Homeowner Legislation Poised to Hurt More Than Help-CAI/CLAC’s Press Release on AB 2598 The seven million Californians who live in homeowners associations will have to pay higher monthly dues, thanks to legislation passed in the last hours of the legislative session. Assembly Bill 2598 (Steinberg) again takes up the use of foreclosure to compel payment of delinquent assessments – a practice used in less than 0.007 of collections processes. Just last year California implemented a law (Kehoe, AB 2289) that provides comprehensive protections specific to dues collections, including extensive notification, payment plans and wait periods. These protections rank as the strongest nationwide. That’s why members of homeowners associations oppose AB 2598. Senior Sam Dolnick of La Mesa, CA, said the legislation will do more harm than good. “Many seniors in our association live on fixed incomes and they cannot afford to pay more. When placed in a squeeze, they will have to pay higher assessments to make up for those who may purposely not pay their assessments until they reach the $2,500 threshold.” Homeowner association resident and president of the Wildwood Association in Sacramento Lisa Lindsey said, “Assessments are the lifeline of homeowners associations. For smaller communities like mine, we would be crippled if 20 of our 137 residents were late on assessment dues. Our insurance alone costs more than $85,000.” Homeowners aren’t the only ones hurt by AB 2598. The legislation brings business disincentives for builders and lenders, who are central to responding to the state’s population growth. • Developers will not sell units if new buyers can willingly avoid paying the dues needed to maintain the property. • Banks and lenders will stop loaning money to developers and homeowner associations because their loan security is impaired. “We have thousands of community associations in California as clients. This law will have a negative impact on the ability of associations to secure financing for needed renovations and repairs,” said John Smith, Senior Vice President, U.S. Bank Homeowner Division. For More Information: www.responsibleneighbors.com
What’s Wrong With Assembly Bill AB 2598?—EVERYTHING.
We have been asked for more information on why Steinberg’s AB2598 is bad law. AB 2598 is one of two pieces of legislation proposed following the foreclosure earlier this year on a senior citizen couple in Calaveras County. Proponents of this legislation, which would make it more difficult for associations to collect assessments, suggest that what happened in Calaveras County is only an example of a rampant problem. They have not referenced any other similar problems; assessment foreclosure abuses are not rampant; there is no problem with the current system other than the fact that it compels homeowners who are delinquent to pay their assessments.
This legislation is a poor response and overreaction to a situation which is not a rampant problem. We say overreaction because of the following:
1. Currently, if a homeowner is delinquent in the payment of assessments, the association has the ability to record a lien securing that obligation. Of course, the association must follow the proper procedures, send out the appropriate notices, and wait the appropriate time. However, if that lien is not recorded, the homeowner can transfer title to the unit without paying their assessment obligation. It is the lien with the possibility of foreclosure that compels homeowners to timely pay their assessments.
LEGISLATURE PASSES ONE FORECLOSURE BILL
They did it. The legislature passed one of the two foreclosure bills we warned you about previously. Senator Denise Ducheney’s (Democrat – San Diego) SB1682 did not move forward but Assemblyman Darrell Steinberg’s (Democrat – Sacramento) AB2598 passed the Senate although we are told that there was some confusion during the voting on this bill.
We are advised that an hour later Steinberg’s AB 2598 was passed on a split vote in the Assembly after a “robust debate” which addressed the negative impact this litigation would have on responsible homeowners who do timely pay their assessments. We are advised that 27 out of 80 assembly members voted “no” or abstained from voting on the first round, further indicating that there was (and remains) serious concerns with the bill.
AB2598 has gone to Governor Schwartznegger for his action. Governor Schwartznegger until the end of September decide whether to sign the bill into law or veto it. AB 2598 is bad law and we want it vetoed. The Governor needs to hear from all of us as soon as possible.
Sample Annual Meeting Forms
Wondering where you can find sample annual meeting and secret ballot forms? Look no further. Click on the links below to find some handy reference.
These forms are provided as reference only and do not constitute legal advice. Swedelson and Gottlieb makes no representations as to whether these forms are suitable for any purpose. Consult an attorney before using any of these forms.
Lake Forest Woman Injured Owes Her Association Court Costs
A Lake Forest condominium owner was injured when her neighbors’ 15-year-old son bumped the family car into a block wall that divided one unit from another. As reported in the Orange County Register, the injured owner had a friend who is an attorney with a well-known Orange County law firm. Certain that the condominium association was responsible for the owner’s injuries, they filed a lawsuit. They claimed that the wall was defective; the association claimed that the wall had been built to code. Perhaps more importantly, the wall did not fall on the owner because of the association’s failure to maintain or repair the wall; and but for the neighboring kid bumping the family car into the wall, it would not have collapsed (and as we attorneys like to say, the condominium association was not the “proximate cause” of the owner’s injuries).
The jury deliberated for only a few hours and found in favor of the condominium association (the neighbors whose son caused the wall to collapse settled just prior to trial).
Now the injured condominium owner will be ordered to pay the associations or costs of $30,000 or more. Perhaps her attorneys should have consulted with a condominium association expert before filing this lawsuit!
Clothing Optional Condo Association?
The Tampa Tribune newspaper reports (the headline reads: Condo Company Unwraps Plan For Clothing Optional Pool) that with home prices plummeting and sales stagnant, a Florida developer has come up with an interesting concept for condominiums; clothing optional! The condominium conversion has two pools. The developer, who currently owns more than a majority of the units, is seeking to amend the governing documents so that they allow for one pool to be clothing optional for residents 18 years of age or older. There may be some fair housing issues here. We will have to keep an eye on this one (no pun intended).
Want more info; check out this video.
Who Pays The Bills When Some Owners Don’t Pay Their Assessments?
The Wall Street Journal recently reported on the effect the sub-prime crisis is having on many community associations. While the crisis is not a problem in some areas of the country, in California it is a affecting many associations budgets, as many boards did not anticipate or address the potential for bad debt when they adopted their budgets. In an article entitled “
New Law Requiring Secret Ballots, Election Rules and Regulations Goes Into Effect July 1, 2006—Are You Ready?
On July 1st, 2006, the way community associations have traditionally conducted annual meetings and/or taken votes will be history. This new law, set out in new Civil Code Section 1363.03, will affect how all homeowners associations in California will conduct most of their voting and elections, including the election of directors, a vote by the membership for assessment increases, amendments to the governing documents, and grant of exclusive use common area (subject to the limitations of Civil Code Section 1363.07). This new law was premised on what we believe is the mistaken opinion that association elections and balloting are “fraught with fraud.” The big change is that all voting will be by secret ballot. There is cleanup legislation that has been proposed, which expands the secret ballot process to all association votes. Failure to comply with these new rules could, by court order, set aside the results of an election or vote taken by an association and/or could subject an association to a penalty of five hundred dollars ($500.00) for each violation.
The newly required Election Rules and Regulations (Rules) are considered “operating” rules under the Civil Code, which will require that they first be sent out to the owners for comment. The Rules should set forth the process by which membership meetings are to be conducted, how voting is to occur and who is in charge. No longer may the association’s managing agent (unless your Rules provide otherwise) be in charge of the registration process nor may they assist the inspector(s) of election (“inspector(s)”) with the vote tally. While the number of inspector(s) has not changed (either one (1) or three (3)), the new law requires associations to specify how they are going to select the inspector(s), requires the inspector(s) to be independent third parties which include, but are not limited to, volunteer poll workers with the county registrar of voters, a licensed CPA, or a notary public. Although inspector(s) may be a member of the association, that member cannot be related to a board member, nor a candidate for election to the board of directors, a member related to the candidate, or be a person that is currently employed by or under contract to the association unless expressly authorized by the Rules. The inspector(s) must be selected prior to the vote or election as the inspector(s)’ role and responsibilities have been expanded.
If an association’s governing documents require an annual meeting to elect the board of directors (“board”), you will still be required to follow the Civil Code-mandated process. Cumulative voting and quorum requirements set forth in the governing documents remain controlling. The association or its managing agent will be obligated to provide information to the inspector(s) so that the inspector(s) can determine which members are in good standing and have a right to vote, notify members that they have a right to run for the board, the right to submit a candidacy statement, the right to utilize the association’s media in the same manner that any other candidate is utilizing an association’s media, which includes (by way of example) the association’s website or newsletter, if applicable. The board must be consistent with the procedures as they are to be applied to all members. Further, associations must provide access for all members to the association’s common area meeting space (or spaces) so that the member/candidate can have a forum to discuss their candidacy or anything reasonably related to the election.
Owner of Record – What Does That Mean?
It comes up all the time. A resident wants to attend and participate at a board meeting or wants to serve on the board of directors. That resident may be a tenant or the significant other of an actual owner of that property, or perhaps the beneficiary of a trust or shareholder of a corporation that owns the property. Often, governing documents state that only an “owner of record” can serve on the board, and the Open Meeting Act states that “any member of the association may attend a meeting of the board of directors of the association.” Electing a non-owner to the board of directors, when the governing documents require ownership as a qualification, could jeopardize the legality of the board’s decisions, and perhaps even insurance coverage.
Black’s Law Dictionary defines an “owner” of real property as a person who is vested with title to property and has a right to enjoy that property and do with it as he or she pleases. The “Record Owner” is usually defined in the CC&Rs as the “owner of the Title” at the time of notice. But does this mean that the association is required to go out and check Title? Not necessarily. Typically, the owner of record at a community association is the owner on the association’s records based on the information that was provided, perhaps through escrow, when the unit was sold. Some management company agreements obligate the manager to a higher level of record keeping by requiring that the manager keep not only a list of the homeowners, but rather a “current list.” This rather innocuous phrase could actually place an ongoing obligation on the manager to verify correct ownership. If that’s your intention, great; if not, contracts should be rephrased. The association is entitled to rely on its records, unless it is provided proof by way of a recorded deed, that ownership (in whole or in part) has been transferred to someone new. A resident may present the association with a copy of a quit claim deed, showing that he or she may own all or a portion of the property, but that deed may not have been recorded. Then that person would not necessarily be the “owner of record,” at least not recognized by the County Recorder’s Office as the owner, and thus should not be considered by the association to be an owner.
Record Owner
To Foreclose or Not to Foreclose; That Seems To Be The Question
To foreclose or not foreclose, that seems to be the question that many association board members and managers are asking themselves these days. There is no question that the sub-prime meltdown/crisis has increased the number of delinquent homeowners. Data Quick Information Services reports that in the first three months of 2008, 47,171 homes were lost to foreclosure, more than four times as many as a year earlier. In that same period, 110,000 California homeowners received default notices which is a 143% increase from the same period in 2007. Data Quick estimates that only 32% of the properties in default will avoid foreclosure, which is down from 52% a year ago. It is therefore no surprise that Association Lien Services has seen a steep rise in the number of delinquent matters that are being turned over for collection. With the potential lack of equity and the fact that these delinquent homeowners may not have any assets to collect on, making the decision as to how to proceed to collect and whether or not to foreclose are questions that many associations are having to face. Attorney David Swedelson has written an article that will help board members and managers answer these questions. Download a PDF copy of the article To Foreclose or Not Foreclose.