Community Associations Institute (CAI) has weighed in on the side of a Vail, Colorado condominium owner who won a costly and contentious, seven-year court battle with his association over who was responsible for resolving a water-intrusion issue. The court determined that the association should pay $550,000 in attorneys’ fees and related costs in light of what the trial judge called the association’s “stubborn refusal” to address the problem. What was that board thinking? To read the entire article click here.
CALIFORNIA SHAKEOUT – WHERE IS YOUR FAULT?
July’s 5.4-magnitude Chino Hills Earthquake was a jolting reminder that we all need to prepare for the “big one”. It is no secret that California is riddled with earthquake faults. Click here for a map which shows seven of the faults with the probability of a magnitude 6.7 earthquake. Scientists have been reporting to us for some time now that we are due for a significant (big) earthquake. The southernmost section of the San Andreas Fault, which is just east of downtown Los Angeles, undergoes a major shift every hundred and fifty years or so. The last serious earthquake was about 100 years before Los Angeles was founded. So, Los Angeles is approximately 178 years overdue for the “big one”.
There is no doubt that when a serious earthquake strikes, and it is only a matter of time, millions of California citizens will be left without tap water, freeways and bridges will crumble and fall and hundreds of fires will likely break out. The 1994 Northridge earthquake registered a magnitude of 6.7, killed 57 people and caused over 20 billion dollars in damage.
To get our attention, geologists and others have developed the Great Southern California Shakeout, which is taking place this week.
EARTHQUAKE INSURANCE; ARE YOU COVERED?
As part of an association’s preparation for an earthquake, inevitably there is the “issue” of earthquake insurance. In 1994, at the time of the Northridge quake, less than half of all associations had earthquake insurance. I do not believe the statistics have changed much since 1994.
Earthquake insurance is not required or mandated by any associations’ governing documents or California Law. After the 1994 earthquake, it was not available and/or was too expensive. Many associations say they are relying on their homeowners to obtain their own earthquake insurance. However, homeowners cannot buy insurance to cover the damage to the common area. While they can obtain earthquake loss assessment coverage and other earthquake coverage that will cover their personal property, the reality is that community associations need to seriously consider whether earthquake insurance makes sense for their association.
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No, You Cannot Fine Owners For Not Voting; But How About A Gift If They Do?!
I, along with over 70% of other California citizens, have or will vote today (11/4/08). And then, not wanting to pass up a good deal, I went to my local Starbucks for my free cup of joe. That’s right, Starbucks offered a free cup of coffee to anyone that came in with proof that they voted. Then I saw an article on the Internet indicating that the prize offer was a violation of federal election laws and I had a brainstorm. While it may be a violation of federal law to give someone a gift or prize for voting, it is not a violation of law for a community association to offer free food or some other incentive to get owners to vote. However, unless written into your governing documents (and even then I question whether it’s enforceable), community associations cannot fine or penalize a homeowner for not turning in their ballot or voting. Why? Because most CC&Rs provide associations with the power to make rules regarding use of a common area and there is nothing in California law or in any governing documents I’ve seen which would give a Board of Directors the power or authority to penalize a homeowner for not voting. If you are having difficulty getting owners to vote and cannot make a quorum, offer free food or maybe even a certificate for a free cup of copy at a local coffee house (and make sure it is in the budget).
DON’T FORGET TO VOTE ON NOVEMBER 4TH
As a reminder, Tuesday, November 4th is Election Day, and it is important that you exercise your right and duty as a citizen to vote. We are not voting on just who will be our next President, but there are a number of other initiatives on the ballot that are worthy of your consideration.
The polls will be open from 7 a.m. to 8 p.m. Despite the unprecedented number of voters who cast their ballots early, experts are forecasting long lines.
Employees are entitled to take off two hours (under California law) to vote, without losing any pay if they are working during that time period and will not have sufficient time outside of working hours to vote. Employees may take off as much time as they need to vote, but only two hours of that time will be paid. An employee can take time off for voting only at the beginning or end of their regular work shift, unless they make other arrangements with their employer. If an employee believes that they will need time off to vote, they must have notified their employer at least two working days prior to the election (California Elections Code Section 14000).
Political Signs and Community Associations in California
Early voting is underway and, as expected, we have received calls complaining about political signs. You may be getting questions or comments about sign regulation in your communities, so we thought it would be a good idea to let you know what goes, and what does not, in community associations with regard to political signs. Some people assume that there is no way that community associations can regulate political signs because prohibiting signs would violate a resident’s right of free speech under the First Amendment to the Constitution. While there is some validity to this assumption, it is not entirely correct in the community association context.
It is common to have sign regulation in community associations, particularly with respect to “For Sale” signs. Civil Code sections 712 and 713 make any blanket prohibitions void. While owners can have these signs on their property, they are not entitled, for example, to post these signs on the common area.
The question, then, is whether there is a distinction between “For Sale” signs and political signs, considering the fact that political signs seem to have more to do with free speech than “For Sale” signs. When analyzing government regulation of speech, the courts often distinguish between “commercial speech” and other types of speech, and find that commercial speech is not entitled to the same level of protection as other types of speech. But does that matter in a community association?
We Hate to Say We Told You So But Associations Need to Budget for Bad Debt
For the last two years, we have been recommending that California community associations add a bad debt allowance in their budgets. Since about 2000, rising home prices and the level of equity in those homes meant that few homeowners were willing to lose their homes through foreclosure for non-payment of their assessments. As a result, community associations were, for the most part, able to collect delinquent assessments and the fees and costs incurred in collecting same, and as a result, they did not see a disruption in the flow of income. Over the last year, we have seen a significant change in the economy. Many homeowners who could not really afford to buy their homes were able to purchase them with little or no money down and finance them with either subprime or Alt-A loans. They are now losing their condominiums, townhomes, and single family homes in planned developments in record numbers, as they cannot afford the increased costs of their loan and their association’s levied assessments. As a consequence, many community associations are not receiving the income that they expected when they distributed their budget for 2008. This shortfall has resulted in many associations not funding reserves. We are advised that some are not making all of the appropriate repairs and are deferring renovation and maintenance of the common area. This is NOT a good idea and could subject an association to liability if, for example, that failure to maintain or repair caused damage or injury.
The point is that if you have not yet distributed your 2009 budget, the board and management need to seriously consider adding what most businesses call a “bad debt allowance” in their budgets to compensate for the income that the association may likely not receive.
Having been in the community association business as attorneys for more than twenty (20) years, this is not the first time that we have seen an increase in homeowner defaults. We saw it in the eighties and again in the nineties, when homeowners were “upside down” on their mortgages. Now they call it “negative equity,” and already one million homes have been foreclosed on nationwide, with another one and a half million other homeowners potentially losing their homes in 2009.
Associations Must Act Timely and Decisively to Enforce Covenants
Associations Must Act Timely and Decisively to Enforce Covenants
This summary of a recent Court of Appeals decision was published in the October 2008 edition of the Community Association Law Reporter published by Community Associations institute. What do you think of the Court’s decision?
Pacific Hills Homeowners Association v. Prun, No. G038244, Cal. App. Ct., March 20, 2008
Covenants Enforcement: If an association does not act timely and decisively in enforcing covenants, then the association may face penalties if the dispute goes to court.
Jon and Linda Prun live in a planned community in Mission Viejo, Calif. Their property is subject to a declaration of covenants, conditions, and restrictions, which is enforced by the Pacific Hills Homeowners Association (“association”). The declaration requires that prior written approval from the association’s architectural committee is needed before construction of any improvement, including a fence or wall, can commence. The association also adopted architectural guidelines that limit fences to six feet in height unless the fence is within 20 feet of the front property line, in which case the maximum height is three feet.
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Civil Code Section 1363.03 – New Election Law FAQs
As you hopefully know by now, as of July 1, 2006, the way all California community associations conduct elections and membership votes was changed. Among the major changes is the requirement that all elections and certain other membership votes be held by secret ballot pursuant to operating rules. This includes votes for the selection and removal of members of the board, amendments to the governing documents, votes regarding assessments, and the grant of exclusive use common area. In addition, the role of the inspectors of election has grown significantly, and the use of proxies, while still permitted, may not be as prevalent as in the past. This new law affects all community associations, irrespective of their size. Failure to comply with the new law could subject an association to a challenge in small claims court. Because this new law is so complex, we are receiving a lot of questions. In response, we present the following frequently asked questions:
1. Our Association has always had secret ballots; can’t we just keep on holding our annual elections as we have been doing for years?
The simple answer is no. The new election law was adopted because Senator Battin from the Coachella Valley somehow came to believe that fraud was rampant within association elections. This was news to us. If an association does not comply with the new law, which includes, among other things, the adoption of election rules and procedures, which specify procedures for voting by secret ballot, designating and detailing the responsibilities of the inspector(s) of election, the voting results can be challenged and a fine imposed on the association. We do not believe that the new election law is required as we certainly do not see rampant fraud at associations, but it is the law and if you do not fully comply, there are potential serious consequences.