Our Firm has been inundated with questions and requests for help regarding new lender questionnaires asking open-ended questions about deferred maintenance, unsafe conditions, inspections, special assessments, and reserves.
The lengthy questionnaire is the result of tightening lending standards arising out of the tragic condominium tower collapse in Florida last year.
Both Fannie Mae and Freddie Mac amended their standard questionnaire for loans. Lenders who rely on these government-backed programs, and even those who don’t, are now sending the new questionnaire to condominium boards of directors.
For good reason, boards and managers are reluctant to answer the questions for fear of incurring potential liability. Join a webinar featuring Adrian Adams, Laurie Poole and Nathan McGuire as they discuss whether boards should answer the questions and, if so, how to minimize potential liability.
Webinar: Lender Questionnaires
Date: Wednesday, March 2, 2022
Time: 12:00 noon
RSVP: Click here to register (space is limited)
I received feedback from industry professionals confirming problems faced by associations who have been suspended. In addition to the "theft" of an association's name I described in our last newsletter, a vindictive homeowner in another association notified the association's insurance agent, which resulted in the cancellation of the association's liability policy.
As previously mentioned, associations can be suspended by the Secretary of State for failure to file informational forms every two years, or suspended by the Franchise Tax Board (FTB) for failure to file an income tax return, or suspended by both. See our information on HOA taxes.
If an association has been suspended by the FTB, it is very likely it also failed to file federal income tax returns. That means both sets of missing returns need to be prepared and filed. The FTB wants a minimum of five years of returns. In addition to filing delinquent tax returns, CPAs should file an exemption application so the association can avoid paying the minimum corporate tax of $800 per year. Once an exemption application is submitted, it takes approximately 90 days to hear back from the FTB.
RECOMMENDATION: Boards should check their corporate status. If you discover your association has been suspended, you should notify legal counsel and your association's CPA and begin the process of reinstatement.
No Candidates. We have two directors whose two-year terms expire this year. Nomination letters went out but no one responded. Are these directors automatically reelected even if they didn't submit their names for nomination? –Lee B.
ANSWER: If you cannot find anyone willing to serve, your existing directors remain in office until their replacements are elected or appointed. (Corp. Code §7220(b).) If they are unwilling to continue in office, they have the option of resigning. If that occurs, the remaining directors need to recruit and appoint someone to fill the vacancies.
Balcony Inspections. Our community is classified as a PUD. Many members of the board have asked our management company how the new balcony inspection requirements affect our complex. The management company said it does not apply to us. Is this true? –Luke B.
ANSWER: It's true. Inspections only apply to condominium associations with three or more units where elevated load-bearing structures (balconies, walkways, stairwells, etc.) are supported substantially by wood. (Civ. Code §5551(l).) A small note on terminology — PUD (Planned Unit Development) is commonly used in the industry but is not used by the Davis-Stirling Act. The correct term is "PD" (Planned Development). I don't know how or why PUD crept into common usage but it's fairly harmless. The other common error is putting an apostrophe in CC&Rs. I see it in a lot of court cases. CC&Rs is neither possessive nor a contraction, so the apostrophe should not be used. See Proper Terminology for a list of common errors.
Restating CC&Rs. I subscribe to your newsletter and find it helpful, informative and even inspiring. Thank you for the great work you do. Is it absolutely necessary that an HOA board revise and amend their CC&Rs? Ours are dated 1986. -Alyson
ANSWER: The Legislature has a bad habit of tinkering with the governing documents of community associations. Some legislation invalidates particular restrictions while others mandate changes to CC&Rs, i.e., amendments. Following are examples related to solar panels (Civ. Code §4746), EV charging stations (§4745), clothes lines (§4753), gardens (§4750), displaying the US Flag (§4705), displaying religious symbols on doors (§4706), satellite dishes (§4725), and ADUs (§4751). The most recent example which required amending CC&Rs involved rent restrictions, which went into effect January 1, 2021. See Mandatory Rent Amendments.
The above examples do not require complete restatements of CC&Rs. Our firm represents associations established as far back as 1925 that still operate under their original CC&Rs. A restatement is a replacement of existing CC&Rs with a completely new set. Most associations restate their documents to have a clean set devoid of developer language, written in plain English instead of legalese, and incorporating changes in the law. Our firm restates CC&Rs and Bylaws as a package for that very reason. If boards are interested in amending or restating their documents, contact us for more information.
Breach of Confidentiality. Thank you for the excellent newsletters. I have a question about the "Disclosing Suspended Corporation" article in the February 5 issue. Since the suspension information was available on a public website how could the board member breach confidentiality by discussing the situation with his wife? Our board is struggling with the confidentiality issue so this would be useful insight. –David G.
ANSWER: The board member breached confidentiality when he shared my advice about the consequences of the suspension and the need to quickly resolve it. But for that breach, his wife would not have known to go online and snatch the association's name. His breach of confidentiality cost the association thousands of dollars in legal fees and created chaos in the community. For more information, see Director Duty of Confidentiality.
Balcony Railings. While the rail spacing issue may not necessarily be required to be fixed by building code, an association's insurance carrier will likely call them out during a loss control inspection. If they are not addressed, either by fixing the spacing issue or adding other protection to prevent children/animals/objects from falling through, you could end up facing a non‑renewal. Love your newsletter! -Terri Guest (Berg Insurance)
RESPONSE: An excellent point. Thank you, Terri, for sharing it.
Thank You. Thank you for your continuing and needed contact with all board members and others. You are a valuable entity to so many…. Happy New Year to all on your fine staff. -Sheldon S.
Missed You. I missed some postings. Glad to have you back. –Astrid L.
|DISCLAIMER. Our newsletter provides commentary, not legal advice. Boards need to retain an attorney to review all the facts and give a legal opinion on the issues they face. We serve as corporate counsel to California associations only. Request a proposal to represent your association.
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