tile damage and remodeling that pushes ceilings into common area spaces between floors.

Tesoro del Valle Master HOA v. Griffen (2011) 200 Cal.App.4th 619. A homeowner in the Tesoro del Valle Master Homeowners Association installed solar panels on a slope adjacent to his property without HOA approval. For aesthetic reasons and because of slope structure restrictions, the HOA wanted the panels on the owner’s roof. The owner refused and the association sued. The homeowner argued that “aesthetic considerations” were an improper part of the review process and violated Civil Code §714. The court disagreed. It ruled that “an evaluation of a proposed solar energy system–just as any other proposed improvement–would involve consideration of aesthetics." The court ruled on cost issues. The owner then argued that once the architectural committee disapproved his original application, it had a duty to redesign his solar energy system to meet their guidelines. Again the court disagreed. The court found that the law imposed no such burden on associations. Per statute, the only obligation by the committee was to inform the owner of the basis for its denial of his application. The court ruled that “the burden is on the homeowner to submit an application that is complete and sufficient to generate [architectural committee] approval.”

That v. Alders Maintenance Corporation (2012) 206 Cal.App.4th 1419. This case involved a frivolous election challenge where the association prevailed and sought its attorneys' fees under Civil Code §1363.09. The court denied the attorneys' fees because the legislature failed to include authorizing language in the statute. However, the court left open the door that an association could be entitled to fees under their CC&Rs.

Savoy Community Association v. Zhang. This is an unpublished case that addresses the issue of hardwood floors and the reasonable accommodation that associations must make for the disabled. In this case, the association was found to have discriminated against one of its members when it refused to reasonably accommodate her hardwood floors even though she had letters from her neighbors that there was no noise problem from her flooring.

Silk v. Feldman (2012) 208 Cal.App.4th 547. As part of his campaign for reelection to the board, director Phil Feldman sent letters to the membership accusing former director Sherrill Silk (who was also running for the board) of self-serving actions when she was previously on the board. Silk sued for defamation. Feldman filed an anti-SLAPP motion arguing that his statements were protected "free speech." The court denied his SLAPP motion and Feldman appealed. The court of appeals agreed with the lower court that Feldman's letter accused Silk of a serious breach of fiduciary duty, which was libelous per se. Accordingly, the matter was sent back to the lower court for trial on the merits. The court noted that "Not all speech is free. Here, speech can be costly."

The Landings HOA v. Williams. This case from the Georgia Supreme Court illustrates the importance that HOAs issue warnings of known dangers. The Landings HOA warned residents of dangerous alligators in HOA lagoons. A visitor was attacked and killed by an alligator. The Court found that the association was not liable for her death because the victim had knowledge that dangerous alligators occupied the lagoons. Hence, she assumed the risk of walking where she knew alligators were present or failed to exercise ordinary care by doing so.

Lewow v. Surfside III (2012) 203 Cal.App.4th 128. The lower court awarded the association $292,205 in attorneys' fees as prevailing party. Paul Lewow appealed. He argued that Association's motion for attorney fees was not timely filed. While the trial court's articulated rationale concerning a bankruptcy stay was erroneous, it reached the correct result. The trial court's use of an unsound course of reasoning is not determinative as long as the result reached is correct. The court concluded that there was good cause to extend the time for filing the attorney fees motion.

OTHER

Fannie Mae. The Federal National Mortgage Association announced new condominium insurance requirements. The changes are effective for mortgage loans with application dates on or after January 1, 2012.  It eliminated “walls-in” terminology and changed HO-6 coverage from no less than 20% of the unit’s appraised value to an amount sufficient to repair the condominium to its condition prior to a loss whether the claim is paid by the association’s property insurance, by the homeowners HO-6 policy or some combination of both. In addition, Fannie Mae will allow master or blanket insurance policies that combine insurance coverage for multiple condominiums or other residential or substantially residential projects that are unaffiliated as long as the coverage meets certain criteria. See Fannie Mae Servicing Guide Announcement SVC-2011-23.

Federal Housing Administration. The FHA revised its requirements for condominium development certification. It issued Mortgagee Letter 2012-18 which (i) relaxed their requirements for delinquencies, (ii) established more reasonable requirements for fidelity bonds, and (iii) scaled back on their onerous requirements for HOA representatives to attest to the accuracy of the information being submitted to the FHA.

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