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  California's Leader in Community Association Law November 24, 2019
MANAGEMENT AND
BANKING SECURITY
 
QUESTION: We use a third-party management firm to handle our accounting. They, in turn, have master relationships with several banks. Their clients become customers of their banks and the management company receives the benefit of lockbox services and computer integration. The management company is the master signatory, and associations designate their own signers.

We are a little concerned about the security and legality of this relationship. As a practical matter, the management company and any employees they designate are empowered to take any act with our account--write checks, wire money, open additional accounts, etc. This not only seems goofy to us it but at odds with the information we've read on your website about association bank accounts.

ANSWER: You’re right to be concerned, though it isn’t clear whether there's anything across the line here. There are disclosure requirements of affiliate relationships which should be verified. (See Manager Disclosure Requirements.) Also, the association should be comfortable with whoever is a signer on the account. You want to make sure the arrangement is acceptable to your Fidelity Bond insurance carrier.

Financial Oversight. After AB 2912 passed last year, certain electronic transfers require prior written board approval. The transfer of funds from reserve accounts have specialized requirements as well. If directors are uncomfortable with their current situation, the board should look into other arrangements.

Thank you to ADAMS|STIRLING partner
Nathan McGuire for answering this question.

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Kudos #1. Love your newsletter—always extremely informative. And your sense of humor somehow makes all the legal stuff more palatable! -Maggie L.

Kudos #2. Thanks for one more great newsletter. -Finn M.

Kudos #3. Once again a great newsletter with clear advice and counsel. Thank you for taking the time to produce and disseminate this information. You provide excellent information. -Donna G.

Kudos #4. I thank you for all the valuable information from your newsletters. I forward it to our HOA members. -Nancy B.

Kudos #5. Thanks again for this wonderful newsletter. It's one of the few things I try to read every week. Brilliant caution about paying a member to be an inspector of elections. -Henry C.

Kudos #6. Thank you for your continued updates & providing HOAs insight on a multitude of areas associations are required to address; much appreciated! -Suzie W.

Kudos #7. Thank you for the newsletter -Henry S.

 
*****
Aggressive Dogs #1. Your response on liability for dog attacks is very timely. I have an issue with a neighbor who walks his dog (a large German Shepherd) twice every day throughout our community, off leash. He has been warned by the HOA with no results. He has been warned twice by Animal Control, with no result. Unless Animal Control catches the dog, the owner is not fined. What other penalties can be assessed to enforce the HOA and city/county rules. -Sheila C.

RESPONSE: In addition to fines by Animal Control, the association can hold hearings and assess its own fines. A letter from your association's law firm will add more weight to your demand for compliance. If all else fails, the association can sue the owner.

Aggressive Dog #2. I would suggest that, in addition to rules, hearings, fines for dog owners, dog owners (any breed) must be required to carry insurance naming the association as additional insured. -Stephany Y.

 
*****
Nightmare Bill #1. I have the answer about why an exemption of 6,000 or more units can conduct elections by acclamation. The Leisure World community (now called Laguna Woods) in South Orange County has a stock co-op with 6,323 units and they supported the bill touting that it would save money on their elections. -Kirk W.

RESPONSE: Election by acclamation clearly saves money. It's unfortunate that associations under 6,000 units have been denied this cost-saving measure.


Nightmare Bill #2. Does anybody know how many homeowner associations in California have more than 6,000 units and would qualify for this special treatment? -John W.

RESPONSE: I checked with Levy, Erlanger & Company LLP, a CPA firm in San Francisco that specializes in common interest developments and maintains a database of associations in California. Of the ~55,000 associations in the state, their database tracks 49,000 associations and publishes an annual report on the size, age, annual revenues and development types (condos, planned developments, tenancies in common (TIC), and stock cooperatives) in each county. Their database shows there are 55 associations with 6,000 units or larger. For more information, see "2019 California Community Association Statistics."

Nightmare Bill #3. So if an HOA with less than 6,000 units approves directors by acclamation (where the number of candidates does not exceed the number of vacancies), what is the harm? -Glen G.

RESPONSE: There is no harm. However,
because Marjorie Murray's CCHAL opposes this cost-saving measure, a disgruntled owner can sue and invalidate your election and have a fine levied against the association. CCHAL must think the world will come to an end if homeowners were to save a little money.

Nightmare Bill #4. I can hardly imagine a community with 6,000 units. Does this exception mean that if a community has 5,999 units, it wouldn’t qualify for election by acclamation? -Louise H.

RESPONSE: Yes, that's what it means. It makes no sense.
When the number of candidates is equal to or less than the number of open board seats, an association with 6,000 units can hold an election by acclamation but one with 5,999 units cannot. Since only 5,000 associations in the state qualify, the other 50,000 associations have to spend money to conduct meaningless elections. You might let Marjorie Murray know that you disagree with her opposition to elections by acclamation: [email protected].

Nightmare Bill #5. Our bylaws provide for 3-year terms and then one year off before you can run again. Under the new bill is the year off permitted? -Finn M.

RESPONSE: Unfortunately, no. Marjorie Murray's bill knocked out all candidate restrictions except the ones she deemed worthy. SB 323 does not allow associations to keep a qualified candidate from running for the board. It runs afoul of the bill. Therefore, term limits are voided. I know it's silly but that's what Ms. Murray's organization gave us.


Nightmare Bill #6. I live in a 55+ community. Our bylaws allow only owners living here to be on the board. Does 323 allow under-55 year-old, nonresident owner-investors to be on the board? -Brian H.

RESPONSE: Unfortunately, yes. Residency in a 55+ community and age are not on CCHAL's list of approved qualifications.


Nightmare Bill #7. Under the new law, can we still have write-in candidates and floor nominations?

RESPONSE: This is yet another problem with Marjorie Murray's bill. SB 323 has an internal conflict. It allows write-ins and floor nominations but it also requires that a list of candidates be published at least 30 days before ballots are distributed to the membership. You can't do one without violating the other. To eliminate the problem, we are eliminating write-ins and floor nominations from bylaws and election rules.

COMMENT:
I'm sure Marjorie Murray and her Center for California Homeowner Association Law are proud of what they've done to the 9 million homeowners living in community associations: no term limits, elections cycles lasting 1/3 of the year, confusing deadlines, unresolved conflicts with director recall timelines, loss of homeowner rights to establish qualifications for their directors, loss of email address privacy, increased cost of elections, greater exposure to litigation, forced rewrites of election rules, a topsy-turvy document hierarchy, 55+ community restrictions upended, and elections by acclamation limited to associations with 6,000 units or more. You can send Ms. Murray an email expressing your gratitude: [email protected].

Election Rules. Election RulesAll associations must adopt new election rules. Any election conducted without new rules will be subject to legal challenge and may result in monetary penalties and an award of attorney fees. To avoid this, contact us for new election rules.

 
*****
ADUs #1. I appreciated your discussion of the new ADU law. Your remarks about mobilehome parks might be a bit off. Most are built under Title 25 of the California Code of Regulations and are regulated by the Housing and Community Development Department. I haven't read that AB 68 overrules state housing regulations. -Henry C.

RESPONSE: I hope you're right. It would provide needed relief to planned development mobilehome parks.

ADUs #2. In our planned development, the CC&Rs define "Lot" as not being owned in common with other owners of lots in the development and not common area. Of our 134 residences, only five have garages on their lots. The remaining garages/carports are located in the common area. Since these are not a part of a residence, are they exempt from the ADU law? -Suzie W.

RESPONSE: If garages and carports are part of the common area, they are not eligible for conversion to ADUs. (At least for the moment--who knows what will happen when the legislature reconvenes.)

 
*****
Elevated Structures. I manage an association that is underfunded in their reserves. They are only 20% funded and in desperate need of repairing their balconies. We had seven balconies inspected a few months ago and the structures underneath are in bad shape.

We want to raise the dues $40 per unit for 2020 because in 2014 they lowered the dues from $330 per month to $250 per month. In addition, we need a special assessment to repair the balconies ($5,000 spread over one year). I just received a petition signed by 27 owners saying they do not want to raise the dues and will not approve a special assessment.

Besides giving notice to terminate my contract, I can’t work with people like that. -Sharon H.

RESPONSE: Terminating your management contract is a smart move. When the balconies eventually collapse, lawsuits will fly. In addition, large special assessments will be levied--much larger than the one you proposed. If you were still managing the association, you would get caught up in the litigation even though you warned them. If the association somehow manages to avoid any collapses, the law will catch up with them in five years.

Beginning January 1, 2025, condominium associations will be required to conduct inspections of waterproofing systems (flashings, membranes, coatings, and sealants that protect the load-bearing components of exterior elevated structures) and load-bearing components six feet above ground, supported substantially by wood (such as balconies). All structures must then be reinspected every nine years. (
Senate Bill 326.)

Inspector's Report. The inspector must submit a report to the board providing the physical condition and remaining useful life of the load-bearing components and associated waterproofing systems, which must be incorporated into the association's reserve study.

Local Agency Notified. If the inspector finds that the exterior elevated element poses an immediate threat to the safety of the occupants, the inspector must notify the local code enforcement agency within 15 days of completion of the report.

Immediate Action. Upon receiving the report, the association must take preventive measures immediately, including preventing occupant access to the exterior elevated element until repairs have been inspected and approved by the local enforcement agency.

RECOMMENDATION: Homeowners should rally behind the special assessment and needed repairs. If they don't and they try to sell their units, they must disclose the known condition of their balconies and the likelihood of a large special assessment to address the problem.

If the membership rejects a special assessment, the board should impose a 20% dues increase this year, next year and the following year to raise funds to make repairs and rebuild reserves. If the membership votes them out of office, directors voting for the increased assessments will be insulated from future liability since they took steps to raise funds to fulfill their fiduciary duties.

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

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

I join Adrian in inviting you to contact us for your association's legal needs.

Hon. Lawrence W. Stirling, Senior Partner ADAMS|STIRLING
Author of the Davis-Stirling Act


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