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  California's Leader in Community Association Law October 14, 2018
TRAIN WRECK LEGISLATION
VETOED BY GOVERNOR


Good news! Anti-consumer legislation sponsored by the Center for California Homeowner Association Law (CCHAL) was vetoed by Governor Brown.

SB 1265 is the bill that stripped away the rights of 13 million homeowners to adopt qualifications for who served on their boards. The bill sought to push felons, litigants and delinquents onto boards.

SB 1128 was also vetoed. The bill as originally drafted was good. It would have allowed associations to avoid costly election balloting if the number of qualified nominees was equal to or less than the number of available seats on the board. Unfortunately, the bill was amended by CCHAL to incorporate the worst elements of SB 1265, making it unacceptable.

Fortunately, Governor Brown vetoed both bills. His veto message noted that homeowner associations are not all alike and one-size-fits-all legislation is not appropriate.

Thank you to the California Legislative Action Committee and their advocate Louie Brown for protecting the rights of homeowners. Also, thank you to Governor Brown for vetoing this flawed legislation.

DANA ROSENBERG
JOINS ADAMS|STIRLING

I am pleased to announce that attorney Dana Rosenberg joined our firm and will head-up our Santa Barbara office.

Litigation. Prior to joining our firm, Dana's litigation practice included both state and federal courts involving real property disputes, fraudulent transfers, easements, use permits, environmental issues, business and contract disputes, and homeowner association disputes.

Transactional. Dana's transactional work includes commercial and residential sales and leasing, business purchase and sales, loans and loan sales, and community association documents. Dana also has an interesting niche in equine sales and leasing, specializing in Arabian horses.

Education. Dana earned her bachelor of arts from UC Irvine where she graduated magna cum laude and Phi Beta Kappa. This was followed by a master of arts in English where she graduated summa cum laude. Dana then earned a juris doctorate from the Santa Barbara College of Law.


We are delighted to have such an experienced attorney join our team providing legal services to our coastal and inland clients from Ventura to Paso Robles. If your association needs legal services, contact us for a proposal.

Board Meetings #1. I attended a board meeting with two board members present for a three-person board. The two directors were married, owning one unit. Is that legal? -Bob B.

RESPONSE: Yes, it's legal. Thanks to the Governor's veto of SB 1265 AND SB 1128, homeowners have the right to establish reasonable qualifications for who may serve on their boards. Co-owners on the board create a voting block that many associations are not comfortable with. This situation can be eliminated by amending the bylaws. Co-owners can serve on the board, just not at the same time. For a list of common director qualifications, see "Director Qualifications."


Board Meetings #2. In a five-member board, only three (a quorum) attend the session. Two of the members of the quorum vote in favor of a proposal; one is opposed. Is the measure passed? -George H.

RESPONSE: Yes, it passes. You need a quorum to conduct business. Once you have a quorum, a majority of the quorum is sufficient to pass a motion.


Board Meetings #3. What if we have a five-director board but can never get more than three owners willing to serve on the board? What do we do? -Steven S.

RESPONSE: You can amend your bylaws to reduce the number of directors to three. Be sure to check your articles of incorporation, they may need to be amended as well. In the alternative, you can change the definition of a quorum to a majority of seated directors. That allows you to keep five seats in case other members want to serve. 


Board Meetings #4. Is it okay for a quorum of directors to attend a non-board meetings to only listen? -Bill B.

RESPONSE: There are limited circumstances under which a majority of directors (or the entire board) can meet without it constituting a board meeting. The circumstances, however, are not addressed in the Davis-Stirling Open Meeting Act.

For guidance, we can turn laws governing public legislative bodies and agencies such as the Brown Act and the Bagley-Keene Open Meeting Act. They allow a majority of board members to attend a conference or similar gathering open to the public and purely social or ceremonial occasions.

Even then, limitations on discussing business still apply. For more information, see Exceptions to the Open Meeting Act.

Board Meetings #5. We have a five-member board. Director 1 contacts director 2 and discusses a matter on the agenda for the upcoming board meeting. They agree on how they will vote. Director 1 then calls director 3 and director 2 calls director 4. They all agree on how to vote.
Is this a board meeting? -Jim K.

RESPONSE: Yes. What you described is a "chain meeting." This kind of meeting is not addressed by the Davis-Stirling Act. It is, however, addressed by the Brown Act, after which the DS Open Meeting Act is modeled.

The Brown Act prohibits such communications, whether direct, by intermediaries or electronically. A court would likely apply the same principles to homeowner association boards.


Board Meetings #6. We have some projects underway and new board members coming on next month. Can we instruct our manager to send them copies of the previous years’ executive meeting notes so they can get up to speed? -Stephanie L.

RESPONSE: I wouldn't. You would be disclosing confidential information involving other matters (disciplinary actions, personnel matters, etc) to non-directors who have no obligation to keep such information confidential. It would be better to wait until they are elected and then provide the information. At that time, your outgoing directors can brief them on the project.


Board Meetings #7. I want to join the board of our association but the meetings are on Saturday mornings which I cannot attend since I am an orthodox Jew. I previously been asked to join the board but explained I couldn't unless the meeting day was changed, but nothing was done. If I formally request the day be changed, is the board required to change it? Is this unlawful religious discrimination if they don't? -Alan S.

RESPONSE: There is no law that directly applies to this situation because serving on a board is a volunteer position. Even though Title VII of the Civil Rights Act of 1964 does not apply, it requires employers to reasonably accommodate sincerely held religious unless doing so would impose an undue hardship on the employer.

Accommodating a well-recognized religious practice, such as observing Saturday Sabbath, qualifies. Using this principle, boards should reasonably accommodate a director's request if possible. Where this can be problematic is if other directors observe Sunday or the best day for most homeowners to attend board meetings is Saturdays. Boards need to balance competing interests when setting their meeting dates and times.

 
ASSEMBLY BILL 2912
 

In my last newsletter, I reported that Assembly Bill 2912 was signed by the Governor. The bill is designed to prevent fraud and embezzlement related to association finances.

HOA Finances #1. As always, your newsletters are very helpful. I have a question about AB 2912. Does it take affect immediately? -Wally G.

RESPONSE: The new law takes effect January 1, 2019.


HOA Finances #2. If the monthly review of financial statements can be done independent of a board meeting, where is the evidence that it was actually done? -Paul C.

RESPONSE: If the board doesn’t meet monthly or a monthly meeting isn’t held for some reason, financial statements can be sent to each director for review. In the alternative, an executive committee consisting of the treasurer and at least one other board member can review the finances. The review is documented in the minutes of the following open board meeting.

It can be recorded as simply as, “Did everyone review the association's financial records last month? Are there any changes or corrections? I move to ratify the financial state for [month and year]." The motion is then seconded, approved and recorded in the minutes.

HOA Finances #3. We allow our president to transfer funds between our reserves, checking, and savings as-needed to meet operational needs. Since all accounts are in the association's name is this a “transfer” under the bill? -Gary K.

RESPONSE: Good question. The bill does not define transfers. Clearly, any transfer of funds greater than $10,000 that leave the association requires board approval.


Does a monthly transfer of $11,000 from operations into reserves require board approval? I wouldn't think so. The legislature is not worried about money entering reserves. Arguably, the board's approval of regular deposits into reserves occurred when the annual budget was approved.

It's the transfer of money out of reserves that requires separate approval. The requirements of section 5510(a) of the Civil Code are unchanged by AB 2912: "The signatures of at least two persons, who shall be directors, or one officer who is not a director and one who is a director, shall be required for the withdrawal of moneys from the association’s reserve account."

That means any transfer of funds from reserves, even if into another association account, requires board approval. With online electronic transfers, meeting the statutory requirement of two signatures is problematic. No signatures are required for electronic transfers, only the push of a button.

Even if the transfer has prior board approval as noted in the minutes, you still have only one signature--the Secretary's. Moreover, banks don't require two signatures for transfers. Even if directors tried to add signatures to an electronic transfer, there is nowhere to record them. The only way to meet the statute's requirement is to abandon electronic banking and do everything with paper checks.

The legislature's requirements are way behind the times. The two-signature requirement needs to be rewritten. In addition, "transfer" should be defined.


HOA Finances #4. We have our utility bills set for automatic payment. How is that affected? -Gary K.

RESPONSE: If the monies are coming out of your operational account, an annual resolution authorizing the transfers should be sufficient. Make sure someone is monitoring the transfers. If a utility bill suddenly goes from $100 per month to $1,000 per month, board members should investigate.

HOA Finances #5. As I read the new law, the requirement for fidelity insurance does not apply to a self-managed HOA, correct? Your newsletter seems to imply that it would apply to all. Please clarify. -Stuart S.

RESPONSE: The requirement applies to all associations. The bill makes no distinction between large and small associations or self-managed and professionally managed associations. The only reference to managed associations requires the association’s fidelity bond coverage to additionally include dishonest acts by that person or entity and its employees.


HOA Finances #6. In regards to fidelity bonds, we currently carry employee theft and dishonesty coverage, would this suffice in order to be compliant if the coverage itself meets the proposed requirements? -Gordon M.

RESPONSE: As long as your policy covers theft by officers, directors and anyone else handling the association's funds (not just employees), you will be in compliance.

Another point to consider is the amount of coverage. The statute requires
three months of assessments plus reserves. If you are making regular contributions into reserves (as you should), the amount of insurance needed will be greater at the end of the year than at the beginning. That means the insurance you purchase at the beginning of the year should be equal to or greater than the amount of reserves anticipated by the end of the year. If your governing documents require greater coverage, make sure you comply.

Because you are insuring your managing agent, including computer fraud, you should inquire what steps they take to protect their computer servers from hacking. If their protocols are lax and software protections weak (or nonexistent), your association's monies are at risk.

Adrian J. Adams, Esq.
 
Boards should contact us for friendly, professional advice.

Adrian J. Adams, Esq.
Founder & Managing Partner
ADAMS|STIRLING PLC

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Reprinted from
Davis-Stirling.com by ADAMS | STIRLING PLC
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Hon. Lawrence W. Stirling, Senior Partner ADAMS|STIRLING
Author of the Davis-Stirling Act