FROM A UNIT
QUESTION: Can a board be held liable if a unit owner has a permanent house guest that is dealing drugs from the unit?
ANSWER: Neighbors are understandably concerned for their safety when they see a stream of strangers going into and out of a unit--some of them rough looking. If a resident suffers harm or damage as a result of the drug-dealing resident, and the board had knowledge but did nothing to stop it, you can be sure the injured person's lawyer will include the association in his/her lawsuit.
RECOMMENDATION: If directors believe a unit is being used to deal drugs, they should notify the police of their suspicions. They can send a letter to the police department (or have legal counsel do so).
Notify Owner? It's possible that a letter by legal counsel to the resident may be sufficient to get the person to move their operations offsite. If the resident is a tenant, then a letter to the owner/landlord expressing concern and putting them on notice of potential liability may cause the landlord to take appropriate action.
Paper Trail. Beyond putting the resident on notice and notifying the police, there is very little the board can do. If the police do nothing and someone is harmed, the board will have a paper trail showing it took appropriate action to protect the membership. This should be sufficient to shield the association from potential liability.
EV CHARGING STATION
QUESTION: We recently had a homeowner request permission to install an EV charging station in his garage. That wouldn’t be a problem except he wants to use it to charge a car outside his garage.
The Board feared that would represent a trip hazard as the cord would cross common area sidewalk. We consulted with legal and were told that was a legitimate cause to deny the request particularly in light of the fact that the owner did have the option of clearing out the garage and charging it inside.
ANSWER: Safety trumps. Your owner can have charging station in his garage, provided he clears it out and parks his car in his garage where he can safely charge it.
ABCs of HOAs
Adrian Adams will be speaking at an annual educational event open to all board members.
In addition to year-end legal updates by Adrian, Neda Nehouray will cover board management responsibilities and procedures, and Dr. Lori Baker-Schena will discuss ways for boards to strengthen leadership skills.
This free event by HOA Organizers will be held:
Date: Saturday, December 7, 2019
Time: 11 a.m. to 3:30 p.m.
Location: 11301 W. Olympic Blvd, Los Angeles
We are looking for experienced attorneys to join ADAMS|STIRLING.
Candidates should have at least five years' experience as an attorney.
We offer growth opportunities and excellent benefits. Contact me at 800-464-2817 or by email.
Kudos #1. Thank you so much, I love the newsletter! Happy Thanksgiving to you all. -Debra C.
Kudos #2. Thank you for all you do in keeping HOAs informed and protected. -Steve C.
Kudos #3. Thank you for providing Marjorie Murray’s email address. Thanks for your outstanding newsletter—it has been part of my Sunday routine for many years. -John P.
Kudos #4. I love to read your newsletter because there is so much information that I couldn’t get elsewhere. Thanks for what you do. -Yvonne G.
Kudos #5. Thank you for your newsletter. I hold the position of Treasurer for my HOA and several of our board members find great value in the information you provide. -Robert C.
SB 323. The problems and confusion created by Marjorie Murray's election bill continues to dominate the feedback I receive from readers. As with prior newsletters, I cannot print all the emails; there are too many. -Adrian
Nightmare Bill #1. I think I have a fair understanding of the impact of SB 323 on small HOAs like ours, but I'm not sure Marjorie Murray does. Please see the exchange I had with her. -David P.
RESPONSE: Ms. Murray's response is misleading. You notice she said her organization took no position after it left the Senate. She neglects to disclose what CCHAL did before it left the Senate.
[When questioned about her opposition to elections by acclamation, she responded with:] Our Center TOOK NO POSITION on the acclamation bill (SB754) after it left the Senate... Marjorie Murray, President & CEO, Center for California Homeowner Association Law
If you go to the website for California Legislative Information, click on the tab "Bill Analysis" and go to 4/18/19, you will find the following as reported to the Senate Housing Committee:
SUPPORT: Laguna Woods Village (Sponsor), California Association of Community Managers, Community Associations Institute - California Legislative Action Committee.
The Community Associations Institute (CAI) supported election by acclamation, while Ms. Murray's organization opposed it. Next, go to bill analysis for the Senate floor vote dated 9/13/19. It has the following:
OPPOSITION: California Alliance For Retired Americans, Center For California Homeowner Association Law
Arguments in Support: Laguna Woods Village, sponsor of this bill, states that it will provide much-needed relief from expensive and unnecessary elections for HOAs. The sponsor states that it has spent $60,000 on uncontested elections each year in the last two years alone, despite outcomes predetermined by the fact that there were more board seats available than there were people willing SB 754 to fill those seats. The cost of these elections directly impacts residents, as it increases monthly assessments.
CCHAL Opposition: Ms. Murray's organization opposed elections by acclamation claiming it enabled boards to ignore nominations. How? Under the existing law, all qualified candidates are listed on a ballot, whether incumbent or not. Her CCHAL further justified its opposition by claiming some owners were not qualified. It's a bit disingenuous since one has nothing to do with the other. Moreover, CCHAL's own legislation (SB 323) sets mandatory and permissible qualifications which will prevent some owners from running for the board.
Arguments in Opposition: Opponents state that allowing election by acclamation would enable an HOA board to ignore or prevent nominations by nonincumbents, then determine that no election is required due to an insufficient number of candidates. The Center for California Homeowner Association Law cites a number of reports from homeowners describing how they were either discouraged from running for a seat on an HOA board, or were prevented from running for a seat because they did not meet certain qualifications set by the board.
Opposition to Electronic Voting. In addition to training homeowners how to sue their associations and opposing elections by acclamation, Marjorie Murray's organization killed a bill six years ago that would have reduced the cost of elections by allowing electronic voting. Here is their opposition when AB 1360 was introduced:
Arguments in Opposition: The Center for California Homeowner Association Law (CCHAL) opposes this bill and raises concerns that the bill could jeopardize the secrecy of the ballots. CCHAL contends the bill does not address several key questions, including how secrecy of the ballots will be maintained, how electronic ballots can be audited, and what the chain of custody is for ballots in electronic balloting. CCHAL maintains that the rationale for the bill is that electronic balloting increases voter participation, but that no research from a neutral third party establishes that this outcome will be achieved.
Clean-up Legislation. Hopefully, the Community Association Institute's California Legislative Action Committee (CAI-CLAC) will submit legislation next year to clean up the mess created by CCHAL. It may also be time to reintroduce electronic voting.
Unlike Ms. Murray's organization, CAI-CLAC lobbies for common sense legislation and opposes bad legislation. Readers who have not already done so should sign up for regular updates on legislation via CLAC-TRAC E-News. In addition, CAI-CLAC's Hot Bills page issues "Calls to Action" for support on critical bills.
Nightmare Bill #2. Seven of the HOAs I manage have only 4 or 5 members. Do we have to pay someone to attend their annual meetings to count 4-5 ballots??? -Jean K.
RESPONSE: CCHAL provided no relief for small associations. However, a provision in the existing law which carries over to 2020 allows a disinterested member to act as the inspector of elections and count ballots.
Nightmare Bill #3. Does the new elections law apply to unincorporated HOAs? I am in an HOA with eight units, and the board doesn’t think we need to follow the law because we are small and unincorporated. -Yvonne G.
RESPONSE: Being unincorporated does not give you any relief. I suspect many small associations will ignore the burdensome requirements of SB 323 and hope they don't get sued by a disgruntled homeowner.
Nightmare Bill #4. I sent an email to Marjorie Murray asking why she burdened homeowners with expensive legislation. She responded with: "What expenses do you believe are levied by SB 323? Please quote from the bill itself. -Marjorie Murray, President & CEO" -Robert C.
RESPONSE: That's a clever deflection by Ms. Murray. There are no dollar amounts in the bill--the costs are in the bill's requirements. Her bill requires rewriting election rules for over 55,000 homeowner associations in California. SB 323 is so convoluted that associations will need legal counsel to write them. She also voided all director qualifications in bylaws except those she approves. That will require costly amendments for tens of thousands of associations. In addition, her organization extended the election cycle to one-third of a year and added more expensive mailings to the process, thereby increasing election costs.
Finally, Marjorie Murray exposed everyone's email addresses to the entire membership. Associations will need to spend money sending and collecting opt-out forms for 9 million homeowners to avoid this unnecessary intrusion into their privacy.
If Ms. Murray thinks her bill imposes no costs on associations, perhaps she will volunteer to pay any expenses incurred by associations?
Nightmare Bill #5. Since the pre-ballot notice (distributed 30 days before ballots are mailed) includes the list of voters, what happens if there are new members between the date the notice is mailed and the election date? We used to set a Record Date by which someone had to be a member in order to vote. Can the pre-ballot notice be used as a Record Date? If not, do we need to re-notice the membership with an updated voter list? -Shelly D.
RESPONSE: Making the pre-ballot notice date the "record date" for determining eligibility for voting works for me. I don't believe you need to send updated voter lists when units change hands in the 60-day period leading up to the election.
Nightmare Bill #6. The requirement that election inspectors must have no previous contractual relationship with the association: once we secure a new election inspector, would we be required to find a different one every year? Yikes! -Shelly D
RESPONSE: Your contractual relationship with an inspector of elections is for the election for which the inspector has been retained and then terminates, thereby making the inspector eligible for future elections.
Nightmare Bill #7. With the votes being counted this coming January 17, 2020, what laws for election must be followed? Our call for candidates (November 2019) has already happened. -Teri P.
RESPONSE: In 2005 when the original election law was adopted, the legislature recognized it would take time to implement its requirements and delayed the effective date to July 1, 2006. Marjorie Murray's organization allowed no such grace period. That means their requirements take effect January 1, 2020. Even though your call for candidates took place under existing laws, your election on January 17 will be under Ms. Murray's strictures. I think you can proceed with your election as long as you appoint an independent inspector of elections.
Nightmare Bill #8. Marjorie Murray's bill is unconstitutional as it is dictating and pushing requirements into personal lives and HOA contracts. From what I understand, there are rights and processes in the law for individual HOAs to change their OWN rules. Why can one entity be allowed to change rules for all?? Is there any hope for push back on some of the questionable requirements of Marjorie Murray's bill? -Steve C.
RESPONSE: It's no secret I am unhappy with the harm done by Ms. Murray's organization. I understand CAI-CLAC is considering ways to clean up some of the mess created CCHAL. We will let everyone know next year when legislation is submitted.
Nightmare Bill #9. If a dedicated elections inspector using the resources of our management company sends out ballots as prescribed by our bylaws but no ballots are returned, can nominations from the floor be utilized to elect the three-member board? -Terry M.
RESPONSE: Yes. The bill allows for floor nominations even though they run contrary to other provisions in the bill.
Nightmare Bill #10. What can the HOA do if there are no members willing to serve on the board and current directors resign? I asked our management company and they only alluded to a state agency taking over receivership of our HOA. -Terry M.
RESPONSE: A receiver would be very costly for your association and would likely result in significant dues increases and/or special assessments. You really don't want to go down that path. See Collapse of an HOA.
Nightmare Bill #11. Our bylaws state that if there are not more nominees than open seats on the board, an election is not needed. I've tried to find this in the new election rules and it isn't clear if this is still valid. Our HOA has five units and we have never had more candidates than open slots. This new bill truly is a nightmare for tiny associations like ours. -Elaine L.
RESPONSE: If it's provided for in your bylaws, I believe election by acclamation is allowable. However, there is disagreement in the legal community on whether it can be done. See Uncontested Elections. The best way to eliminate uncertainty is to rally support behind a bill that would allow elections by acclamation for all associations.
Nightmare Bill #12. The board is getting ready to take a vote on new bylaws. What happens when the community vote fails due to not enough votes? -Nadine
RESPONSE: You could petition the court to approve the bylaws under section 7515 of the Corporations Code. This is different from a Davis-Stirling petition to amend CC&Rs. We have been successful obtaining court approval when apathy derails bylaw amendments. Contact us if you need assistance.
ELECTION RULES. All associations must adopt new election rules to comply with SB 323. Failure to do so could subject elections to legal challenge and may result in new elections, monetary penalties and an award of attorney fees. To avoid this, contact us for new election rules.
Fidelity Insurance. I enjoy the weekly newsletter. In the one I just received, you refer to a “Fidelity Bond.” Instead of a bond, associations will actually purchase an insurance policy that covers employee dishonesty (fidelity) plus non-employee theft. A bond is a three party arrangement. Insurance is not.
Preferred Terminology. The preferred terminology is a Fidelity/Crime policy. The policies are two sides of a coin. On one side is Fidelity/Employee Dishonesty and on the other side is non-employee crime coverage.
Standalone Policy. Associations should ask for a standalone policy. Although some of the required coverage is found in an association's Master Package Policy, they generally have minimal limits that do not comply with statutory or Fannie Mae or Freddie Mac requirements. More importantly, they often do not cover wire transfer fraud, computer fraud, or social engineering. -Joel W. Meskin, Esq., CIRMS, CCAL Fellow, MLIS, EBP, Managing Director Community Association Products, McGowan Program Administrators
RESPONSE: Joel, thanks for raising the point. Unfortunately, it will be difficult changing the terminology in California since the Davis-Stirling Act uses the term "Fidelity Bond" in Civil Code §5806. Maybe we can get a clean-up bill on this issue.
Banking. Your reader who commented on master banking policies is not precisely correct. They implied that the management company is a signer on the association’s bank account.
While many (maybe the majority of) management companies are signatories on the association’s account (which I think is very unwise for the association to allow), many are not.
We use the master banking policy for many good reasons (not the least of which is we can attest to the fact that the board signatories are who they say they are, which avoids members not having to show up at the bank and produce their ID every time the board changes.
However, we are NOT signatories on the association’s account, both by contract with the association and by our agreement with the bank. If the board does not want the managing agent as a signatory on their bank accounts, they should contractually prohibit that. However, that has nothing directly to do with the master banking policy. -Roy Helsing, The Helsing Group, Inc.
RESPONSE: The banking industry is constantly changing and some of the banking provisions in the Davis-Stirling Act may no longer be relevant. If someone could send me a full description of a master banking policy and its pros and cons as it relates to the HOA industry, I will add a page to the website.
ADUs #1. Can an owner convert his garage into a junior ADU and then never rent it out so he effectively increases the square footage of his house and its resale value? -Troy K.
RESPONSE: I had not thought of that angle. I suppose people could game the system to add living space to their houses, increase their property values, and push cars to their driveways and streets.
ADUs #2. Has there been any discussion of going the proposition route to repeal the ADU laws? -Tim S.
RESPONSE: Not that I'm aware of. Instead, there has been some interest in suing the state to stop the injection of ADUs into homeowner associations. If any associations want to band together for that purpose, let me know--I will put you in contact with each other.